Companies with Diverse Executive Teams Are More Profitable: McKinsey

The ideal workplace, according to McKinsey. Pixabay

Women and minorities often face discrimination in boardrooms ruled by white men. But a new study shows that corporate diversity isn’t just a moral policy, it’s an economically rewarding one.

A new report from global management consulting firm McKinsey examined 1,000 companies in 12 countries, analyzing both financial data and the gender and ethnic makeup of their workforces. Researchers found that firms with diverse executive teams posted bigger profit margins in their respective sectors than companies lacking diversity.

Ethnic diversity was more important than gender diversity, according to the study. Companies that ranked in the top 25 percent in terms of the ethnic mix of their executive boards were 33 percent more likely to be profitable than firms in the bottom 25 percent for diversity.

Women-led companies still had an advantage, however.

Female-fronted management teams were 21 percent more likely to make or exceed their profitability goals compared to firms lacking women in decision-making roles.

“While social justice typically is the initial impetus behind these efforts, companies have increasingly begun to regard inclusion and diversity as a source of competitive advantage, and specifically as a key enabler of growth,” the report read.

On the international stage, Australia led the way for gender diversity with 21 percent of executive roles filled by females. The United States was next with 19 percent, followed by the United Kingdom with 15 percent.

The same three countries are at the forefront in terms of female representation on company boards: 30 percent of Australian companies meet this metric, followed by 26 percent of U.S. firms and 22 percent of U.K. firms.

South Africa was the world leader in ethnic diversity, with 16 percent of executive positions held by blacks. This is even less impressive than it sounds, however, because South Africa’s population is 79 percent black. One of the aftereffects of apartheid has been that whites, while a minority in the country, hold 69 percent of executive positions.

Singapore, the U.S. and the U.K. all follow South Africa with 11 to 12 percent minority representation on boards.

This isn’t the first study to prove diversity leads to higher profits.

Last year, equity firm MSCI revealed that U.S. companies with at least three women on their boards in 2011 achieved a higher return on investment and earnings per share over the next five years than firms lacking female board representation.

The new research also expands on a smaller McKinsey study from 2015, which examined 366 companies and found similar results.

Companies with Diverse Executive Teams Are More Profitable: McKinsey