Here is an excerpt from an article Written by Vivian Hunt, Lareina Yee, Sara Prince, and Sundiatu Dixon-Fyle for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.
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Diversity and financial performance in 2017
In the original research, using 2014 diversity data, we found that companies in the top quartile for gender diversity on their executive teams were 15 percent more likely to experience above-average profitability than companies in the fourth quartile. In our expanded 2017 data set this number rose to 21 percent and continued to be statistically significant. For ethnic and cultural diversity, the 2014 finding was a 35 percent likelihood of outperformance, comparable to the 2017 finding of a 33 percent likelihood of outperformance on EBIT margin; both were also statistically significant (Exhibit 1).
Several other findings on gender diversity, ethnic diversity, and diversity around the world are also interesting.
Gender diversity
Gender diversity is correlated with both profitability and value creation. In our 2017 data set, we found a positive correlation between gender diversity on executive teams and both our measures of financial performance: top-quartile companies on executive-level gender diversity worldwide had a 21 percent likelihood of outperforming their fourth-quartile industry peers on EBIT margin, and they also had a 27 percent likelihood of outperforming fourth-quartile peers on longer-term value creation, as measured using an economic-profit (EP) margin (Exhibit 2).
For gender, the executive team shows the strongest correlation. We found that having gender diversity on executive teams, specifically, to be consistently positively correlated with higher profitability across geographies in our data set, underpinning the role that executive teams—where the bulk of strategic and operational decisions are made—play in the financial performance of a company.
Executive teams of outperforming companies have more women in line roles versus staff roles. We tested the hypothesis that having more women executives in line roles (typically revenue generating) is more closely correlated with financial outperformance. We know from research, such as our Women in the Workplace 2017 report, that women are underrepresented in line roles. In our data set, this holds true even for top-quartile gender-diverse companies experiencing above-average financial performance. Yet these top-quartile companies also have a greater proportion of women in line roles than do their fourth-quartile peers: 10 percent versus 1 percent of total executives, respectively (Exhibit 3).
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Here is a direct link to the complete article.
Vivian Hunt is a senior partner in McKinsey’s London office, where Sundiatu Dixon-Fyle is a senior expert; Sara Prince is a partner in the Atlanta office; Lareina Yee is a senior partner in the San Francisco office.
The authors wish to thank Treina Fabré and Saif Hameed for their contributions to this report.