Businesses perform better when they have greater ethnic and gender diversity, study reveals

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A business is likely to perform better financially if its workforce is more diverse, research from one of the world’s most prestigious consultancies has revealed.

McKinsey & Co examined over 1,000 companies across 12 countries and found that firms in the top quartile for gender diversity are 21 per cent more likely to enjoy above-average profitability than companies in the bottom quartile.

Companies in the top quartile for ethnic diversity, meanwhile, are 33 per cent more likely to see higher-than-average profits than companies in the lowest quartile.

McKinsey’s research found that diversity has the most obvious impact on financial performance when it is found in executive teams and roles that are directly in charge of generating revenue.

The least diverse companies, in both gender and ethnic terms, are 29 per cent more likely to underperform in terms of profitability, the consultancy said.

McKinsey found that the correlation exists across all geographies. Nonetheless, ethnic minorities are still particularly underrepresented in executive teams globally.

By sector, technology, media and telecommunications companies tend to stand out in terms of achieving ethnic diversity, but are generally in the lowest quartile when it comes to gender diversity.

Possibly as a result of shareholder pressure and intense scrutiny in recent years, the financial services sector – which includes banks, insurance companies and asset management companies – generally outperforms other sectors for gender diversity, the research showed.

McKinsey’s UK managing partner, Vivian Hunt, said that by publishing the findings, the consultancy aims to “build a more nuanced and holistic understanding of the link between diversity and company profitability”.

It thereby aims to “provide some clear, practical guidance on how companies can use diversity to help achieve their key business objectives,” she said.

​Late last year, the UK Government launched the Parker Review into ethnic diversity on boards across UK companies. It set out targets for each FTSE 100 board to have at least one person of colour as a director by 2021, and each FTSE 250 board by 2024.

But McKinsey found that currently, men are still significantly overrepresented in executive roles in Britain, and also have a disproportionate share of executive jobs with revenue-generating responsibilities.

It also found that the correlation between ethnic diversity and financial performance is even more strongly pronounced for UK companies than elsewhere.

In July 2017, a study conducted by the Chartered Management Institute – a professional management body – in collaboration with the British Academy of Management, showed that fewer than one in 10 management jobs in the UK are held by black, Asian, and minority ethnic employees.

It also showed that only 21 per cent of FTSE 100 leaders publish their current diversity levels and only 54 per cent are seen to be actively championing greater diversity in their companies.