Report: Ethnic and Cultural Diversity May Boost Profits

By Eve Tahmincioglu
January 19, 2018

Minorities still make up less than 20% of the occupants in the nation’s boardrooms, and that may be bad news for companies with all-white boards when it comes to the bottom line.

A new study from McKinsey & Company found that companies with the most ethnic and cultural diversity in the boardroom were 43% more likely to experience higher profits.

“Ethnic and cultural diversity’s correlation with outperformance on profitability was statistically significant at Board level,” the report states.

The study also found a positive correlation between ethnic/cultural diversity and value creation at both the executive team and Board levels, though the relationship is not statistically significant. It may be the case that overall, the picture on top-team diversity globally is more complex due to significant geographic differences in the cultural contexts in which the companies we studied operate.

(Related Article: Directors To Watch: Racial and Ethnic Diversity)

Among the top 200 boards in the country, only 9% of directors are African American, 4% are Hispanic/Latino, and 3% are Asia, according to Spencer Stuart’s 2017 U.S. Board Index.

Having more ethnic and cultural diversity “could significantly strengthen organizational effectiveness,” surmised the author’s of the McKinsey report:

Overall, our findings that ethnic and cultural diversity on executive teams continues to correlate strongly with company financial performance support the argument that there is value in promoting ethnic/cultural diversity in company top teams around the world. We hypothesize that, for companies, addressing the challenge of building an inclusive company culture across cultural differences could significantly strengthen organizational effectiveness. Further, ethnic/cultural diversity at the highest levels of company leadership could serve as a signal to employees and other stakeholders that the organization truly understands and values the community and customers that they serve.