There are compelling moral reasons for fighting discrimination and nurturing diversity in workplaces, including justice and equality.

But there are also compelling economic reasons.

Studies conducted by a range of academics, consultants, and nonprofits demonstrate how companies that nurture diversity improve financial performance.

In his 2009 study, Does Diversity Pay?: Race, Gender, and the Business Case for Diversity, sociologist Cedric Herring found that for-profit corporations with higher levels of racial and gender diversity had increased sales revenue, more customers, greater market share, and greater relative profits than their competitors with lower levels of racial and gender diversity. For example, companies with the highest levels of racial diversity achieved an average of 15 times more sales than their competitors with the lowest levels of racial diversity. Companies with the highest levels of gender diversity achieved an average of 14 times more sales than their competitors with the lowest levels of gender diversity.

In its 2015 Diversity Matters report, Management Consultant Firm McKinsey & Company found that companies in the top quartile for ethnic diversity were 35% more likely to outperform their competitor firms in the bottom quartile for ethnic diversity. Meanwhile, companies in the top quartile for gender diversity were 15% more likely to outperform their peers in the bottom quartile of gender diversity. The report further found that while some industries perform better on gender or racial diversity, no industry or company reached the top quartile along both dimensions.

Finally, while general diversity in a company is helpful, diversity at the top especially matters. Studies undertaken by Credit Suisse and Catalyst have shown how companies benefit from having higher percentages of women on their boards and in senior leadership positions. Catalyst’s research found that companies with the highest representation of women in senior leadership had 35 percent higher return on equity and 34 percent higher total return to shareholders than companies with the lowest representation of women in senior leadership. Researchers have spent less time considering the impacts of racially diverse top management on performance, but McKinsey found that “in the United States . . . for every 10 percent increase in racial and ethnic diversity on [a company’s] senior-executive team, earnings before interest and taxes (EBIT) rise by 0.8 percent.”

Why do companies with more gender and ethnic diversity improve their financial performance? Factors include their:

• Enhanced ability to recruit and retain top talent
• Enhanced ability to serve diverse consumers
• Enhanced reputation
• Enhanced innovation and creativity

Stay tuned for more in depth coverage of these factors in future E-Musings posts!

All the best,