New Research: Companies with diverse leadership yield higher profits

Our new research shows that companies with diverse leadership perform better financially.

For a good reason, human diversity has received greater focus among businesses in recent years. In a 2011 study conducted by ISS, PwC and Innoversity, we documented that non-management teams consisting of employees with diverse demographic backgrounds generated higher profits than non-diverse teams. But what about diversity among management?

Together with PwC and proacteur we decided to find out by examining data from a large number of Danish companies. The study’s segments are shown in the illustration below:

diverse leadership study profile

During our study, we measured and ranked all large and medium-sized businesses in Denmark according to the degree of diversity among their management based on our four diversity parameters: gender, ethnicity, age-range and seniority.

Companies with the most diverse leadership earn 12.6 percentage points more

Comparing the ten companies that have the most diverse leadership with those that have the least diverse leadership, the conclusion was clear; diverse leadership yields significantly bigger profits.

Companies with diverse leadership

This means that if two companies generate a turnover of 1 billion, and Company A has high-diversity leadership and Company B has very low-diversity leadership, then A stands to earn 126 million more than B.

Industrial benchmark

As a consequence of the fact that individual sectors generate different operating margins, and some sectors are better at diversity, it is reliable to look at whether companies that excel at diverse leadership outperform the average in their sector or industry. Our study shows that companies with the most diverse leadership average an operating margin that is 5.7 percentage points higher than their competitors’. On the other hand, the ten companies with the lowest degree of diversity in leadership earn an average of 5 percentage points less than their competitors.

Comparing the 25 companies that have the most and the least diverse leadership within a sector, we find that a benefit is once again apparent. Although it is with a smaller effect.

Companies with diverse leadership yield higher profits

The 25 companies with the most diverse management have a 3.5 percentage points higher operating margin.

In conclusion, companies with the most diverse leadership earn significantly more money than those with the least diverse leadership measured in respect of four diversity criteria: gender, ethnicity, age and seniority. As a result, a huge commercial potential remains untapped for managements that do not yet consider diversity as an important strategic asset for their growth and competitiveness.

Would you like to know more about how diversity management leaves a positive impact on profits? Please download our new White Paper: A Diverse Leadership yields higher earnings.

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