Is There A Payoff From Top-Team Diversity?

Between 2008 and 2010, companies with more diverse top teams were also top financial performers.

By Thomas Barta, Markus Kleiner, and Tilo Neumann, McKinsey Quarterly

There are many reasons companies with more diverse executive teams should outperform their peers: fielding a team of top executives with varied cultural backgrounds and life experiences can broaden a company’s strategic perspective, for example. And relentless competition for the best people should reward organizations that cast their nets beyond traditional talent pools for leadership.

To understand whether reality is consistent with theory, we looked at the executive board composition, returns on equity (ROE), and margins on earnings before interest and taxes (EBIT) of 180 publicly traded companies in France, Germany, the United Kingdom, and the United States over the period from 2008 to 2010. To score a company’s diversity, we focused on two groups that can be measured objectively from company data: women and foreign nationals on senior teams (the latter being a proxy for cultural diversity).

Diversity and Performance

The findings were startlingly consistent: for companies ranking in the top quartile of executive-board diversity, ROEs were 53 per cent higher, on average, than they were for those in the bottom quartile. At the same time, EBIT margins at the most diverse companies were 14 per cent higher, on average, than those of the least diverse companies (exhibit). The results were similar across all but one of the countries we studied; an exception was ROE performance in France; but even there, EBIT was 50 per cent higher for diverse companies.

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