Knowledge Center

Why Diversity and Inclusion Matter

The following data and findings are selected from a vast body of research on the benefits of diversity1 and inclusion2 in the workplace, with an emphasis on studies published in the last few years. This list is not exhaustive. For a selection of earlier research on this topic, see: Catalyst, Why Diversity Matters (July 23, 2013).
 

Talent

Diverse Organizations Are More Successful at Retaining Talent3

Companies with higher levels of gender diversity and with HR policies and practices that focus on gender diversity are linked to lower levels of employee turnover.4

An inclusive environment is especially important for employees of color, who are most likely to consider leaving their organizations if they perceive pay as inequitable and an unfavorable diversity climate.5
 

Inclusive Workplaces Maximize Talent and Productivity6

Organizations with strong “diversity climates” (i.e., inclusive work cultures characterized by openness toward others and appreciation of individual differences) are likely to have teams with increased job satisfaction and knowledge sharing.7

  • Strong diversity climates are also linked to reduced instances of interpersonal aggression8 and discrimination.9
  • In 2016, nearly two-thirds (65%) of employees felt that respectful treatment of all employees was a very important factor in their job satisfaction.10

Moving toward equal levels of gender representation across job levels may reduce occurrences of workplace harassment.11

Employees report experiencing trust and increased engagement at work when they both feel included and perceive that their employer supports diversity practices, such as recruiting diverse job candidates.12


Innovation and Group Performance

Diverse Teams Are Critical for Innovation13

Teams are as much as 158% more likely to understand target consumers when they have at least one member who represents their target’s gender, race, age, sexual orientation, or culture.14

  • When a workforce reflects the racial/ethnic diversity of its consumer base, employee productivity increases.15

Diverse management teams are innovative and earn a premium for their innovation. According to one recent study, companies with higher diversity in management earned 38% more of their revenues, on average, from innovative products and services in the last three years than companies with lower diversity.16

  • Diversity in gender, country of origin, career path, and industry background are all highly linked to innovation among managers.17
     
Diversity Reduces Groupthink and Enhances Decision-Making18

Diversity is a key ingredient for better decision-making among teams. While homogenous groups may be susceptible to groupthink,19 diverse teams can leverage a greater variety of perspectives and are likely to consider information more thoroughly and accurately.20

  • Teams that include different viewpoints or thinking styles (cognitive diversity) solve problems faster.21
  • In a study on the decision-making behaviors of board directors, “deep-level diversity” (i.e., differences in background, personality, and values) contributed to a higher degree of creativity.22

Without diverse leaders, women (20%), people of color (24%), and LGBT employees (21%) are less likely to have their ideas endorsed.23
 

Inclusion Is Key to Team Performance24

The addition of women to all-male sales teams contributes to improved team performance. However, teams are more likely to reap the benefits of diversity on team performance when inclusion is part of the organizational culture.25

The more psychologically safe employees feel at work, the more likely they are to feel included in their work groups.26

  • Employees who feel included report higher levels of innovation and team citizenship.27

Reputation and Responsibility

Gender-Diverse Companies Have Excellent Reputations28

A majority (78%) of American adults consider gender diversity in the workplace important.29

Organizations ranked highly on Fortune’s World’s Most Admired Companies list have twice as many women in senior management than do companies with lower rankings.30
 

Mixed-Gender Boards Have Fewer Instances of Fraud31

Diverse teams are more likely to recognize risk factors. One study found that racially diverse teams of financial traders were more likely to avoid price bubbles.32

  • Gender-diverse corporate boards are associated with more effective risk-management practices when investing in research and development (R&D).33

When corporate boards include women, they provide greater attention to legally mandated responsibilities like monitoring and strategy involvement.34

  • Companies with gender-diverse boards have fewer instances of controversial business practices such as fraud, corruption, bribery, and shareholder battles.35
  • Gender-diverse boards are also associated with better collection and transparent disclosure of stock price information,36 as well as fewer financial reporting mistakes.37
     
Boardroom Diversity Strengthens Corporate Social Responsibility (CSR) Performance38

When corporate boards include members with diverse backgrounds and experiences, they are better able to recognize the needs and interests of different stakeholder groups.39

Gender-diverse boards are more likely to receive high ratings in CSR activities.40

  • A Catalyst and Harvard Business School study of Fortune 500 boardrooms found that companies with gender-inclusive teams contributed more charitable funds, on average, than companies without gender-inclusive teams.41

Financial Performance

Diversity Is Associated With Improved Financial Performance42

Many studies link diversity to indicators of profitability and financial health, including:43

  • Accounting returns
  • Cash flow return on investment
  • Earnings Per Share
  • Earnings Before Interests and Taxes (EBIT) margins
  • Gross and net margins
  • Investment performance
  • Market performance
  • Market value
  • Return on Assets (ROA)
  • Return on Equity (ROE)
  • Return on Sales (ROS)
  • Revenue
  • Sales growth
  • Share price performance
  • Tobin’s Q

McKinsey & Company’s study of 1,000 companies in 12 countries found that organizations in the top 25% when it comes to gender diversity among executive leadership teams were more likely to outperform on profitability (21%) and value creation (27%).44

  • Organizations in the top 25% for ethnic/cultural diversity were more likely to achieve above-average profitability—33% for diverse executive teams and 43% for diverse boards.45
  • Companies pay a penalty for a lack of diversity. Companies in the bottom 25% for both gender and ethnic/cultural diversity were 29% less likely to experience profitability above the industry average.46

A Note About the Business Case and Financial Performance

Although Catalyst has produced research and tools about making the case, more recently, Catalyst and others have encouraged companies to “get beyond the business case for diversity.” The business case grew out of a need to explain the business benefits (especially financial benefits) of diversity to stakeholders. However, the connection between financial rewards and diversity is impossible to prove because research can only establish correlation, not causation, between the two. Further, even though the business case for diversity has been documented by Catalyst, McKinsey, Credit Suisse, and others for over 15 years, it never seems to be enough. Some people still ask for more proof that gender diversity is “good for business,” yet it never occurs to them to ask for the business case demonstrating that the status quo or all-male leadership teams and boards are good for business.

Instead of trying to seek that elusive “proof” that diversity causes improved business performance, companies should focus on diversity as a talent issue, and recognize that to be an industry leader, it is critical to tap into the full talent pool. By hiring a limited group of people, companies are missing out on significant segments of talent, so they should be putting energy and resources toward recruiting and retaining diverse employees and creating inclusive workplace cultures where everyone has an equal opportunity to contribute and succeed.

For more information about financial performance research, see: Catalyst, Why Diversity and Inclusion Matter: Financial Performance (August 1, 2018).


Additional Resources

Next Steps

Catalyst, Ask Catalyst Express: Starting Diversity Initiative.

Catalyst, Be Inclusive.

Catalyst, Vital Signs.
 

Research

Rohini Anand, “Gender-Balanced Teams Linked to Better Business Performance: A Sodexo Study,” 2016 Workplace Trends Report (Sodexo, 2016).

Catalyst, Why Diversity Matters (July 23, 2013).

Catalyst, First Step: The Link Between Collective Intelligence and Diversity (April 17, 2014).

Catalyst, The Ripple Effect: Educating Women Changes Lives (August 25, 2017).

Catalyst, The Ripple Effect: Working Women Grow Economies (August 25, 2017).

Catalyst, Webinar Recording: First Steps—The Business Case for Diversity: Is This a Silver Bullet? (2018).

Katherine W. Phillips, “How Diversity Makes Us Smarter,” Scientific American, October 1, 2014.

Jonathan Woetzel, Anu Madgavkar, Kweilin Ellingrud, Eric Labaye, Sandrine Devillard, Eric Kutcher, James Manyika, Richard Dobbs, and Mekala Krishnan, The Power of Parity: How Advancing Women’s Equality Can Add $12 Trillion to Global Growth (McKinsey & Company, 2015).
 

How to cite this product: Catalyst, Quick Take: Why Diversity and Inclusion Matter (August 1, 2018).