The bottom line: Diversity pays off
Social enterprise is a sector predicated on diversity, but too often, the leadership teams of social impact organizations fail to reflect the diversity of the population they serve. A 2014 study by The Guardian found that the top 12 most followed #socent users on Twitter were “people as opposed to organisations, none were women and, in fact, all were white men.” In the United States, only 3% of all companies have senior leadership teams that reflect the demographic makeup of the country’s workforce.
Even social enterprises, which often serve marginalized and underrepresented populations, tend to have homogenous leadership teams. This is a problem. And it’s not just a problem of principle, although diversity is important for its own sake. It’s a problem, because lack of diversity could be hurting your organization. Research suggests that socially diverse groups are more innovative than homogeneous ones. According to Columbia Business School professor Katherine Phillips, “Diversity enhances creativity. It encourages the search for novel information and perspectives, leading to better decision making and problem solving. Diversity can improve the bottom line of companies and lead to unfettered discoveries and breakthrough innovations. Even simply being exposed to diversity can change the way you think.”
A team of researchers found that heterogeneous groups outperform homogeneous groups at games and complex tasks because diverse groups share more information with one another. When small groups appear homogenous, members tend to assume that everyone has the same insights. Furthermore, researchers at Stanford found that when we hear dissent or disagreement from someone of a different race, it provokes more thought and seems more novel than the same argument coming from someone who looks like us. When hearing the perspectives of people of another race, we think more broadly and give more careful consideration to alternative ideas.
In a series of experiments, mock juries were presented with sexual assault cases and asked to reach a decision. Compared to all-white juries, more diverse juries were better at considering case facts, made fewer recall errors and were more open to discussing the role of race in the case. White jurors became more diligent and open-minded in the presence of black jurors than they were in an all-white group.
But diversity is not just about race. Business professors Christian Deszö and David Ross of Columbia studied the gender composition of the top firms in S&P’s Composite 1500 list, a group designed to reflect the overall U.S. equity market. They found that, on average, female representation in top management leads to an increase of $42 million in firm value. Furthermore, companies with women in top leadership proved more innovative.
A study by McKinskey found that companies with high levels of racial and ethnic diversity are 35% more likely to have higher financial returns than their industry means, and companies with an equal mix of men and women are 15% more likely to have above average financial returns. Conversely, companies in the bottom quartile are more likely to have below average financial returns. Companies with other types of diversity — in age, gender and experience — also translate into a competitive advantage.
There are lots of reasons to embrace diversity — especially for a social enterprise. It’s important to represent the populations you serve, to recruit employees in an equitable way and to model the types of organizations we would like to see in the world. But diversity also pays off. It inspires creativity, innovation cooperation and open-mindedness, and all of this translates into higher financial returns and ultimately, greater impact.
