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Diversity in leadership leads to greater profits

Studies repeatedly indicate a more diverse senior management team directly correlates to higher profits.

Proponents

Context

In 2015, McKinsey & Company, a global consulting firm, released a report which directly linked profits to senior management diversity.[1] Then, one year later, the Peterson Institute for International Economics published a report with the same findings.[2]

The Argument

Companies in the top 25% for gender diversity in leadership positions are now 21% more likely to have above-average profits. Indicating that a balance between men and women in the executive team generates more profitability. When this is extended to race and ethnicity, the results are even more pronounced. Companies with a culturally and ethnically diverse executive team were 33% more likely to generate above-average profits.[3]

Counter arguments

Diversity is not responsible for the profitability, access to the best people for the job is. The studies cited show disparity between regions. In some regions, diversity greatly affected profitability, and in others, it did not have so great an impact. This was largely because in regions where governments' mandated board gender quotas, either to promote gender diversity or ethnic and cultural diversity, the leadership personnel quality was diluted.[3] This clearly illustrates that diversity is not a critical component to delivering financial success. What delivered financial success was access to the best leadership talent, whatever the race, gender, or ethnicity. If the best leadership talent all come from the same gender or ethnicity, then so-be-it. Diversity does not foster financial success, choosing the best leaders available does.

Premises

[P1] Companies with diversity in upper-management are more likely to achieve the highest profits. [P2] Therefore, diversity is crucial to financial success.

Rejecting the premises

[Rejecting P2] Diversity is not critical to financial success.

References

  1. https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters
  2. https://piie.com/publications/working-papers/gender-diversity-profitable-evidence-global-survey
  3. https://www.forbes.com/sites/karstenstrauss/2018/01/25/more-evidence-that-company-diversity-leads-to-better-profits/#2ae36e91bc7d

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This page was last edited on Wednesday, 27 Feb 2019 at 18:44 UTC