Diversity is easily one of the hottest topics in business over the last decade. Firmly embedded in both the S and the G of ESG (Environmental, Social and Governance), organisations have made, and still are making, big strides in stimulating a more diverse workforce. Their progress and goals are shared in D&I (Diversity & Inclusion) reports much similar to sustainability reports. 

Policymakers are also moving this mission forward: in 2022 the European Union decided that Supervisory boards of listed companies with at least 250 employees must consist of at least 40 percent women starting in 2026.

It is not surprising that organisations and governments are increasingly striving for more diverse companies. People nowadays demand more from companies beyond simply making a profit or providing jobs. But besides the obvious moral point of creating equal opportunities for everyone to apply and succeed within your society, there is also the dominant idea that more diversity means more business success. But is that actually true?

This idea of diversity equating success did not appear out of nowhere. You can find a range of statistics on the benefits of diversity that claim truly mind-blowing boosts to productivity, (financial) success and decision-making. Looking at this screenshot from a LinkedIn insight article about such benefits makes you wonder why companies would need any external encouragement at all. 

These figures suggest simply adding diversity to your teams increases cash flow, productivity, and decision-making. Similar effects are reported in the board rooms. A report by McKinsey claims “Companies in the top quartile for board-gender diversity are 27 percent more likely to outperform financially than those in the bottom quartile. Similarly, companies in the top quartile for ethnically diverse boards are 13% more likely to outperform than those in the bottom quartile.”

Many of such figures originate from consultancy firms or other commercial organisations that report findings from a self-designed research or survey they conducted. The downside is that these surveys and studies do not receive the same amount of external methodological scrutiny that scientific studies do receive. So let’s check in with scientists, what do they make of this? 

Perhaps unsurprisingly, scientists are a lot more sceptical about these statistics. They found no scientific evidence that simply increasing diversity in teams added any significant financial benefit. 

Robin J. Ely, Professor of Business Administration at Harvard Business School and faculty chair of the school’s Gender Initiative says “As for studies citing the positive impact of racial diversity on corporate financial performance, they do not stand up to scrutiny. Indeed, we know of no evidence to suggest that replacing, say, two or three white male directors with people from underrepresented groups is likely to enhance the profits of a Fortune 500 company.”

David Thomas, president of Morehouse College (a historically Black college) and professor emeritus at Harvard Business School echoes these words: “In any case, the research touting the link was conducted by consulting firms and financial institutions and fails to pass muster when subjected to scholarly scrutiny. Meta-analyses of rigorous, peer-reviewed studies found no significant relationships—causal or otherwise—between board gender diversity and firm performance.”

There is however an important caveat, followed up by Thomas: “They have found that it leads to higher-quality work, better decision-making, greater team satisfaction, and more equality—under certain circumstances. Although those outcomes could conceivably make some aspects of the business more profitable, they would need to be extraordinarily consequential to affect a firm’s bottom line.”

This insight illustrates the – sometimes so annoying – nature of science regarding these topics. Complex topics like interpersonal dynamics on the work floor do not often lend themselves to snappy clear-cut conclusions that can easily be shared through one-line statistics. Whereas these statistics and commercial studies seem to imply just adding more diversity, the so-called ‘add diversity and stir’ approach will lead to better business results, the reality is not so simple. 

As a matter of fact, simply creating more diverse teams often increases friction, instead of decreasing it, counteracting a free and open space to speak up. According to Katherine W. Phillips, Paul Calello Professor of Leadership and Ethics Management at Columbia Business School,  research has shown that social diversity in a group can cause discomfort, rougher interactions, a lack of trust, greater perceived interpersonal conflict, lower communication, less cohesion, more concern about disrespect, and other problems. 

So does that mean there is no business case to be made for diversity? There actually is if you’re willing to put in the work. For diversity to spill over into business success, the conditions need to be right. In a 2020 article in the Harvard Business Review, Ely & Thomas discuss four strategies to set the right context: 

• Build trust by creating a workplace where people feel safe expressing themselves freely. That requires setting a tone of honest discourse and getting comfortable with vulnerability—one’s own and others’.

• Actively work against discrimination and subordination by taking concrete measures to combat forms of discrimination and subordination that inhibit employees’ ability to thrive. This action calls for both individual and collective learning aimed at producing systemic change.

• Embrace a wide range of styles and voices by actively trying to understand how organizational norms might implicitly discourage certain behavioral styles or silence certain voices.

• Make cultural differences a resource for learning by encouraging—and drawing lessons from—open discussions about how identity groups shape employees’ experiences inside and outside the organization. Leaders should frame those experiences as a valid source of ideas for enhancing the organization’s work and culture.

Another example comes from a study that was done on How inclusive leadership can lead to more creative ideas. The researchers tested two internal changes and reported on which of them lead to more creative ideas. The first change was to stimulate all members of the team to fully express their unique viewpoints and perspectives (harvesting the benefits of diversity), and the second change was to facilitate beliefs about the value of differences in the team (cultivating value-in-diversity beliefs). 

What they found was that the second change was key in stimulating more creative ideas. When only the first change was implemented (stimulating people to share their viewpoint), people felt more left out and estranged from the team. But when the second change was implemented simultaneously, people felt more liberated to speak up and share their ideas. 

Conclusion being: ‘color’ blindness (aka pretending we are not different) often doesn’t work. It is more effective to recognise and cherish differences to unleash their full learning and growth potential. 

This study goes to show that diversity can be beneficial to companies, as long as you’re willing to create an atmosphere where diversity can thrive. The important part is to look beyond simple KPI’s and instead focus on the different perspectives that people bring. 

The key to understanding the positive influence of diversity is the concept of cognitive/informational diversity. When people are brought together to solve problems in groups, they bring different information, opinions, and perspectives.

This is one of the reasons why we don’t like to talk about ‘diversity’ at TrendsActive and rather speak about inclusiveness: diversity is often discussed as the goal and a box to tick, but diversity in itself does nothing, or might even make things worse. Diversity is a tool — but you have to know how to use it!