Why diversity and inclusion matter

Diverse organizations are more successful at recruiting and retaining talent.³

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

Women are more likely to express interest in an organization and perceive it as fair when women are highly represented in top management positions.⁵

An inclusive environment is especially important for employees of color. Fifty to sixty-nine percent of professional Canadians of color who anticipate or consciously prepare for potential bias report a high intent to leave their jobs.⁶

Employee experiences of inclusion contribute to engagement and retention.⁷

• Thirty-five percent of an employee’s emotional investment to their work and 20% of their desire to stay at their organization is linked to feelings of inclusion.7

Inclusive workplaces maximize talent and productivity.⁸

Organizations with strong “diversity climates” (i.e., inclusive work cultures characterized by appreciation of individual differences and the adoption of practices to advance underrepresented groups) are likely to increase employees’ job satisfaction and commitment to the company.⁹

• Strong diversity climates are also associated with reduced instances of interpersonal aggression and discrimination.¹⁰

Women experience less discrimination and sexual harassment in inclusive workplace cultures.¹¹

When employees feel both included and that their employer supports diversity, they report experiencing trust and increased engagement at work.¹²

• A 10% increase in perceptions of inclusion improves absenteeism, adding nearly one day a year in work attendance per employee.¹³

Diverse teams are critical for innovation¹⁴

When companies establish inclusive business cultures and policies, they are more likely to report:⁸

• 59.1% increase in creativity, innovation, and openness.
• 37.9% better assessment of consumer interest and demand.

Diverse management teams are innovative and earn a premium for their innovation. According to one recent study, over a period of three years companies with higher diversity in management earned 38% more of their revenues, on average, from innovative products and services than those companies with lower diversity.¹⁴

• Diversity in gender, country of origin, career path, and industry background among managers are all highly linked to innovation.¹⁴

Diversity reduces groupthink and enhances decision-making

Diversity is a key ingredient for better decision-making among teams. Homogenous groups may be susceptible to groupthink,¹⁶ while diverse teams can leverage a greater variety of perspectives and are likely to consider information more thoroughly and accurately.¹⁷

• Teams that include different viewpoints or thinking styles (cognitive diversity) solve problems faster¹⁸ and produce more and higher-quality intellectual property such as patents.¹⁹
• Mixed-gender teams can better manage group conflict compared to homogenous teams and can better maximize creativity among team members.²⁰

Inclusion is key to team performance²¹

Increasing the representation of women on sales teams contributes to improved team performance through enhanced relational skills and organizational citizenship behaviors, among other factors. However, teams are more likely to reap the benefits of diversity on team performance when inclusion is part of the organizational culture.²¹

Employees experience inclusion at work when they feel valued, trusted, authentic, and psychologically safe.⁷

• Overall experiences of inclusion explain:⁷
  • 49% of team problem-solving.
  • 18% of employee innovation.

Organizations can maximize the benefits of diversity in teams by cultivating “diversity mindsets,” defined as the shared understanding of a team’s diversity and its positive benefits to group performance.¹⁷

• Key characteristics of effective diversity mindsets include cultural intelligence, openness to different ideas and experiences, multicultural experiences, and work climates that emphasize the value and potential of diversity.¹⁷

Inclusion boosts company reputation⁸

Organizations with inclusive business cultures and practices are 57.8% more likely to improve their reputations.⁸

• Consumers are more likely to purchase, or consider purchasing, a product after viewing an advertisement perceived to be diverse or inclusive²²
• Employees who view their workplace as inclusive are also likely to consider their organization to have ethical value.²³

In economic downturns, companies recognize that investment in diversity contributes to public goodwill. An analysis of organizations during the Great Recession of 2008 found that investment in diversity tended to increase, even when other Corporate Social Responsibility (CSR) activities decreased.²⁴

Mixed-gender boards have fewer instances of fraud²⁵

Gender-diverse corporate boards are associated with:

• Effective risk-management practices. Adding women to a board can improve investment efficiency and prevent risky overinvestment decisions²⁶ as well as reduce the overconfidence of male CEOs.
• Increased engagement among board members, including behavior like requesting additional information or updates on subjects being discussed and acting on specific tasks after board meetings.²⁸
• Fewer financial reporting mistakes and controversial business practices such as fraud²⁵ and earnings manipulation.²⁹
• Investment in higher-quality audits.³⁰

Companies with gender-diverse management teams experience fewer operations-related lawsuits.³¹

Boardroom diversity strengthens environmental, social, and governance (ESG) performance³²

When corporate boards include members with diverse backgrounds and experiences, they are better able to recognize the needs and interests of different stakeholder groups.³²

Gender-diverse boards outperform non-diverse boards in ESG activities.³²

• Women board directors are more likely than men to identify social issues like human rights, climate change, and income inequality as critical to corporate strategy.³³
• Gender-diverse boards also tend to adopt more progressive organizational management practices, such as work-life support programs, which increase employee satisfaction.³⁴

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 two decades, 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. Recent research even suggests that managers are more likely to take action on social issues when they are presented in moral terms—aligning with the organization’s values and mission—rather than in economic language.³⁵

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.

Diversity is associated with improved financial performance³⁶

Many studies link diversity to indicators of profitability and financial health, including:³⁷

• Cash flow return on investment
• Earnings Before Interests and Taxes (EBIT) margins
• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins
• Gross and net margins
• Internal rate of return
• Investment performance
• Market value
• Operating profit margin
• Return on Assets (ROA)
• Return on Equity (ROE)
• Return on Sales (ROS)
• Revenue
• Sales performance
• Stock returns
• Tobin’s Q

Inclusion can help organizations thrive during economic recessions³⁸

Companies with consistent, inclusive workplace cultures—especially as experienced by historically underrepresented groups—also outperformed the S&P 500 in average annual stock returns during the Great Recession (measured from 2006-2014).³⁸