Research

Why is DEI Important in the Workplace? (Quick Take)

Jun 24, 2020

Research from Catalyst and around the world has found that diversity1 and inclusion2 benefit individuals, organizations, teams, and society. The following data and findings are selected from a vast body of research on the benefits of diversity and inclusion 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).

Catalyst has organized these findings into four areas in which diversity and inclusion have significant impact: talent, innovation and group performance, reputation and responsibility, and financial performance.

TALENT

Diverse Organizations Are More Successful at Recruiting and 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

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 Productivity8

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

INNOVATION AND GROUP PERFORMANCE

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-Making15

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

REPUTATION AND RESPONSIBILITY

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 inclusive.22
  • 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.27
  • 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

FINANCIAL PERFORMANCE

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.

For more information about financial performance research, see: Catalyst, Why Diversity and Inclusion Matter: Financial Performance (June 24, 2020).

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

ADDITIONAL RESOURCES

Next Steps

Catalyst, Creating a D&I Strategy: Ask Catalyst Express.

Catalyst, Microlearning: Knowledge Bursts.

Catalyst, Vital Signs.

The New York Times, “From Inclusion to Support: How to Build a Better Workplace,” June 17, 2019.

Frances Taplett, Matt Krentz, Justin Dean, and Gabrielle Novacek, “Diversity Is Just the First Step. Inclusion Comes Next,” The Boston Consulting Group, April 24, 2019.

Research

Catalyst, The Business Case for D&I: Ask Catalyst Express.

Catalyst, Buying Power: Quick Take.

Catalyst, Turnover and Retention: Quick Take.

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

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

John M. Amis, Johanna Mair, and Kamal A. Munir, “The Organizational Reproduction of Inequality,” Academy of Management Annals, vol. 14, no. 1 (2020): p. 1-36.

Sundiatu Dixon-Fyle, Kevin Dolan, Vivian Hunt, and Sara Prince, Diversity Wins: How Inclusion Matters (McKinsey & Company, May 19, 2020).

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

Sodexo, Sodexo’s Gender Balance Study 2018: Expanded Outcomes Over 5 Years (2019).

Steven Turban, Dan Wu, and Letian (LT) Zhang, “Research: When Gender Diversity Makes Firms More Productive,” Harvard Business Review, February 11, 2019.

 

How to cite this product: Catalyst, Quick Take: Why Diversity and Inclusion Matter (June 24, 2020).

  1. Catalyst does not have a single definition of diversity. Because it is different for each organization and region, we encourage organizations to create and own their unique definition of diversity. Diversity might encompass the visible (e.g., gender, race/ethnicity) or the invisible qualities (e.g., personality, family background, education, personal style) that make individuals unique. When defining diversity, it is helpful for organizations to assume that diversity is the heterogeneity among all of us and therefore applies to everyone. It is much more inclusive than calling out any one segment of the population as “diverse,” which has the effect of marginalizing others from both the conversation and the solution.
  2. Practitioners and researchers define inclusion in many different ways. Some definitions focus on valuing differences. Others emphasize finding common ground to promote cohesion. Psychological theory, as well as Catalyst’s research, gives credence to both these points of view. Our research reveals five hallmarks of inclusion. When employees experience inclusion at work, they report feeling valued, trusted, authentic, and psychologically safe—in latitude, meaning they are free to hold differing views and make mistakes without being penalized, and in risk-taking, feeling secure enough to address tough issues or take risks. Dnika J. Travis, Emily Shaffer, and Jennifer Thorpe-Moscon, Getting Real About Inclusive Leadership: Why Change Starts With You (Catalyst, 2019).
  3. Juan M. Madera, Linnea Ng, Jane M. Sundermann, and Mikki Hebl, “Top Management Gender Diversity and Organizational Attraction: When and Why It Matters,” Archives of Scientific Psychology, vol. 7, no. 1 (2019): p. 90-101; Cara C. Maurer and Israr Qureshi, “Not Just Good for Her: A Temporal Analysis of the Dynamic Relationship Between Representation of Women and Collective Employee Turnover,” Organization Studies (2019).
  4. Cara C. Maurer and Israr Qureshi, “Not Just Good for Her: A Temporal Analysis of the Dynamic Relationship Between Representation of Women and Collective Employee Turnover,” Organization Studies (2019).
  5. Juan M. Madera, Linnea Ng, Jane M. Sundermann, and Mikki Hebl, “Top Management Gender Diversity and Organizational Attraction: When and Why It Matters,” Archives of Scientific Psychology, vol. 7, no. 1 (2019): p. 90-101.
  6. Jennifer Thorpe-Moscon, Alixandra Pollack, and Olufemi Olu-Lafe, Empowering Workplaces Combat Emotional Tax for People of Colour in Canada (Catalyst, 2019).
  7. Dnika J. Travis, Emily Shaffer, and Jennifer Thorpe-Moscon, Getting Real About Inclusive Leadership: Why Change Starts With You (Catalyst, 2019).
  8. International Labour Organization, Women in Business and Management: The Business Case for Change (2019): p. 21.
  9. Sean McCallaghan, Leon T.B. Jackson, and Marita M. Heyns, “Examining the Mediating Effect of Diversity Climate on the Relationship Between Destructive Leadership and Employee Attitudes,” Journal of Psychology in Africa, vol. 29, no. 6 (2019): p. 563-569; Elissa L. Perry and Aitong Li, “Diversity Climate in Organizations,” in Oxford Research Encyclopedia of Business and Management (Oxford University Press, 2020).
  10. Elissa L. Perry and Aitong Li, “Diversity Climate in Organizations,” in Oxford Research Encyclopedia of Business and Management (Oxford University Press, 2020).
  11. Helen H. Yu and David Lee, “Gender and Public Organization: A Quasi-Experimental Examination of Inclusion on Experiencing and Reporting Wrongful Behavior in the Workplace,” Public Personnel Management, vol. 49, no. 1 (2020): p. 3-28.
  12. Luu Trong Tuan, Chris Rowley, and Vo Thanh Thao, “Addressing Employee Diversity to Foster Their Work Engagement,” Journal of Business Research, vol. 95 (2019): p. 303-315.
  13. Juliet Bourke and Andrea Espedido, “Why Inclusive Leaders Are Good for Organizations, and How to Become One,” Harvard Business Review, March 29, 2019.
  14. Rocío Lorenzo, Nicole Voigt, Karin Schetelig, Annika Zawadzki, Isabell M. Welpe, and Prisca Brosi, The Mix That Matters: Innovation Through Diversity (The Boston Consulting Group, 2017).
  15. Sarah E. Gaither, Evan P. Apfelbaum, Hannah J. Birnbaum, Laura G. Babbitt, and Samuel R. Sommers, “Mere Membership in Racially Diverse Groups Reduces Conformity,” Social Psychology and Personality Science, vol. 9, no. 4 (2018): p. 402-410; Astrid C. Homan, “Dealing with Diversity in Workgroups: Preventing Problems and Promoting Potential,” Social and Personality Psychology Compass, vol. 13, no. 5 (2019).
  16. The American Psychological Association defines groupthink as “a strong concurrence-seeking tendency that interferes with effective group decision making. Symptoms include apparent unanimity, illusions of invulnerability and moral correctness, biased perceptions of the outgroup, interpersonal pressure, self-censorship, and defective decision-making strategies. Causes are thought to include group cohesion and isolation, poor leadership, and the stress involved in making decisions.” American Psychological Association, “Groupthink,” APA Dictionary of Psychology (2020); Sarah E. Gaither, Evan P. Apfelbaum, Hannah J. Birnbaum, Laura G. Babbitt, and Samuel R. Sommers, “Mere Membership in Racially Diverse Groups Reduces Conformity,” Social Psychology and Personality Science, vol. 9, no. 4 (2018): p. 402-410.
  17. Astrid C. Homan, “Dealing with Diversity in Workgroups: Preventing Problems and Promoting Potential,” Social and Personality Psychology Compass, vol. 13, no. 5 (2019).
  18. Alison Reynolds and David Lewis, “Teams Solve Problems Faster When They’re More Cognitively Diverse,” Harvard Business Review (March 30, 2017).
  19. Matthew Corritore, Amir Goldberg, and Sameer B. Srivastava, “The New Analytics of Culture,” Harvard Business Review (January-February 2020).
  20. Hun Whee Lee, Jin Nam Choi, and Seongsu Kim, “Does Gender Diversity Help Teams Constructively Manage Status Conflict? An Evolutionary Perspective of Status Conflict, Team Psychological Safety, and Team Creativity,” Organizational Behavior and Human Decision Processes, vol. 144 (2018): p. 187-199.
  21. Ream A. Shoreibah, Greg W. Marshall, and Jule B. Gassenheimer, “Toward a Framework for Mixed-Gender Selling Teams and the Impact of Increased Female Presence on Team Performance: Thought Development and Propositions,” Industrial Marketing Management, vol. 77 (February 2019): p. 4-12.
  22. Shelley Zalis, “Inclusive Ads Are Affecting Consumer Behavior, According to New Research,” Think with Google, November 2019.
  23. Tanja Rabl, María del Carmen Triana, Seo-Young Bryun, and Laura Bosch, “Diversity Management Efforts as an Ethical Responsibility: How Employees’ Perceptions of an Organizational Integration and Learning Approach to Diversity Affect Employee Behavior,” Journal of Business Ethics, vol. 161 (2020): p. 531-550.
  24. Benjalux Sakunasingha, Pornsit Jiraporn, and Ali Uyar, “Which CSR Activities Are More Consequential? Evidence from the Great Recession,” Finance Research Letters, vol. 27 (2018): p. 161-168.
  25. Aida Sijamic Wahid, “The Effects and the Mechanisms of Board Gender Diversity: Evidence from Financial Manipulation,” Journal of Business Ethics, vol. 159 (2019): p. 705-725.
  26. Young Zik Shin, Jeung-Yoon Chang, Keyeongmin Jeon, and Hyunpyo Kim, “Female Directors on the Board and Investment Efficiency: Evidence from Korea,” Asian Business & Management (2019).
  27. Jie Chen, Woon Sau Leung, Wei Song, and Marc Georgen, “Research: When Women Are on Boards, Male CEOs Are Less Overconfident,” Harvard Business Review, September 12, 2019; Jie Chen, Woon Sau Leung, Wei Song, and Marc Georgen, “Why Female Board Representation Matters: The Role of Female Directors in Reducing Male CEO Overconfidence,” Journal of Empirical Finance, vol. 52 (2019): p. 70-90.
  28. Miriam Schwartz-Ziv, “Gender and Board Activeness: The Role of a Critical Mass,” Journal of Financial and Quantitative Analysis, vol. 52, no. 2 (2017): p. 751-780.
  29. Yaoyao Fan, Yuxiang Jiang, Xuezhi Zhang, and Yue Zhou, “Women on Boards and Bank Earnings Management: From Zero to Hero,” Journal of Banking & Finance, vol. 107 (2019).
  30. Karen M.Y. Lai, Bin Srinidhi, Ferdinand A. Gul, and Judy S.L. Tsui, “Board Gender Diversity, Auditor Fees, and Auditor Choice,” Contemporary Accounting Research, vol. 34, no. 3 (2017): p. 1681-1714.
  31. Binay K. Adhikari, Anup Agrawal, and James Malm, “Do Women Managers Keep Firms Out of Trouble? Evidence from Corporate Litigation and Policies,” Journal of Accounting and Economics, vol. 67, no. 1 (2019): p. 202-225.
  32. Cristina Banahan and Gabriel Hasson, “Across the Board Improvements: Gender Diversity and ESG Performance,” Harvard Law School Forum on Corporate Governance, September 6, 2018.
  33. Paula Loop and Paul DeNicola, “You’ve Committed to Increasing Gender Diversity on Your Board. Here’s How to Make It Happen,” Harvard Business Review, February 18, 2019.
  34. Steven A. Creek, Kristine M. Kuhn, and Arvin Sahaym, “Board Diversity and Employee Satisfaction: The Mediating Role of Progressive Programs,” Group & Organization Management (2017).
  35. David M. Mayer, Madeline Ong, Scott Sonenshein, and Susan J. Ashford, “To Get Companies to Take Action on Social Issues, Emphasize Morals, Not the Business Case,” Harvard Business Review, February 14, 2019.
  36. Vijay Eswaran, “The Business Case for Diversity Is Now Overwhelming,” World Economic Forum, April 29, 2019.
  37. For a full overview of research on diversity and financial performance, see: Catalyst, Why Diversity and Inclusion Matter: Financial Performance (June 24, 2020).
  38. Great Place to Work, Hidden Pieces of the D&I Puzzle (2020).