Is diversity critical to a business' financial success?

Diversity in leadership leads to greater profits

Question: Is diversity critical to a business' financial success?
Position1 of 3›: Diversity is critical to workplace success
Argument1 of 3›: Diversity in leadership leads to greater profits

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

The argument

The link between diversity in leadership and financial performance is not asserted on principle alone; it shows up in the distribution of outcomes across companies. Firms in the top 25% for gender diversity in leadership positions are 21% more likely to have above-average profits than their peers. The effect is not marginal, and it appears at the level of the executive team rather than the workforce as a whole, which is what makes it relevant to the question of whether diversity is critical to a business's success rather than merely desirable within it. When the same comparison is extended from gender to race and ethnicity, the results are more pronounced still. Companies with a culturally and ethnically diverse executive team were 33% more likely to generate above-average profits. That the effect strengthens as the dimension of diversity widens is itself informative: it suggests the driver is not a particular demographic characteristic but the composition of the group. The mechanism proponents point to follows from what executive teams actually do. Senior leadership makes judgement calls under uncertainty, about which markets to enter, which risks are real, and which customers are being misread. A team whose members share a background tends to share blind spots as well, and a blind spot held in common is one that nobody in the room is positioned to catch. A balance between men and women, and between people of different cultural and ethnic backgrounds, widens the set of considerations that reach the table before a decision is made. On this view the profitability figures are the visible trace of better decisions. Because diversity in leadership leads to greater profits, proponents argue, diversity is critical to workplace success rather than an optional addition to it.

Context

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

Premises

[P1]Companies in the top quartile for gender diversity in leadership are 21% more likely to have above-average profits. [P2] For culturally and ethnically diverse executive teams the effect is stronger still, at 33% more likely to generate above-average profits. [C] Therefore, because diversity in leadership leads to greater profits, diversity is critical to workplace success.

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. 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.

Rejecting the premises

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