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Dollars and Sense: Data Shows the Business Case for Diversity and Inclusion at S&P 500 Companies

Veleisa Burrell

12/16/2019

The belief that increased diversity and inclusion is directly and positively correlated to company financial performance has been shown in various studies. Recently, the Wall Street Journal research analysts produced the most clear business case to date through their ranking of various sectors in addition to the analysis of companies’ publicly available diversity and inclusion data and their financial performance on the S&P 500 index. What they revealed equates to a clarion call for corporations to prioritize diversity and inclusion for the advancement of their mandate to make profits.

 

What the Numbers Reveal about Diversity and Inclusion

Of the best performing diverse companies analyzed, the financial industry, specifically banking and insurance, led the pack, with communication services and consumer staples following up. The energy and materials sectors was last on the list.

Important to note from the finding is that “...the 20 most diverse companies in the research not only have better operating results on average than the lowest-scoring firms, but their shares generally outperform those of the least-diverse firms…” If your business unit owners and human resources team needed any more data points to be motivated to enact change, this is irrefutable proof.

The rankings were based on a score from 0 to 100 and reviewed six main categories: Role of head of diversity and inclusion; Diversity of board of directors; Diversity of senior management teams*; Diversity in the workforce; Diversity programs; Inclusion programs. Within the main categories, the team reviewed 10 individual and independent performance indicators:

  • Head of diversity and inclusion: 1) Existence of the role; 1b) Is it a C-level employee?
  • Board of directors’ diversity: 2) Gender diversity; 3) Age diversity; and 4) Board independence
  • Senior management* teams’ diversity: 5) Gender diversity; and 6) Age diversity;
  • Workforce diversity: 7) Gender diversity; and 8) Ethnic diversity;
  • Diversity and inclusion programs: 9) Existence of D&I programs for the workforce; and 10) Existence of inclusion programs for the workforce

Progressive and JPMorgan Chase take the number one and two spots on the list. Other findings based on data include:

  • Smaller companies had less diversity than larger, either due to lack of funds to invest in diversity and inclusion or board leadership not making it a priority
  • Women board members were missing at most companies on the S&P 500 index. “Less than 2% of S&P 500 companies have boards consisting of 50% or more women, while 77% have boards where more than two-thirds of directors are male.”
  • Only 4 percent of companies, or 20 companies, on the S&P 500 list the ethnic/racial diversity of senior management and only 17 companies list the ethnic/racial diversity of their board. The boards also skew older; 22 companies have a board member under 40 years old.
  • The Money Finding: The 20 most diverse companies have an average operating profit margin of 12 percent as compared to 8 percent for the bottom-ranking companies. Their shares also performed better than the S&P 500 average annual gains over a 5-year and 10-year period.

Applying WSJ Findings on S&P 500 Diversity and Inclusion to Your Workplace

Advocacy - Not only does it matter that your company have a senior-level diversity and inclusion leader, they need to be reporting to the C-suite.

Gender equity - Make your business welcoming for female employees through initiatives around equal pay and parental leave.

Innovation - Diversity in your workforce allows you to enter new spaces. The WSJ article references the additional product lines Procter & Gamble were able to introduce due to tapping the insight and knowledge of Black scientists, which helped the company produce 5 percent increase in organic sales.

Global perspective - For international business, hiring and elevating workers from a diverse background gives the company insight into cultural nuances not always obvious to Western/American leadership.

Thought leadership - When your company is at the forefront of diversity, equity and inclusion, not only do you have an additional recruitment benefit, you become a thought leader in your industry.

Read the full story on Wall Street Journal.

    Gender Equity/Diversity
    Racial Equity/Diversity

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