In 2019, companies in the top quartile for ethnic and cultural diversity outperformed those in the fourth quartile by 36 percent in profitability, slightly up from 33 percent in 2017 and 35 percent in 2014. That’s according to the third report in a McKinsey series investigating the business case for diversity, “Diversity Wins.” Though the research predates coronavirus, the findings remain highly relevant as companies examine their diversity and inclusion practices and seek to mitigate systemic racism in the workplace.
McKinsey’s research reveals that the companies whose leadership has the most gender and ethnic and cultural diversity are now more likely than ever to be more profitable than their less diverse counterparts.
Companies in the top quartile for gender diversity on executive teams were 25 percent more likely to achieve above-average profitability than companies in the fourth quartile, up from 21 percent in 2017 and 15 percent in 2014.
McKinsey also found that the greater an executive team’s representation, the higher the likelihood of outperformance. For example, companies with over 30 percent women executives were more likely to perform better than companies where this percentage ranged from 10 to 30; these companies were more likely to outperform those with even fewer female executives, or none at all.
The most gender-diverse companies were 48 percent more likely to perform better than the least gender-diverse companies.
Ethnically- and culturally-diverse companies are 36 percent more likely to be profitable than the least diverse companies.
Echoing McKinsey’s finding from its 2017 and 2014 reports, the data also suggests ethnically-diverse companies outperform gender-diverse companies.
However beneficial championing diversity is to a company’s bottom line, there’s been a lack of material progress in representation across organizations. Since the researcher started analyzing the data globally, in 2017, gender diversity grew just one percentage point, from 14 percent in 2017 to 15 percent in 2019. In the companies from McKinsey’s original 2014 data set, which were based in the US and the UK, female representation on executive teams grew from 15 percent to 20 percent in 2019.
Additionally, over a third of the companies McKinsey analyzed still have no women at all on their executive teams.
The representation of ethnic-minorities has also stalled: on UK and US teams, the figure grew from seven percent in 2014 to 13 percent in 2019. Globally, the number increased by just two percentage points—from 12 percent in 2017 to 14 percent in 2019.
McKinsey also noticed a growing polarization between inclusion and diversity leaders and companies that have yet to embrace diversity. McKinsey identified five cohorts based on the progress of companies on executive diversity from 2014 to 2019—Fast Movers, Diversity Leaders, Moderate Movers, Resting on Laurels and Laggards.
Fast Movers on gender diversity have nearly quadrupled the representation of women on executive teams to 27 percent. Whereas regarding ethnicity, the same cohort increased their level of diversity from just one percent in 2014 to 18 percent in 2019.
The Laggards cohort have regressed even further—in 2019, women comprised just eight percent of the executive team members at these companies and members from ethnic minority groups accounted for none.
The remaining two cohorts, Moderate Movers and Resting on Laurels, have similarly become less diverse since 2014.
The findings are based on an analysis of more than 1,000 major companies in 15 countries.