Successful and diverse culture is key to growth and success and can be tied directly to ROI performance.
The statistics couldn't be clearer: cultural emphasis and diversity matter and its importance is reflected in every key area of performance numbers: senior leadership, ethics, profits, revenue, sales, and of course, stock price; creating a clear business case that improving diversity improves company performance. Companies are responding to this information and it is now beginning to drive more progressive decision making.
Technology leaders have long lamented the lack of diversity at the top: that significant portions of women and racial and sexual minorities enter technology companies at the analyst level but few make it to the boardroom.
Companies are making progress but it needs to be pushed faster, for the sake of bottom line as well as intrinsic value: in a 2013 study, Catalyst found that companies with the most female board members outperformed those with the least on return on sales (ROS) by 16 percent and return on invested capital (ROIC) by 26 percent.
I have seen this positive correlation first hand from both an investment and entrepreneurial perspective. My own syndicate, Gaingels, has a mandate to invest in companies with at least one LGBT Senior Leader, but also pushes hard for other diversity; for example Teckst, which we funded in June, has a female co-founder and Imperative, which we funded in October, has female Heads of Sales, Business Development, and Product as well as three female Board Members and both have seen a significant increase in diverse thinking and improved performance as a result.
"Before Teckst, my co-founder Ji and I had dinner in San Francisco and we shared stories about our dads. Ji's dad felt that sleep was a hinderance to getting work accomplished, whereas my dad felt sleep was necessary to recover. Something so simple showed the differences in family, values, and what shaped us as people. We see the world differently, and that diversity translates to twice as many viewpoints on obstacles and therefore half the time to viable solutions," said Matt Tumbelson of Teckst.
"At Imperative, our board and leadership team are majority women and LGBTQ and our research has indicated that the highest performing employees in an organization are the diversity-champions that most embrace change and build relationships." said Arthur Woods, co-founder of Imperative. His colleague Aaron Hurst added, "my advice to entrepreneurs is to not seek to have token diversity but instead make the majority of leadership early.'
Indeed, at least one study has borne out Arthur's conclusions: a field study experiment of undergraduate students in international business at the Amsterdam College of Applied Sciences found that teams with an equal mix of men and women outperformed male-dominated teams in profits and sales.
Companies that build strong trust with customers and the public almost invariably do better in the long term. Fortune 500 companies with a higher percentage of women on their board of directors were more likely to be on Ethisphere Institute's list of the "World's Most Ethical Companies." This is something we see in the startup world and with Gaingels' own companies as well; where companies with a mixture of male and female senior leaders often form stronger and more trusting relationships with investors.
"Both men and women behave differently together, which creates a more focused environment and enables better challenging of assumptions," said David Beatty of Golden Seeds.
Profits, Revenue, and Stock Price
Ultimately, all fluff aside, public companies respond to bottom line arguments and it is a bottom line argument that is now producing progressive corporate change. Diversity was long viewed as a "soft" issue but this was one of the worst misconceptions in business and one of the fastest eroding myths today.
In fact, companies are beginning to realize that diversity has a more directly impact on the bottom line than almost any other major initiative a company can undertake. Measuring this in public European companies, McKinsey found that the 89 European companies with significant proportions of women in senior leadership positions and at least two women on their boards of directors outperformed industry averages for the Stoxx Europe 600, with 10 percent higher return on equity, 48 percent higher EBIT (operating result), and 1.7 times the stock price growth .
"Diversity goes beyond representation and percentages of lesser-represented talent such as women in the board room. Companies want to know their customers, partners, and service providers can match their commitment to diversity, and request everything from policies to cultural metrics to representation numbers, as part of the sales process," said Jennifer Brown of Jennifer Brown Consulting.
Diversity Moves Companies Forward
Viewed overall, the case is crystal clear and companies are responding: focusing on diversity should be seen as a clear-cut ROI-positive business decision. According to research by Catalyst in a study called "The Bottom Line," companies with more diverse representation outperformed those with the least on three financial measures: return on equity (53 percent higher), return on sales (42 percent higher), and return on invested capital (66 percent higher).