Top Team Diversity Summary
The study conducted by Thomas Barta, Markus Kleiner, and Tilo Neumann proves there is a link between company’s top team diversity and its superior performance. The researches analyzed the compositions and performance of 180 publicly traded companies from the United States, the United Kingdom, Germany, and France between 2008 and 2010.
In particular, companies’ returns on equity (ROE), earnings before interest and taxes (EBIT) and the number of women and foreign nationalities on senior teams were considered. The results consistently demonstrated that companies with the high ranking executive-board diversity had, on average, 53 percent higher ROEs compared to those in the bottom quartile. Moreover, the average score is substantially lower due to France, while in the United States, companies from the top quartile demonstrated 95 percent higher ROEs than those from the bottom quartile. What is more, the most diverse companies have 14 percent higher EBIT margins compared to the least diverse. The results were validated by assessing industry-specific distortion, which effect proved to be insignificant, and analyzing effects of gender and cultural diversity independently.
The researchers point out that though the results are consistent, they do not prove there is a direct relationship between diversity and financial success, as there are other factors, which can influence the link between these phenomena. For example, high-performing companies grant their CEO more freedom and resources to pursue new initiatives, diversity among them. Moreover, superior results may directly stem from other management innovations. Therefore, to validate the data the researchers also analyzed how the diversity influenced the actions of individual companies. The authors present the examples of Adidas and a top-ranking food company that gained much from the diversity inclusion.
These companies managed to enhance product creativity, attain geographic decentralization and improve risk management and, eventually, made diversity one of their strategic goals. This way, the authors suggest that though the assessment of the quantitative effect of top-team diversity on financial performance needs further research, it is clear that diversity is among the best business practices.
References
Barta, T., Kleiner, M., & Neumann, T. (2012). Is there a payoff from top-team diversity? Mc Kinsley Quarterly. Retrieved from https://shift-