Why the Board of Directors Needs Diversity

By Wim Dodson

What is Diversity, Exactly?

We in the United States are lucky to reside in a country that is rich in the diversity of its population. Nowadays, coworkers may be male, female or any age, from any ethnic, spiritual or cultural background, married, single or coping with a partner of the opposite or same sex, able-bodied or not.

The greatest advantage of the spectrum of experience is that companies can solve business problems more readily, expand their customer bases exponentially, and gain greater assurance they will remain relevant in a dynamic, multicultural marketplace.

However, diversity and inclusion present organizations with the challenge of getting the best from a diverse labor force, while at the same time meeting their legal obligations. Boards need to make diversity a primary agenda item for their meetings so the company can remain legally viable, perceived as civically relevant, innovative, and competitive.

Why Diversity is important to organizations

Since the beginning of the new millenium, academic and professional surveys have shown that diversity in organizations - whether organic or programmatic -- makes companies more competitive. Archpoint, a consultancy, cited that:

The United States will no longer have any single ethnic or racial majorities by the year 2065. (Pew)
For every 10% increase in the rate of racial and ethnic diversity on Senior Executive teams, EBIT rises 0.8%. (McKinsey)
Ethnically diverse companies are 35% more likely to outperform their respective national industry medians. (McKinsey)
Gender diverse companies are 15% more likely to outperform their respective national industry medians. (McKinsey)
Companies reporting highest levels of racial diversity in their organizations bring in nearly 15 times more sales revenue than those with lowest levels of racial diversity. (American Sociological Review)

The Business Benefits of Diversity

According to a research study released in 2003, entitled Harnessing Workforce Diversity to Raise the Bottom Line, a more diverse labor force improves company efficiency. The study, which involved around 500 businesses operating in the United States, USA and Europe, unearthed advantages of diverse organizations, including:

Higher staff retention;
Reduced recruitment expenses;
More pleased consumers;
Access to a broader consumer base;
Better supply chain management;
Access to originalities on process and item improvements.

Diversity is also essential to corporate success in international markets. Any organization that wants to expand internationally can not hope to do so effectively without a detailed understanding of the cultural background of the new markets in which it wishes to prosper.

The Challenges of Promoting Diversity

The research study did find that diversity management is a process of continuous improvement. Two challenges were particularly thorny, according to the report:

Ingrained mindsets that make it tough for senior supervisors to manage individuals who are very different from them.
The culture of long, rigid working hours makes it difficult for women to aspire to senior management positions.

The report concluded that diversity produces maximum monetary impact to organizations when the company connects the objectives of diversity programs with organization business processes with the support of senior executives. According to Professor Amin Rajan, a co-author of the report, companies are beginning to see that diversity in the workplace pays.

Rajan cited that, "Instead of considering diversity as about equality, that is, in regards to the law or compliance, companies are now seeing it as a concern of benefit and benefit alone".