August 13, 2021 / VOLUME NO. 170
Does Diversity Need a Business Case?

Proponents of diversity in boardrooms and C-suites often argue that it’s good for the bottom line. 

Companies with diverse racial, ethnic and gender representation in senior leadership tend to perform better financially, they say, often citing a series of studies conducted by the consulting firm McKinsey & Co. But two accounting professors recently published a paper revealing they couldn’t replicate those results, leading them to conclude that “caution is warranted” when attempting to link racial and ethnic diversity and financial performance.

This finding begs the question: Does diversity need to have a business case for companies to think it’s important? Does it have to make money to be the right thing to do?

I have a vested interest in the answers to these questions. I believe there is strength in differences. I also identify as a woman, as Asian American, as a third-generation immigrant and as a millennial. My background and experiences influence how I think about and approach finance — and the world. 

But companies that value diversity should understand that it doesn’t necessarily mean “profitable.” Bankers tell us that diverse viewpoints can improve decisions made around risk management, products and services, or talent development. And most workers value employers that prioritize diversity, according to a recent CNBC/SurveyMonkey survey, indicating its positive impact on corporate culture. 

Diversity may not have an obvious impact on the bottom line, but it can affect areas that help banks stay relevant — and competitive. 

“[Diversity] expands the breadth of experiences brought to bear on decisions, input, outlook and customer relations,” wrote one respondent to Bank Director’s 2021 Governance Best Practices Survey. It’s one of many anonymous comments we received that point to the value that diverse backgrounds bring to board deliberations. 

And now, public banks listed on the Nasdaq will be required to report the disclosed gender, racial characteristics and sexual identities of their board members, following the Securities and Exchange Commission’s approval.

Like anything else, the effect of diversity is diffused and nuanced. It may or may not have a financial impact. That doesn’t mean it’s not worth it. 

• Kiah Lau Haslett, managing editor of Bank Director
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