It pays to promote diversity, study finds

By having policies that promote diversity and an inclusive culture, firms can boost innovation and strengthen their financial standing, according to a new study reported in the journal Financial Management.

Co-author Jing Zhao, assistant professor of finance in the School of Business at Portland State University in the United States, says that their findings offer “strong evidence that creating a more diverse workplace today results in more innovative outcomes for companies tomorrow.”

promote diversityFirms that promote diversity can increase their value to shareholders. Image: CP/pixabay composite

She and her two co-authors, from North Carolina State University, believe that their research is the first to measure how diversity affects the bottom line in corporate America.

Enhanced innovative efficiency

To measure innovation in publicly traded U.S. companies, the researchers used patents and patent citations, plus announcements concerning new products.

They found that – by attracting and retaining women and minorities, including disabled and LGBTQ workers – companies that promote diversity in their workforce and foster an inclusive culture are better at generating new products.

The term LGBTQ stands for “lesbian, gay, bisexual, transgender, and queer.” In some instances, the Q at the end can also mean “questioning.”

The authors note that the pro-diversity firms were better at enhancing “future innovative efficiency.”

And, because of this effect on innovative efficiency, pro-diversity increases firm value, they argue.

The study also shows that the effect is particularly noticeable during economic downturns.

Prof. Zhao and colleagues found that firms with policies that promote diversity came out of the 2008 financial crisis stronger than firms that did not.

Access to wider pool of talent

The researchers found that pro-diversity employers are able to access a bigger pool of talented and creative people when recruiting workers; the result is that they can draw on a wider range of experiences, backgrounds, and views when solving problems.

Firms that are more innovative “value intangibles and human capital more highly, have greater growth options, have higher cash flow, and have stronger governance,” they note.

Prof. Zhao says that many business leaders, policy makers, and academics have long debated whether firms with more diverse workforces offer better value for shareholders.

“Now,” she concludes, “we have strong evidence that creating a more diverse workplace today results in more innovative outcomes for companies tomorrow.”