A 2015 report that found ethnic and gender diversity is good for US business has been influential, but progress is still glacial

The colour of the boardroom – and why it might affect the bottom line

Last year, in a pitch to competing ad agencies, the US food giant General Mills stipulated that agencies must be staffed with at least 50% women and 20% people of colour in their creative departments to win its business.

The directive felt like a watershed: the company behind brands such as Häagen-Dazs, Cheerios and Yoplait with nearly $18bn (£13.4bn) in annual sales abruptly demanding that the companies which fashion its public image have to be proactive in creating diverse workforces.

The move came hot on the heels of new research showing that proper gender and ethnic diversity has become important to the bottom line.



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The standard reference is a 2015 McKinsey report, Why Diversity Matters, which focused on 366 public companies and found that those in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry average. Those in the top quartile for gender diversity were 15% more likely to have improved returns.

But business experts say the equality revolution is still a work in progress. David Bradford, a professor of organisational behaviour at Stanford Graduate School of Business, says the pace of change is slow because there are so many aspects of corporate cultures that need to shift first.

“You have to look at the education system, the norms of the organisation and how it favours what they look for and how they assess people,” he says.

Bradford says signs that point to gender, racial or other disparity may often appear trivial – Star Wars posters at a Silicon Valley tech firm, for instance, in an industry that is notoriously gender-biased, or a midday run at a financial company that disadvantages overweight employees – but can have far-reaching consequences.

“These informal rules exist and you have to question whether it is a really a criteria for a successful investor to be able to run at noon. What are the other ways we interact? Or is being led by the person who talks the loudest really a good way to make decisions?”

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Citing the McKinsey survey, authors of a Harvard Business School study concluded: “Though you may feel more at ease working with people who share your background, don’t be fooled by your comfort. Hiring individuals who do not look, talk, or think like you can allow you to dodge the costly pitfalls of conformity, which discourages innovative thinking.”



A separate study, released by the investor research firm MSCI, found that during the past five years, US companies that had at least three female directors in 2011 have financially outperformed those with none.

Another, by the governance research firm Equilar for the Wall Street Journal, found that 76 US public companies had had no female directors for the past decade. And a survey of 884 public company directors by PwC US, found that just 24% of men – compared with 89% of women – “very much” believe board diversity leads to improved business performance.

2020 Women, a group campaigning to increase the percentage of women on US company boards to 20% or greater by the year 2020, found that nearly half of the 75 biggest initial public offerings of the last three years featured companies that lacked women on the board when they listed. Healthcare companies are among those with the poorest representation.

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“While we women have been leaning in, knowing our worth, asking for more, and following every other strategy that promises to bring us workplace equality, diversity at major US corporations has been going … sideways. At best,” wrote the former Merrill Lynch Wealth Management chief executive Sallie Krawcheck in a bleak Fortune magazine column, “Why corporate America will never ‘get’ diversity”.

Krawcheck theorises that men tend to be promoted on their potential, women on their experience, while most people are implicitly drawn to working with people who resemble themselves.

“Maybe we should all just finally admit that corporate America just doesn’t get it – doesn’t truly, deeply get it. Maybe the better results that come from increased gender diversity just aren’t enough to get men – who remain mostly in charge – to change the workplace.”

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While institutional investors are mounting some efforts to address gender imbalance, the same patterns of disparity are reflected in the racial or ethnic makeup of US public companies.

According to a 2016 Fortune study, there have been only 15 black chief executives in the history of the Fortune 500. “Racial diversity continues to be at best a challenge – and at worst a flat-out fiction – particularly in the executive ranks,” the publication concluded.

A separate diversity survey published in 2015 by the New Jersey senator Bob Menendez found that black men and women accounted for just 4.7% of executive team members in Fortune’s top 100 companies, a figure that hadn’t budged since 2011.

The changes in American boardrooms may be glacial but the fact that the conversation has even been engaged is a sign of progress, says Bradford.



“The very fact that we’re discussing why Silicon Valley is so heavily male is important because until you have the discussion, you can’t begin to address ways to fix it,” Bradford says. “It’s going to be slow, but if you take a longer view over 20 or 30 years you can see that we have made already made some progress.”