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Lack of diversity more expensive than ever

Companies in the top quartile for ethnic diversity show an average 27% financial advantage

Diverse companies are more likely than ever to outperform their less diverse peers, according to a series of reports by business consultancy McKinsey.

Companies in the top quartile of gender diversity are 39% more likely to achieve financial outperformance versus companies in the bottom quartile. This gap has grown from 15% in 2015.

There is also a 39% increased likelihood of outperformance for those in the top quartile of ethnic representation, in comparison with the bottom quartile.

Read more: Diversity conversations causing frustrations

The penalties for low diversity on executive teams are also intensifying. Companies with representation of women exceeding 30% are significantly more likely to financially outperform those with 30% or less. 

Similarly, companies in the top quartile for ethnic diversity show an average 27% financial advantage.

Meanwhile, those in the bottom quartile for both gender and ethnic diversity are 66% less likely to outperform financially on average, up from 27% in 2020.

The study comes as tech giants including Google and Meta made cuts to their DEI programmes in 2023. Asos also announced it would be dropping diversity targets for bonuses in November, citing an increased focus on profitability.

Employers should consider the strong business case for diversity before sacrificing DEI efforts to increase profits, according to Aggie Mutuma, founder of DEI consultancy Mahogany Inclusion Partners.

Speaking to HR magazine, she said: “I’ve seen first hand how the likes of Lacoste, Mint Velvet, Unicef and the British Red Cross have prioritised diversity to drive not just financial growth but also holistic success and societal impact. Retracting diversity and inclusion efforts is a step in the wrong direction.

“It's crucial to maintain the momentum, keeping our foot firmly on the accelerator for sustained progress and a more inclusive future," she added. 

McKinsey surveyed 1,265 companies in 23 countries, and six global regions. 

Read more: New diversity and inclusion standard published by BSI