Why it makes good business sense to invest in diversity

Article by Kristine Chong, Investment Manager at Salonica Maroon

Diverse group of stylish people standing together. Society or population, social diversityBusiness leaders talk constantly about the philosophy of marginal gains – finding lots of small ways to make changes and get the edge on the competition.

But, our obsession with these tiny changes sometimes blinds us to much bigger changes business leaders can make – like ensuring you have a diverse workforce and supply chain.

It has been proven time and again that businesses who are scoring highly on diversity metrics are often also outperforming their peers. And that’s not a coincidence. Diversity brings an incredible range of benefits to businesses – from higher financial results to better retention of top talent. But it’s clear that despite these benefits, many crucial areas of business – particularly funding and investment – haven’t woken up to the importance of diversity and are still lagging behind.

In fact, our recent research shows that 51% of female entrepreneurs and 64% of those from minority ethnicity groups have been forced to give up on a past business venture because of lack of funding.

Clearly, investment remains a fundamental barrier to entrepreneurs from underrepresented groups, which in turn blocks gender and culturally diverse businesses from competing on a level playing field. This has to change. Building a fairer, happier, and yes, more profitable, business landscape can only happen if we ensure the foundations it’s built on are diverse and vibrant.

A diverse perspective

The greatest benefit of having a diverse workforce in the business landscape is the range of perspectives you can draw on. By having access to a wider range of lived experience in the workplace, businesses become far more capable of making decisions that are not only reflective of society’s needs and expectations, but maximise potential returns for the business. When business gets this right, it becomes cyclical – people recognise the steps the business is taking which opens up new doors and opportunities, which in turn can be better realised thanks to the diverse nature of their workforce.

Put simply – excluding women and other underrepresented minority groups from leadership positions is actively choosing to handicapping businesses. If you ignore the experience, knowledge and value of well over half the world’s population, you’re inevitably setting yourself up for a fall.

In fact, the case for better gender diversity in business has already been well documented. A recent report by McKinsey on why diversity in business matters has shown that the most gender diverse companies are more likely than ever to outperform less diverse peers on profitability. Its 2019 analysis found that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than those in the fourth quartile. And that’s up from 21% in 2017 and 15% in 2014, so the case for better gender diversity continues to strengthen.

Changing this is our key goal at Salonica. We are laser focused on addressing the severe lack of representation of female and ethnic minority groups at the most senior levels of finance and investment. It’s clear from our research and a report from the British Business Bank that this lack of diversity in the finance sector has major negative implications for diversity in other sectors. This is why we’re introducing a new fund with the sole purpose of investing in diverse executive teams. And we won’t stop there – we’re also committed to giving them the support they need for their ventures to thrive.

Better business sense

Diverse businesses have been outperforming their peers for quite some time. In 2018, in a report by McKinsey&Company (‘Delivering through Diversity’), findings showed that “Companies with the most ethnically/culturally diverse boards worldwide are 43% more likely to experience higher profits.” This is a staggering statistic, and begs the question why every business isn’t making diversity a top priority.

The same report found that “Companies in the top-quartile for gender diversity on executive teams were 21% more likely to outperform their national industry median”. I can’t put it clearly enough. A diverse business is a better business.

However despite all this evidence, there are far too many barriers still in place. And for too long we’ve asked the people without representation to figure out how to overcome these barriers themselves. We expect them to work harder than anyone else, showcase more resilience than everyone else and then fail to recognise their achievements when they do.

That has to stop. The investment industry needs to proactively remove the barriers we’ve all put in place and ensure that diverse executive teams become the norm, not an unexpected bonus. This change won’t happen overnight – but it has to start now.

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