The Business Case for Diversity

Recruiters on campus these days are big on diversity, and with good reason—diversity is simply good for business. Top firms have discovered that creating a workplace that welcomes all is a winning formula: diverse teams mean more ideas, more innovation, and better problem-solving.

In today’s economy, it is ideas that propel a company ahead of its competitors, and no one type of person has a monopoly over great ideas. Frédéric Rozé, CEO at L’Oréal USA, put it simply: “Diversity fosters creativity. We need to generate the best ideas from our people in all levels of the company and incorporate them into our business practices.” Over the past few decades, the business case for diversity has been made in more and more convincing ways. A recent McKinsey study[1] looked at the top executive teams of 180 public firms and found that those with more diverse teams outperformed their peers in ROE and EBIT margins. A 2012 Credit Suisse report[2] noted that investors would have been better off, on average, investing in companies with women on their management boards than in those without.  Academics have found evidence of the important of diversity in our own research: a recent working paper[3] from the National Bureau of Economic Research found that research that resulted from collaboration among diverse researchers was associated with higher impact and more citations.


Michael Sinkinson

Corporations have figured out the benefits of diversity. A 2011 Forbes survey[4] of 321 top executives from around the world highlighted the importance of prioritizing diversity in retaining talent and driving innovation, with nearly all firms having diversity and inclusion strategies in place. However, there is still much more to do. While a majority of firms in the survey had diversity plans in place for recruiting (65 percent), fewer had diversity-focused development programs (53 percent) or retention programs (44 percent). The challenges faced by some employees can be hard to see, and also hard to address. There is no getting around the fact that a woman’s prime child-bearing years coincide with prime career trajectory years. Further, research has shown that many people’s decisions exhibit subconscious biases based on gender, ethnicity, and other factors.[5] Companies have made great strides, but there is still much to do.

While the profit motive has been great for getting firms onboard with diversity initiatives, we should not lose focus of the fact that creating a world where all can succeed, regardless of race, gender, age, sexuality, or disability, is simply the right thing to do. We started to see this last week when a number of firms including Apple, GE, and Walmart, lobbied against laws in Arkansas and Indiana that could have opened the door to discrimination against gays and lesbians. The business case behind such actions was not clear, but the executives at those firms spoke of this as a moral issue as much as a business one.

The business case for diversity is clear, and firms have gotten that message. The case for diversity being the right thing to do may be a harder sell, but the current generation of MBA students is well-positioned to bring that message to their future workplaces. Wharton MBAs should be leaders in doing so.

[1] “Is there a payoff from top-team diversity?”, McKinsey Quarterly, April 2012.

[2] “Gender Diversity and Corporate Performance”, Credit Suisse Research Institute, August 2012.

[3] “Collaborating With People Like Me: Ethnic co-authorship within the US”, Richard B. Freeman and Wei Huang.

[4] “Fostering Innovation Through a Diverse Workforce”, Forbes Insights, July 2011.

[5] Project Implicit, 2011

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