This blog is written by Sumit Agarwal, a DEI advisor to Fortune 500 companies and one of LinkedIn's Top Voices. Sumit is an ally for women’s advancement, in both words and action.
The debate on whether gender diversity boosts productivity has long been a topic in the business world.
As a DEI advocate, I firmly believe that diversity is a powerful driver of innovation and success.
Research supports this belief, suggesting that gender diversity fosters innovative thinking and signals to investors that a company is well-managed.
For example, numerous studies have shown that diverse teams are more creative and effective in problem-solving.
However, some researchers argue that gender diversity can sometimes negatively impact performance, indicating a more complex relationship.
The key issue lies in the context of these studies. A vast body of research has focused on single countries or industries, limiting the generalizability of its findings.
This got me thinking: Could the conflicting research results be due to differences in regional and industry contexts?
It turns out they could be.
Cultural attitudes towards gender diversity significantly influence its impact on business outcomes.
In a study led by Professor Zhang involving 1,069 leading firms across 35 countries and 24 industries, it was discovered that gender diversity enhances company productivity, as measured by market value and revenue, only in contexts where it is normatively accepted.
Normative acceptance refers to a widespread cultural belief in the importance of gender diversity.
The methodology involved creating a comprehensive dataset of companies from various countries and industries.
For instance, it was found that in the telecommunications sector in Western Europe, a relatively gender-inclusive region, a 10% increase in Blau's gender diversity index was associated with a 7% increase in market value.
Conversely, in the Middle East's energy sector, a region with less gender inclusivity, gender diversity had no significant impact on company performance.
Interestingly, the benefits of diversity were apparent in societies that normatively accepted working women but not in those with only regulatory support.
For instance, Japan, despite having generous parental and homecare leave policies, suffers from a patriarchal work culture, resulting in limited benefits from gender diversity.
In contrast, Western European firms, where cultural acceptance is higher, see more significant advantages.
Our international comparisons underscored the critical role of cultural norms in realizing the benefits of diversity.
This finding has significant implications for business leaders and policymakers.
It suggests that for diversity to be effective, workers must genuinely believe in its value rather than merely adhering to regulations.
There are three main reasons why attitudes towards diversity matter so much:
1. Attracting Top Talent: Diverse work environments are more attractive to talented individuals. Studies, such as those from Glassdoor, show that a majority of job seekers, particularly women, prioritize gender diversity when considering job offers.
For instance, Glassdoor found that 67% of job seekers evaluate an offer based on workforce diversity. Top female candidates, in particular, care about gender-diverse work environments.
A recent survey found that 61% of women look at the gender diversity of the employer’s leadership team when deciding where to work. This preference helps diverse firms outperform their peers.
2. Encouraging Innovation: Diverse teams bring unique perspectives, leading to greater creativity and innovation.
Research by Hewlett, Marshall, and Sherbin has shown that leaders with diverse backgrounds foster environments where new ideas flourish.
They found that diverse teams were more likely to have some common experiences with their end users, giving them an advantage in creating better products.
However, this only happens when there is psychological safety, allowing everyone to contribute their unique ideas without fear.
Experimental studies further support this, showing that psychological safety is key to idea generation.
When countries and industries don’t value women equally, women working in those countries likely don’t feel psychologically safe speaking up in their organizations.
Even though these women may have innovative ideas, they might hesitate to share them. When that happens, everyone loses.
3. Signaling Competent Management: Gender diversity signals to investors that a firm is well-run. Sociological research on market valuation suggests that investors value companies that adhere to best practices, including diversity initiatives.
For example, research has shown that stock prices jump after firms win awards related to diversity initiatives. This trend is evident in pension funds, an industry that strongly values gender and other forms of diversity.
If an investor was in a context that accepted gender diversity, they were more likely to value those diverse companies highly. In fact, prior research has even shown a jump in stock prices after firms win an award related to diversity initiatives.
The relationship between diversity and company performance is complex and context-dependent.
However, investing in gender diversity is generally a wise move for almost all companies. By most measures, the global business community is becoming more supportive of women and their importance in the economy.
This leads to a positive feedback loop: firms that support gender diversity will capture these benefits earlier, leading them to outlast their competitors.
Managers seeking to harness the benefits of gender diversity should focus on creating inclusive environments where all employees feel valued and heard.
This involves not just implementing regulatory measures but also fostering a culture that genuinely values diversity.
In conclusion, while the impact of gender diversity on business outcomes is influenced by regional and industry contexts, the overall evidence suggests that diversity is a key driver of innovation and success.
By understanding and leveraging the cultural norms that support diversity, companies can create more productive, innovative, and attractive workplaces.
As we move forward, it is crucial for businesses to adopt and genuinely embrace gender diversity as a core value.
