Want Success in Business? Have a Diverse Workforce

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Diversity in gender and ethnicity among employees can lead to over 50% improvement in company decision-making.

Gender and ethnic diversity in the workplace are not just a matter of morality or political correctness, according to Prof. Thalma Lobel of Tel Aviv University’s School of Psychological Sciences. Lobel explains that diversity, in fact, contributes to the success of companies and organizations worldwide.  
“When you bring people with different opinions into the room, the decision-making process becomes more complex, and the participants take more information into account. The more perspectives and points of view that are heard, the greater the chances of reaching a better solution.”
 

More Points of View

In her study, Lobel presents a wealth of empirical evidence that gender and ethnic diversity improves the performance of companies and organizations – to the point of bringing about a 58% improvement in decision-making. She mentions as an example a 2008 report, which she says, “found that among the companies included in the Fortune 500 list, those whose board of directors included more women achieved better financial results.” In another example, researchers from the Credit Suisse Research Institute surveyed 2,360 companies and found that the ones whose board of directors included at least one woman performed better than those whose board consisted of only men. A McKinsey report examined the impact of gender and multinational diversity on companies’ financial performance. The researchers looked at the composition of the boards of directors of 180 companies in France, Germany, Great Britain and the United States from 2008 to 2010, and the results were clear: the financial success of the companies that were characterized by diversity were significantly higher than those that were less diverse.” According to Prof. Lobel, these and other studies clearly demonstrate that diversity offers significant benefits to companies and improves their functioning, since people from different backgrounds bring with them a variety of perspectives, points of view, and types of knowledge, and this variety contributes to innovation and creativity: “When you bring people with different opinions into the room, the decision-making process becomes more complex and the participants take more information into account. The more perspectives and points of view that are heard, the greater the chances of reaching a better solution.”   Prof. Thalma Lobel  
“This was a surprising finding which may have far-reaching implications: the mere presence of the minorities changed the trend of decision-making.”
 

Diversity – Louder than Words

Diversity in the workplace, in fact, improves performance even if the diverse perspectives are not heard at all. “Researchers examined the effect of diversity in racial origin on decision-making and the performance of traders in the capital market,” says Prof. Lobel. “They invited people with a financial background to participate in the study, and trained them to calculate the intrinsic value of stocks. The participants were then divided into groups with either a homogenous or diverse make-up. The diverse groups included at least one person of a different origin than the other participants. The researchers conducted their study in two markets – North America and Southeast Asia. “In North America, the homogenous group included only white traders, while the diverse group included one trader of African-American origin and one of Latino origin. In Asia, the homogenous group was composed of only Chinese traders, and the diverse group also included traders from Malaysia and India. The results were astonishing: the members of the diverse groups demonstrated a significantly higher level of accuracy in stock pricing than the homogeneous groups. Their ability to quote a price that reflected the true value of the assets was 58% higher. “The members of the homogeneous groups tended to pay unreasonable and exorbitant prices, which were further from the true value of the stocks than those quoted by the diverse groups. In other words, the chances of a dangerous bubble forming were higher when the trading was carried out by a homogenous group, and lower when the traders belonged to different ethnic groups. This was a surprising finding which may have far-reaching implications: the mere presence of the minorities changed the trend of decision-making.”  
“When you form a team, task force or committee, try to include as many people as possible from a variety of ethnic groups, genders, and backgrounds.”
 

Get an Outsider’s Opinion

In her book, Whatever Works, published in the United States in 2020, Prof. Lobel presents findings that extend far beyond the world of work and business: A study conducted by Prof. Richard Freeman and his doctoral student Wei Huang of Harvard University compared 2.5M articles published in scientific journals, and found that articles whose authors came from diverse ethnic backgrounds garnered more mentions and citations in the scientific literature. “Many studies show that working in a diverse team contributes to better decision-making,” Prof. Lobel concludes. “In light of this, you should take a look around the next time you’re working on a joint project. Are all your team members of the same gender and ethnic group as you? If the answer is yes, you should carefully consider all your options and avoid rushing to make any decisions. You will likely benefit from getting an outsider’s opinion. When you form a team, task force or committee, try to include as many people as possible from a variety of ethnic groups, genders, and backgrounds.”

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