October 28, 2019 The Wall Street Journal has published a must-read piece that affirms what people who run in raceAhead circles already know: Diverse and inclusive companies make more money.
The Journal's research analysts have just completed their first-ever ranking of individual companies in the S&P 500 index. Turns out, they’ve found the receipts.
Each firm in the S&P 500 was given a diversity and inclusion score from 0 to 100. The score analyzed 10 metrics including board makeup, the age and race/ethnicity of the company's workforce, the adoption of diversity and inclusion programs, and the percentage of women in leadership roles. (Check out the full methodology, here.)
The results are fascinating.
Progressive Corp (with a score of 85) and JPMorgan Chase (80) took the two top spots, but were in excellent company—Anthem, Citigroup, Omnicom Group, Starbucks, and Visa all scored 75, and GM, Kroger, Marriott International, and Procter & Gamble were part of an impressive cohort who all scored 70.
The average score of the entire S&P 500 was only 44.2, a quick snapshot of the lack of diversity that persists within the index cohort.
For the high scorers, the financial benefits are clear.
The shares of the 20 most-diverse companies had an average annual return of 10% over five years, compared to 4.2% for the 20 of their lowest rank peers. The top 20 also report an average operating profit margin of 12%, compared with 8% for the lowest-ranking companies.
David Taylor, the CEO, president and chairman of P&G, told the Wall Street Journal that their own strong financial results (5% growth in organic sales) were a clear reflection of their diversity gains. “A diverse team supported by an inclusive environment that values each individual will outperform a homogenous team every time,” says Taylor.
I salute the analysts who constructed the study. It takes a lot of digging to do this work well. Some 28, or barely 1% of companies in the S&P 500, publicly share their racial diversity in senior management, and only 17 companies publicly report racial diversity at the board level. The public diversity numbers in the Fortune 500 cohort are equally grim.
But it also takes a lot of work to do diversity well, which is the subject of a new book, also a must-read.
Diversity, Inc.: The Failed Promise of a Billion Dollar Business by journalist and New York University journalism professor Pamela Newkirk, is a well-sourced and succinctly written report that addresses the overall lack of progress in three key sectors: academia, corporate America, and the Hollywood entertainment establishment. Each sector has been struggling with diversity, often quite publicly, for decades.
The book is valuable for many reasons, not the least of which is the context Newkirk provides.
She begins in earnest in 1968, which is the genesis of the modern diversity conversation. The Johnson administration (via the Kerner Commission) laid the blame for the impoverished state of Black communities at the feet of white-controlled institutions, and made the business and moral case for the inclusion of African Americans in the mainstream of business, education, and financial life. Inclusion was, at its core, a necessary corrective from slavery and Jim Crow.
This comprises the central tension of the quest for workplace diversity.
The work was initially compelled by a hodgepodge of public policy and legal initiatives, and as a result, has evolved to have nothing in the way of a central operating principle or universal agreement on, well, anything. “Diversity has become a catchall term that encompasses everything from race, gender, sexual orientation, and body size, to mental and physical capacity and eye color, and there's little agreement on the definition or institutional goals across and/or even within sectors.”
For Newkirk, understanding how this conversation has or has not changed over the fifty years is essential to understanding its chronically disappointing results now.
But to understand is to know hope:
“Perhaps most surprising is that many of the fields that are considered the most progressive, such as arts and entertainment, are the least diverse and that corporate America—despite remaining challenges—has in many instances made far greater strides toward employing and promoting racial minorities,” she says.
That the entertainment industry has been such a disappointment is more than just a missed financial opportunity, she says.
“If diversity is to flower, it cannot be hermetically sealed off from the cultural ecosystem in which it is implanted.” There are few industries that can correct the record of our history and begin to reset our fraught relationships with each other than Hollywood. “[Diversity] must be rooted in a mutual understanding of our past and its profound legacy. Viewing America through rose-colored lenses has prevented most White Americans from coming to terms with the myriad ways in which race continues to pervert national ideals and undermine justice. Without truthful encounters with the past, racial reconciliation is doubtful and diversity will remain little more than a hollow abstraction.”
Taken together, the report and Newkirk’s book are an affirmation of what four years of life on the race beat has taught me: A diverse workforce will yield clear financial benefits, but the journey to get there will yield enormous human ones.
Oh, and Hollywood? We could use some help here.
Ellen McGirt
Ellen.McGirt@fortune.com
@ellmcgirt
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