Diversity has long been accepted as being extremely valuable to the effective functioning of teams, yet it remains an area many organizations struggle with.  The virtues, however, were further reinforced by recent research from Vanderbilt University, which highlights the value of having racially diverse management, both at the upper and lower levels.

“We’ve known for a long time that the U.S. workforce has this problem of the glass ceiling that applies to minorities in the workplace. When you look at the overall workforce demographics, the number of minority employees in the workforce is not represented at senior levels of management. The higher you go, the narrower that path to leadership becomes for minority employees,” the researchers say. “The key takeaway of this study is that organizations that have higher levels of racial diversity not only in the lower managerial level, but also the upper managerial level, are actually the best performing companies that we observe. It’s a piece of evidence that supports the business case for diversity.”

Productivity gains

The researchers tracked a few hundred computing firms to explore how the demographic makeup of their management affected their financial performance between 2007 and 2012.

The analysis revealed that firms with high levels of racial diversity performed better than their peers.  Particularly poor performance was observed in firms with high levels of racial diversity in lower management, but low levels in upper management.  Such firms performed worse than those within which little racial diversity was seen at all.

The researchers believe a couple of factors are behind this.  Clearly diversity is important, but also something they refer to as “racial diversity congruence” matters.  This is when there are similar levels of racial diversity in each group.  Indeed, for every 1% increase in racial diversity congruence in a firm, productivity per employee grows by $729.  This was even starker in Fortune 500 firms, where the gain was $1,590.

Different perspectives

The authors highlight how greater racial diversity can help to ensure different perspectives and life experiences are factored into decision making.  These perspectives can be wasted if senior managers aren’t able to integrate them into the business, however, which is perhaps why organizations with low diversity in the upper ranks perform so poorly.

“It could be that the communication is not as easy flowing, because there are such differences between one group being really diverse and another group being a really homogeneous group. Maybe they’re not seeing eye to eye or understanding each other well,” the authors say. “It could also be demoralizing [for lower management] if you look at upper management and you don’t see a soul there who looks like you.’’

Interestingly, firms with low diversity across management didn’t do as poorly as firms with mismatched diversity levels.  The authors believe this is largely because such organizations may benefit from easier communication, even if they lack many of the competitive advantages diversity can bring.

“Previous research does show that people who are demographically similar tend to like each other, at least in initial interactions, and develop a sort of easy communication or camaraderie with that person,” they explain. “But there also seems to be a ceiling to that, because when the groups are very homogeneous, that also limits how much those people know in terms of the learning that one can experience from having a different racial and ethnic background. You can learn a lot depending on who you are, where you grew up, and your life experience.”

The importance of diversity is pretty well established by now, but the lack of it still reminds us that we need to keep on striving to improve matters.  Evidence such as from this paper goes some way towards achieving more diverse workplaces as it reminds us that failing to do so hurts our bottom line.

“We believe that when organizations approach diversity as a means of learning from different perspectives and using that learning to create synergy that makes the organization better, information and knowledge exchange should be facilitated between upper and lower management groups even if they are demographically different,” the authors conclude.