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“Positive Association” Between Diversity and Performance – AYS

A report by US shareholder advocacy non-profit As You Sow has found a “positive association” between diverse representation in management and positive financial performance. The report, written in collaboration with Whistle Stop Capital, matched Equal Employment Opportunity (EEO-1) diversity data from 277 companies against 14 key financial performance metrics. It showed that a higher representation of Black, Indigenous, and people of colour (BIPOC) employees in management had a positive relationship to higher cash flow, net profit, three- and five-year revenue, and five-year return on equity (ROE), and stock performance, as well as being associated with lower volatility. According to the report, there are key advantages for corporate cultures that have higher inclusivity and are better at promoting and retaining their diverse talent. Positive financial performance is associated with smaller gaps in overall diversity and the diversity of the management team, while negative performance is associated with larger gaps in BIPOC representation in the management team and wider employee base. The gap between overall female representation in the workforce and female representation in management has a negative performance association for the financial sector. The larger the gap between overall representation and women in management the more significant the underperformance, according to the report. The report said: “Broader societal trends indicate that the positive associations between corporate diversity and financial performance identified in this study are likely to become more defined over time. Census data show that by 2045, non-Caucasian individuals will make up the majority of the [US] population. Companies will need to be in tune with these changing demographics in order to remain competitive.” 

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