DIVERSITY WINS: HOW INCLUSION MATTERS

May 2020

“The business case for inclusion and diversity (I&D) is stronger than ever. For diverse companies, the likelihood of outperforming industry peers on profitability has increased over time, while the penalties are getting steeper for those lacking diversity.”

WHY DIVERSITY MATTERS

“Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.”

THE OTHER DIVERSITY DIVIDEND

• “Researchers have struggled to establish a causal relationship between diversity and financial performance—especially at large companies, where decision rights and incentives can be murky, and the effects of any given choice can be tough to pin down. So the authors chose a “lab rat” with fewer barriers to understanding: the venture capital industry.
• VC firms are fairly flat: Every investor is a decision maker, and choices have clear business consequences. Using publicly available information, researchers can see how similar or different decision makers are and compare decision quality on the basis of investments’ performance.
• After examining tens of thousands of VC investments, Gompers has found that diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. And even though associating with similar people can have social benefits for people who do so, it can lead investors and firms to leave a lot of money on the table.
• In this article Gompers and Kovvali describe the research and provide recommendations for reaping the business benefits of diversity.”

RESEARCH: ADDING WOMEN TO THE C-SUITE CHANGES HOW COMPANIES THINK

• “In this piece, the authors share new research that explores exactly how the addition of female executives shifts companies’ strategic approach to innovation. Based on an analysis of more than 150 companies, the authors find that after women join the top management team, firms become more open to change and less open to risk, and they tend to shift from an M&A-focused strategy to more investment into internal R&D. In other words, when women join the C-suite, they don’t just bring new perspectives — they actually shift how the C-suite thinks about innovation, ultimately enabling these firms to consider a wider variety of strategies for creating value.”

WHITE PAPER: THE CASE FOR DIVERSITY IN BUSINESS, VENTURE CAPITAL, AND INNOVATION INVESTING

REPORT: WOMEN-OWNED STARTUPS DELIVER TWICE AS MUCH PER DOLLAR INVESTED AS THOSE FOUNDED BY MEN

“…startups founded and cofounded by women are significantly better financial investments. For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.”

Kauffman Fellows

DECONSTRUCTING THE PIPELINE MYTH AND THE CASE FOR MORE DIVERSE FUND MANAGERS

“Diverse Founding Teams have higher returns when cash is returned to investors. Historically, they have earned a 3.26x median realized multiple on IPOs and acquisitions, compared to a 2.50x realized multiple for White Founding Teams, a 30% increase.”

SGC Ventures

RESOURCES – SGC VENTURES

“Venture capital firms that increased their proportion of female partner hires by 10% saw, on average, a 1.5% spike in overall fund returns each year and had 9.7% more profitable exits (an impressive figure given that only 28.8% of all VC investments have a profitable exit).”

Boston Consulting Group

HOW DIVERSE LEADERSHIP TEAMS BOOST INNOVATION

“In both developing and developed economies, companies with above-average diversity on their leadership teams report a greater payoff from innovation and higher EBIT margins.”