Diversity, equity, and inclusion (DEI) efforts are under attack in the private and public sectors, but research has found that companies with diverse boards perform better than those with nondiverse boards.
Cosmetics brand E.l.f. Beauty has partnered with North Carolina Agricultural and Technical State University to release a new report that draws on board membership data over the past five years, as well as findings from previous studies. Here are key findings:
1. Diverse boards perform better
S&P 500 companies with higher board gender diversity had 15% higher ROE and a 50% reduction in earnings risk compared to less diverse peers. A 2021 study found that corporate social responsibility and financial performance are correlated and the magnitude of the relationship depends on how diverse a board is. Meanwhile, companies with three or more women or minority directors had a lower likelihood of lawsuits.
2. Diversity is still hard to achieve
The typical board is 78% white, 73% male, and 58% white male. In general, boards tend to hire people who are similar to their members and achieve racial or gender diversity but not both. In an analysis of the 100 most gender-diverse boards, women made up 59% of total members and white members had 73% of the seats. In the 100 most racially diverse boards, 80% of the seats were held by people of color and 77% by men.
3. Progress is happening but it is unequal
White women make up 72% of the board seats held by women. Black Americans make up 14.4% of the U.S. population, but they only hold 7.3% of board seats.
“[Increasing] boardroom diversity is one of the best strategies on the table,” the report’s authors wrote. “[Improving] diversity on your board does not have to come at the expense of board members. Board expansion . . . may be a good approach to improving diversity as it allows the company to retain the expertise of the existing board while creating an opportunity for additional perspective and fresh thinking that a new board member can bring.”
