Why do companies with diverse leadership perform well?

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When evaluating investment opportunities, many benchmarks count. An increasingly significant one is the degree to which an organization’s leadership is diverse.

At Desjardins, we look closely at the composition of the board and management. Companies that are diverse at those levels also tend to be more diverse at the employee level. We understand that diversity means more than gender. While we’re specifically tracking female representation, gender diversity is associated with other types of diversity across a company.

That’s tremendously important to us. For one, when it comes to RI, a company’s makeup should reflect society’s. Moreover, diversity is correlated with financial performance.

For instance, studies have demonstrated that companies with greater female representation on their boards outperform their less gender-diverse competitors.¹

The Responsible Investment Association notes that companies founded and co-founded by women generate 10% more cumulative revenue over a five-year period. And just a 1% increase in ethnic diversity is associated with an average 4% increase in revenue across Canadian companies.

We’re focused not just on diversity but also on encouraging strong inclusion policies. How do people across the company have a voice? What’s the organizational culture? How are different perspectives welcomed?

RI concentrates on companies that are best-in-class in ESG criteria and that are strong performers, too. Diversity and inclusion is part of how companies govern themselves. That’s usually our first insight into a company. How it fares in this area can be critical for long-term performance.

What’s the link? Diverse companies don’t limit themselves. They’re open, attracting the best talent from every background and experience. Research indicates that diverse groups make better decisions than homogeneous ones.² Companies with robust diversity and inclusion practices also tend to have higher employee engagement and less turnover. They’re companies where everyone can contribute to their full potential.

As recently as 2015, women represented just 18.3% of board members of S&P/TSX companies. Last year, that number was 27.6%, and the pace is accelerating. A sample of 100 of Canada’s largest publicly traded companies showed that 49% of new board members are women and half of all boards have adopted a diversity target.

The 30% Club is a UK-based initiative that aims to increase gender balance on boards and in senior management for companies worldwide. As an RI leader and a member of the Canadian chapter of the 30% Club, Desjardins routinely meets with company leaders on the topic of diversity. We talk about programs that promote better representation and how to counter biases (conscious and unconscious) that can hold back the recruitment and advancement of women in decision-making positions.

As much as RI should have a positive impact, it remains an investment. Diversity and inclusion are definitely part of a healthy society and of healthy companies. Investments that reflect those companies are part of a healthy portfolio.

Deborah Debas Responsible Investment Specialist with Desjardins Group

To learn more about Desjardins RI solutions, visit https://www.desjardinsfunds.com/ri.

¹ The CS Gender 3000: The Reward for Change, Crédit Suisse, Research Institute, September 2016 ² https://www.forbes.com/sites/eriklarson/2017/09/21/new-research-diversity-inclusion-better-decision-making-at-work/#576e11c94cbf