Study: Diverse corporate boards see lower risk and high return on equity

A couple of months ago, we wrote an Optimist View about the value of investing in diversity. Now, there’s even more research to back the benefits of inclusion. A new report by BofA Global Research found that S&P 500 companies that are more diverse and inclusive see better performance and lower risk than their less diverse counterparts. 

The research team used public workforce data and AI-driven datasets from Revelio Labs to come to their conclusion. They found that companies with at least 30 percent of women in management positions saw a bigger median improvement in annual return on equity. They also found that companies where at least 25 percent of executives were female saw consistently higher 1-year median return on equity dating all the way back to 2010. 

This performance boost applies not only to gender diversity, but ethnic, racial, and cultural diversity as well. The study found that companies with ethnically and racially diversified workforces saw an eight percent increase in return on equity. 

The reduction in earnings risk is even more stunning than the increase in profits. Companies with more women on their board than the median had a 50 percent reduction in earnings risk compared to less diverse boards. 

Despite these clear benefits, only three S&P 500 companies have a board that’s made up of at least 40 percent of people of color, and less than a dozen S&P 500 companies have boards that are half women. 

Hopefully, data like this will convince more corporate boards to embrace diversity and equity, but until then, California has proposed a bill that would mandate corporate diversity and Nasdaq is pushing to implement a diversity requirement for its listed companies. 

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