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Diversity and Inclusion: A Profitable Opportunity

Diversity and Inclusion (D&I) in the workplace has become an essential part of South Africa’s social and economic justice reforms. Yet, in South Africa and globally, businesses – while paying lip service to the importance of D&I – are still struggling to make it a reality in the workplace. We look at how establishing a diverse and inclusive workforce can make a business more profitable.

D&I – where are we with that?

Research from McKinsey on women in the workplace highlighted the disconnect between what companies are saying about D&I and what’s happening on the ground. They found that while 87% of companies indicated they were serious about D&I, only half of their employees thought gender diversity was a high priority.

Gender diversity at all levels is important, but diversity encompasses so much more – differences in ethnicity, religion, age, and ability are all part of what makes a society and workplace human. A diverse workforce provides diverse perspectives and access to distinctive networks and can lead to better decision-making at all levels.

The other seemingly undiscovered benefit of a diverse (and inclusive) workforce is increased profitability. A 2020 Deloitte survey found diverse workforces were six times more likely to be innovative, six times more likely to be able to anticipate change, and twice as likely to meet or exceed financial targets. That’s pretty significant!

But for that to happen, companies need to actively invest in D&I. Let’s see how that works.

D&I = ROI

Business thought leaders are passionate about how D&I can increase a company’s Return On Investment (ROI). Here are some impressive stats from current research:

  • Diversity has a significant impact on financial performance when looking at fund returns and profitable investments at the individual portfolio-company level. Also, businesses with shared ethnicity saw decreased success rates of Initial Public Offering’s (IPO) and acquisitions by 32.2% – Harvard Business Review
  • Companies with a higher proportion of gender diversity were 21% more likely to outperform on Earnings Before Interests and Taxes (EBIT) operating margins, and those with a higher proportion of cultural and ethnic diversity were 33% more likely to outperform – McKinsey
  • Startups that have founders that are ethnically diverse raise more operating cash and return more capital to their investors than those created by all-white executives. Additionally, companies with diverse founders outperform others by 30% when they go public or are acquired – Kauffman Fellows Research Center
  • High gender diversity companies outperform and deliver slightly better returns, with lower volatility, compared with their low-diversity peers – Morgan Stanley

This data clearly points to the fact that diversity is an important driver of financial success, and investing in D&I is guaranteed to yield profitable outcomes.

Companies that invest in D&I are good investments

An exciting development that will encourage businesses to up their D&I game is anyone can now invest in the most inclusive and diverse companies on the Johannesburg Stock Exchange through an exchange-traded fund (ETF). The initial public offering (IPO) of the Satrix Inclusion and Diversity ETF, which opened in July 2021, is a South African first.

It tracks a unique Diversity and Inclusion index that ranks JSE-listed companies according to key metrics, including gender diversity of the workforce, diversity at a board level, employees with disabilities and companies’ BBB-EE scorecard. Companies in the top 10 include Woolworths, Nedbank, Discovery, and Mediclinic.

Fixing D&I in SA businesses

Siyabulela Nomoyi, quantitative portfolio manager at Satrix, says not only are workplaces with a strong D&I culture good for people, but they also make a materially good investment. “No business can hope to succeed without having a workforce as varied as the world in which it operates. I’d go so far as to say that any company that doesn’t take D&I seriously is at risk of simply not understanding how to service its markets.”

With the right training and education, business leaders can develop the skills that will allow them to implement practical initiatives to champion the cause of D&I in the workplace. In fact, we’d go so far as to say measurable D&I policies and initiatives should become a KPI if we want to change the business culture from the bottom up.

MasterStart is excited to offer business owners and leaders the opportunity to upskill their executives, managers, and team leaders through our 7-week Diversity and Inclusion Course. Gain the tools and insight to examine biases, stereotypes, and habits and learn how to identify diversity outcomes and implement D&I strategies in the workplace.

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