We have long known diversity and inclusion in NFP management are moral and ethical imperatives. Recent studies have also shown powerful decision science reasons why they are important. Professor Daniel O’Connor and I had the pleasure of being faculty advisors to Delia Geyer, who completed her senior thesis in economics with honors at Moravian College in 2021. Delia’s topic was the CEO Pay Ratio, a topic germane to publicly traded companies. As part of her project, Delia also analyzed how certain social justice aspects affected the Pay Ratio, and indirectly corporate management. Her findings on this topic are just as relevant to NFP organizations as they are to large public companies. Delia wrote::
“McKinsey and Company (2020) found companies with the greatest ethnic diversity on executive teams outperformed those with the least by 36% in profitability. They also found companies with more than 30% women on their executive teams were more likely to outperform those with fewer women on their teams (McKinsey and Company, 2020). Another study found Fortune 500 firms with the highest percentage of women on their boards outperform those with the lowest (Women on Corporate Boards (n.d.)). Companies with higher than average diversity percentages of their management teams report higher revenue levels than companies with less diverse management teams (Lorenzo, et al., 2021).” (Geyer, 2021, unpublished thesis, quoted with permission).
Why is this so? Several reasons come to mind. James Surowiecki,in his bestselling book the Wisdom of the Crowds, noted that more information brought to bear on a situation results in better decisions but only if the information from each source is independent from other sources. Having a diverse board and management helps ensure many independent viewpoints and information are considered in the decision making process.
Another reason why diversity is important on the board is it minimizes the possibility of groupthink. This phenomenon occurs when members of a group place harmony and agreement ahead of good decision making. In such a situation, issues and information are not adequately explored and silence is often taken as agreement. One cause of groupthink is a highly cohesive (read “non diverse”) decision making group. A more diverse board will bring more and varied opinions to the fore, resulting in better decisions. Diverse opinions are important, even if they only force the majority of the board and management to sharpen their reasoning about why their proposed decision is correct.
NFP management take heed. Diversity and inclusion initiatives are not only the right thing to do, but will also improve the operation of your organization!