DIVERSITY NEWS
BY SHERYL L. AXELROD
DISREGARD DIVERSITY AT YOUR PERIL: DIVERSITY AS A FINANCIAL COMPETITIVE ADVANTAGE
THE DATA IS IN: DIVERSITY IS FAR MORE PROFITABLE THAN LESS DIVERSE BUSINESS MODELS
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SUPPOSEDLY, THE BUSINESS CASE FOR DIVERSITY IS WEAK. IT’S MAINLY “WISH- FUL THINKING.” T at’s what the Chicago-based Institute for Inclusion in the Legal Profession concluded in its 2011 report “T e Business Case for Diversity: Reality or Wishful T inking.” T e IILP’s review of data was so comprehensive, the study was widely accepted as defi nitive. T ere’s just one problem: the report never actually took a direct look at whether diversity is profi table. T e IILP considered a number of factors: whether
corporate law departments incentivize law fi rm diversity; whether corporations disengage from law fi rms that fail diversity standards; whether corporate clients ask about law fi rms’ performance in becoming diverse; and how many lawyers are told they received business as a result of their fi rm’s diversity. T ese are all important issues, but they don’t directly speak to the profi tability of diversity. If you want to know whether one product is more profi table than others, you could ask consumers whether they will buy it, but that won’t answer the question. You could ask them whether they will stop going to stores that don’t sell it, but that won’t answer the question, either. You need to look at customer, revenue, and profi t fi gures. T e same holds true for the business case for diversity.
T e issue is whether diversity is more, less, or equally profi table than less diverse business models. Specifi cally, the issue is whether it is more profi table for law fi rms to have diverse leaders—people who look more like the composition of the legal community in terms of their gender, race, religion, sexual orientation, nationality, age, disability, and other metrics—or whether law fi rms with more homogeneous leaders are more profi table. You can’t fi nd out from asking in-house counsel whether they seek out diverse law fi rms. You have to look at which compa- nies are more profi table.
DIVERSITY & THE BAR® MAY/JUNE 2013
MOVING PAST ASSUMPTIONS: DIVERSE COMPANIES OUTPERFORM THEIR HOMOGENEOUS COUNTERPARTS
HAVING WOMEN AT THE TOP PAYS A number of recent business studies including a 2011 research report in Catalyst, Inc. by Nancy M. Carter and Harvey M. Wagner entitled “T e Bottom Line: Corporate Performance and Women’s Representation on Boards (2004-2008),” looked at the fi nancial returns of compa- nies with three or more women on the board. T e fi ndings are astounding. T ose companies outperform companies with all-male boards by 60 percent in return on invested capital, 84 percent in return on sales, and 60 percent in return on equity. Compare the Fortune 500 companies with the most
women on their boards with those with the least. T e companies with the most outperformed those with the least by 66 percent in return on invested capital, 42 percent in return on sales, and 53 percent in return on equity. Firms with few to no women on the board should take stock of the enormous economic advantage their competitors with more women in charge have over them. You can see it looking at Fortune 500 companies. T e
positive infl uence of female board members is so strong that as the percentage of women board members of Fortune 100-500 companies drop, so does the success of the com- panies, according to the Catalyst, Inc. report “2010 Catalyst Census: Fortune 500 Women Executive Offi cers and Top Earners.” Women represent 18 percent (nearly one in fi ve) of board members of the most successful U.S. companies, the Fortune 100 companies. Catalyst found that as you move from Fortune 100 companies to their slightly less successful Fortune 200 counterparts, the number of women on the board decreases to 16.7 percent. Fortune 300 companies have slightly fewer women on the board, 14.9 percent and so on down to Fortune 500 companies. Less women in
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