February 6, 2023
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Diversity makes businesses better


Gerhard Apfelthaler

Gerhard Apfelthaler

An American entertainer, a Japanese businessman and a British nun walk into a bar… A lot of jokes used to start like this. In today’s global economy, such a diverse scenario has become the new normal for companies worldwide. And yet, we haven’t moved much beyond clumsy attempts to resolve awkwardness with humor. Diversity in the workplace is still mostly seen as something disruptive — a source of misunderstandings, disparities, tensions and, sadly, a potential liability risk that needs to be managed. At best, we tolerate diversity.

Decades of scientific research, however, have long suggested otherwise, and in recent years companies are starting to wake up to a new truth: Diversity makes us smarter.

Since the early 2000s, a growing body of convincing studies has been published that speaks of the positive effects of diversity in race, ethnicity, gender and sexual orientation in organizations.

Let’s start with the area of gender diversity, about which the New York Times once pointedly remarked that fewer large companies are run by women than by men named John. In 2006, the National Bureau of Economic Research published a study indicating that male-dominated work groups performed worse than female-dominated and mixed-gender groups. In 2012, two independent teams of researchers — one at Columbia Business School and another at the Credit Suisse Research Institute — looked at thousands of large companies and found a clear relationship between gender diversity and corporate performance: Companies with female representation in top management or on boards perform better financially. All ideology aside, just the mere gain in profitability and market value should convince corporate America that gender diversity makes good business sense.

Let’s turn to racial and ethnic diversity, for which similar evidence exists. More than 10 years ago, a professor at the University of Texas found in a study of national banks that increases in racial diversity also enhanced financial performance. Beyond the bottom line of corporate performance, the evidence is even more convincing. In 2006, researchers at Stanford University and the University of Illinois examined the impact of racial diversity on decision-making. In their experiments, they found that racially diverse groups outperformed groups without racial diversity. In 2009, a study published by researchers at Stanford, Northwestern University and Brigham Young University showed that diverse groups are more successful in completing their tasks than homogenous groups — a result that was confirmed in a 2014 study published in “Perspectives on Psychological Science.” Dozens of similar studies exist and new evidence that diversity works is added every year.

The key to understanding the positive influence of diversity is a concept called informational diversity: When people are brought together to solve problems in groups, they bring different information, opinions and perspectives to the process. Particularly in circumstances where new solutions for complex problems are needed, such differences are invaluable. Diversity brings a rub called cognitive friction that enhances creativity and innovation. On the other hand, when we are with others that are just like us and think just like us, we are usually more likely to put undue trust in others’ solutions, to imitate others and to agree with others. When outsiders — people who are different — join homogeneous groups, they disrupt the group at first. Others are forced to stop, pay close attention, rethink their own positions and negotiate common ground, so that later the outcome is positively influenced.

Of course, not all is peaches and cream yet. Diversity is still a thorny issue. Diversity is difficult to achieve and not easy to leverage. But if companies took the evidence seriously, they’d start to hire for diversity and openness, train for sensitivity, encourage collaboration and allow experimentation. If they do it right, they will end up smarter, more innovative and better performing.

• Gerhard Apfelthaler is the dean of the School of Management at California Lutheran University, which will host an event on “Religious Diversity in the Workplace” at 5:30 p.m. March 17 in the Lundring Events Center on its Thousand Oaks campus. To attend, please register by March 15 by emailing alumni@callutheran.edu or calling (805) 493-3170.