Power of the people: how workforce diversity can boost the bottom line

Every two weeks, Swappie, a Finnish company that refurbishes smartphones for resale, carries out a “pulses and culture” survey among its employees to find out the extent to which its workforce feels included and represented. “We are committed to creating the best workplace for all our people – not just the majority of us,” says Sami Marttinen, Swappie’s CEO and Co-Founder¹. “It also unlocks our ability and willingness to solve problems, thrive, innovate and build a more sustainable and profitable business.”

Erik Esselink, fund manager at Invesco, the investment management company, argues that it is increasingly important for companies to focus on workforce diversity, as well as for investors to ensure that companies are striving to create diverse and inclusive environments. One reason, he says, is that a diverse workforce can help a company to problem-solve and innovate. “Diversity helps to create broader perspectives on a specific problem or business proposition,” he says. “And we believe that broader perspectives do lead to better decision-making in management teams.” 

A second reason is that companies with relatively little diversity along gender, culture, ethnic and other lines run the risk of missing out on the bigger picture. “Monoculture can lead to a sort of an echo chamber of opinions, which goes against good decision-making,” says Esselink. “Backing bad ideas, and having them remain unchallenged, can ultimately destroy value.” 

Diversity boosts financial performance 

Swappie’s survey, which is conducted among its more than 1,100 employees from more than 60 nationalities, is part of a core mission: to build a truly diverse, equal and inclusive workplace, and to establish those goals as the cornerstone of its long-term growth and sustainability. The company says that employees currently give the statement “I find that Swappie is an inclusive workplace where I feel safe and genuinely respected as the individual who I am” a rating of 4.4 out of 5. 

A growing body of evidence suggests that such a high score likely has a positive effect on productivity and, ultimately, financial performance. For example, a study at the end of 2019 by the University of Oxford’s Saïd Business School in collaboration with BT, the British telecoms company, found that workers were 13 per cent more productive when happy². “We found that when workers are happier, they work faster by making more calls per hour worked and, importantly, convert more calls to sales,’ said Jan‐Emmanuel De Neve, a professor at Oxford, and one of the study’s authors. 

Meanwhile, a McKinsey & Company study found that companies with more than 30 per cent women executives were more likely to outperform companies in which this percentage ranged from 10 to 30³. In the case of ethnic and cultural diversity, the same survey found that top-quartile companies outperformed those in the fourth quartile by 36 per cent in profitability, up from 33 per cent in 2017 and 35 per cent in 2014. 

“Our latest analysis reaffirms the strong business case for both gender diversity and ethnic and cultural diversity in corporate leadership – and shows that this business case continues to strengthen,” the McKinsey study concluded. “The most diverse companies are now more likely than ever to outperform less diverse peers on profitability.”

Measuring diversity

But how do investors know whether the companies they invest in are truly diverse, or that they are working to create greater diversity within their ranks? Esselink points out that while the universe of data surrounding a company’s environmental performance has become increasingly rich, the so secondary metrics that help to illuminate the often subtle layers of workforce diversity tend to be both harder to measure and harder to obtain. “We can easily measure how many women there are in a workforce, but it is much more challenging to measure things like age, ethnicity, sexual orientation, socio-economic diversity,” he says. “These are things that aren't measured, but are really important.” 

Beyond scrutiny of board members and ensuring that companies have equal-opportunity policies, engagement is a crucial ally for investors in understanding the importance that a given company places on workforce diversity. For Invesco, board-level dialogue with portfolio companies is a key part of the investment process. These discussions often explore specific issues, including social factors such as diversity and inclusion. “We want to ensure that these are all aligned with each other, and that the company has the right business strategy, and the right people and culture to execute that,” says Esselink. “Diversity is a big part of that.” 

Multiple aspects of diversity

Sweden ranks among the top European countries for boardroom diversity. Polarium, a Swedish company that provides sustainable energy storage solutions built on lithium-ion technology, last year appointed two women to its board of directors, bringing it in line with the country’s board-level gender balance. In addition to strengthening Polarium’s gender diversity, the appointments bolstered its board’s diversity of experience: Anna Kinberg Batra is former leader of the Swedish Moderate Party, and has broad political experience⁴.

Esselink argues that companies that constantly strive to deepen their workforce diversification can often be repositories of what he calls “undiscovered sustainability”, that is: strong performance on environmental, social and governance (ESG) issues that have not yet been reflected in external-agency ratings. “The S in ESG used to be about levels of unionisation, pay and other issues associated with risk,” he says. “But when companies make workforce diversification part of their corporate culture, the S becomes less about risk and more about opportunity.” 

This content was paid for by Invesco and produced in partnership with the Financial Times Commercial department.