In recent years, some of the U.S.’s best-known and largest companies – including Apple, Coca-Cola, … [+]
A growing body of research has in recent years shown that companies promoting gender and racial diversity tend to perform better financially, but fresh analysis out of Finland now provides evidence that the same is true of companies championing LGBT-friendly policies.
Academics at two universities in the Nordic country assessed the financial performance of 657 publicly-traded U.S. companies between 2003 and 2016, and found that firms with LGBT-friendly policies tend to enjoy both higher profitability and higher stock market valuations.
For the purposes of the survey, LGBT friendliness was determined based on the Corporate Equality Index constructed by the Human Rights Campaign, the largest LGBT civil rights advocacy organization in the U.S. HRC has published the index for large U.S. firms annually since 2002.
In recent years, some of the U.S.’s best-known and largest companies, including Apple, Coca-Cola, Goldman Sachs, Google, Hewlett-Packard and Walt Disney, have all publicly pledged their support for sexual minorities, earnings them top ratings in HRC’s Corporate Equality Index. But corporate social advocacy can, as the researchers acknowledge in presenting their research, be “tricky business”.
“While taking a public stand on potentially sensitive social or political issues may lead to positive outcomes and competitive advantages, the repercussions of social advocacy can also be detrimental if the stance taken is not aligned with the preferences and values of the firm’s key stakeholders,” they write.
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Against the backdrop of this, their research was motivated by a desire to determine whether the risk of alienating certain stakeholders by, for example, supporting same-sex marriage, outweighs the benefits of doing so.
“Taken as a whole, our empirical findings provide strong evidence to suggest that LGBT-friendly corporate policies enhance firm performance,” they conclude. “These findings can be considered to support the view that socially progressive corporate policies and diversity management pay off and create value for the firm.”
The report should foment an already well-documented economic incentive for creating workplaces that proudly reflect the demographic makeup of the broader communities in which they operate.
In May last year, global consultancy McKinsey & Co published an extensive report based on analysis that found that in 2019, companies in the top quartile of gender diversity on executive teams were 25 percent more likely to experience above-average profitability than peer companies in the fourth quartile. That number was up from 21 percent in 2017 and 15 percent in 2014.
In terms of ethnic and cultural diversity, McKinsey & Co’s conclusions were equally compelling. The consultancy found that companies in the top quartile outperformed those in the fourth by 36 percent in terms of profitability in 2019, marginally up from 33 percent in 2017 and 35 percent in 2014.
One explanation for both these findings and the correlation determined by the Finnish researchers, is that employee retention and satisfaction tends to be higher in businesses where diversity is explicitly promoted, regardless of whether that relates to gender, race, sexuality or another identifying characteristic.
Greater retention tends to be a reasonable proxy for employee satisfaction, which is known to correlate with productivity and therefore financial performance.
Likewise, a diverse workforce and management that promotes LGBT‐friendly policies may also improve competitiveness in the job market by fostering a company’s ability to attract, recruit and retain the most talented employees.
