Corporate DEI may be under attack, but S&P 500 companies with diverse boards are doing better

Diversity, equity, and inclusion (DEI) efforts are under attack in private and public companies, but research has found that companies with diverse boards do better than those with diverse boards.

Cosmetics brand Elf Beauty partnered with North Carolina Agricultural and Technical State University to release a new report using board membership data over the past five years, as well as findings from previous studies. Here are the key results:

1. Different boards do better

S&P 500 companies with high gender diversity had a 15% higher ROE and a 50% reduction in earnings risk compared to more diverse peers. A 2021 study found that corporate social responsibility and financial performance are related and the magnitude of the relationship depends on how diverse the board is. At the time, companies with three or more women or fewer directors were less likely to be sued.

2. Diversity is still difficult to achieve

The average board is 78% white, 73% male, and 58% male. In general, boards tend to hire people who are similar to their members and benefit from ethnicity or gender differences but not both. In an analysis of the 100 most gender-diverse boards, women made up 59% of the total membership and white members held 73% of the seats. Of the 100 racially diverse boards, 80% of the seats were held by people of color and 77% by men.

3. Development is happening but uneven

White women make up 72% of board seats held by women. Black Americans make up 14.4% of the US population, but only hold 7.3% of board seats.

“[Increasing] boardroom diversity is one of the best strategies at the table,” wrote the report’s authors. “[Improving] Diversity on your board doesn’t have to come at the expense of board members. Board expansion. . . it can be a good way to improve diversity as it allows the company to retain the experience of the existing board while creating an opportunity for more perspective and fresh thinking that a new board member can bring.”