Correlation Isn’t Causation–But It’s Suggestive

Well, well. Speaking of “emerging data,” as I frequently do, there’s some pretty fascinating information coming out about corporate boards and diversity.

I get a daily business/markets newsletter from Axios .A recent one compared the earnings of companies with different board compositions–the percentages of non-whites and women, and the largest age ranges of those sitting on the governing boards of those companies. (Click through to see a nifty little chart.) And while the report was careful to point out that the results showed correlation, not causation, those results were certainly intriguing.

By the numbers: As a cohort, the companies with more women on their boards saw the smallest year-over-year drop in revenue growth in 2020.

And a group of companies with board members whose ages spanned over 30 years saw an improvement in revenue growth compared to the prior year. The rest saw growth slow.

The businesses with at least 30% of seats filled by non-white executives saw a bigger jump in revenue growth. However, those that had between 20% and 30% non-white board executives fared worse than those with fewer non-white members.

BoardReady cautions that this data might be skewed because so few companies have enough non-white executives on their boards to meet that threshold.

 BoardReady used revenue as a yardstick — rather than profits or other markers— in order to avoid distortions of the data due to various adjustments companies made during the pandemic.

So far, efforts by legislators and regulators to encourage more diverse representation on corporate boards have had a relatively limited impact, although the numbers are inching up. (According to the report, women made up 28% of all S&P 500 corporate board members last year, up from 16% in 2010.)

A 2019 Webforum article written by one corporate executive makes the business case for increased inclusion and a broad definition of diversity:

We live in a complex, interconnected world where diversity, shaped by globalization and technological advance, forms the fabric of modern society. Notwithstanding this interconnectedness, there is also growing polarization – both in the physical and digital worlds – fuelled by identity politics and the resurgence of nationalist ideals.

Not surprisingly, our workplaces tend to mirror the sociocultural dynamics at play in our lives outside work. Having built and scaled a multinational enterprise over nearly two decades, I’ve learned that diversity in the workplace is an asset for both businesses and their employees, in its capacity to foster innovation, creativity and empathy in ways that homogeneous environments seldom do. Yet it takes careful nurturing and conscious orchestration to unleash the true potential of this invaluable asset.

In this era of globalization, diversity in the business environment is about more than gender, race and ethnicity. It now includes employees with diverse religious and political beliefs, education, socioeconomic backgrounds, sexual orientation, cultures and even disabilities. Companies are discovering that, by supporting and promoting a diverse and inclusive workplace, they are gaining benefits that go beyond the optics.

The author argues that bringing together people of different ethnicities and different life experiences is a key driver of innovation, and he cites the increasingly varied foods we eat every day, the most  successful musical genres (jazz, rock’n’roll, hip-hop) and other innovative aspects of contemporary life as “products of cultural amalgamation.”

Of course–as data I’ve reported upon previously amply confirms–that’s the problem. Resistance to inclusion (not just in boardrooms but in venues of all kinds) is best understood as a visceral and very negative reaction to “cultural amalgamation.”

In fact, cultural amalgamation and the frantic resistance to it are at the root of most of the fault-lines that run through our politics, retard the diversification of boardrooms, and create and fuel social discord. Proponents of capitalism and market economies give lip service to their fidelity to the bottom line, but thus far most companies have turned out to be part of–or at least in thrall to– the cultural resistance.

Time will tell whether performance reports like these move the needle, and whether “It’s the economy, stupid” should really be “It’s the culture, stupid.”

 

15 thoughts on “Correlation Isn’t Causation–But It’s Suggestive

  1. The excerpt from the Webform article nauseously reminded me of the commitment to diversity statements I’ve seen promoted in the three different Fortune 500 companies I’ve worked for. All of them promoted a form of controlled tokenism and not real diversity, except at the lowest rungs of the corporate ladder so that overall their numbers looked inclusive. I found this practice did more harm than good in that it bred resentment and cynicism among women and minorities and even the white male middle managers forced to go along with it.

    Our daughter works for a digital advertising consulting firm named Tinuiti that has grown from 100 to 1,000 employees in the last 5 years. They could not have sustained that kind of growth without being truly inclusive and deliberately so in every hiring and promotion decision they make. It is not an exaggeration to say that diversity is woven into their culture, which is also based on high levels of personal commitment to team performance over individual contribution within a very flat and responsive organizational model. It probably helps that the majority of its employees are young (said daughter feels like the old dame at 35) and mostly live in America’s big urban centers.

    If her company is representative of where the American workplace is heading, and I hope that it is, it’s just another example of how the urban and rural divide will literally and figuratively leave the latter in the dirt because deep red and mostly rural areas are where resistance to cultural amalgamation is the hottest. Unfortunately that resistance serves to deny their workers and their children the interpersonal skills required to constructively resolve conflicts and solve fuzzy problems involving people who are not like them.

    Fortunately for many young people heading out of rural high schools off to college, a majority of them will not come back after they graduate and may have a fighting chance.

  2. I assume that the people at Board Ready controlled for the kinds of industries involved in their study.

  3. Cultural diversity gave us foods and music we love. Why are some of us so opposed to cultural diversity in our neighborhoods, our schools, our workplaces. When you stop learning new things, when you close your mind to new things, you may as well be dead.

  4. When I made the comment about controlling for the industries involved, I hit the wrong line to “sign” for the comment. I hit my wife’s name instead of mine.

  5. @Patrick Wilshire- the last sentence of your comment (copied below) resonated with me.
    “Fortunately for many young people heading out of rural high schools off to college, a majority of them will not come back after they graduate and may have a fighting chance.”

    The population of the NE IN county that I live in has been shrinking for the past 40 years due to the loss of auto industry related manufacturing jobs. On the very rare occasion that a new employer has come to this area it is because they offer a $10/hr wage.

    The loss of tax paying industries and citizens, in addition to increasing expenses, has caused our property taxes to increase exponentially. A living wage job requires an hour commute each way. The county leaders here are now desperately trying to lure young people/families with outdoor amenities. Those of us that still live here believe the lack of living wage jobs will cause our population to continue shrinking. We don’t believe that outdoor amenities like walking/biking paths will lure young families when it will still require 2 full hours of their day just to get to work and back home.

    Thankfully, like your daughter, both of my children have excellent jobs in larger cities that provide them with a standard of living they could never have acquired if they had moved back home after college.

  6. I know I’m flogging the science when I suggest that these data reflect what happens with hybridization: When genetic variety is introduced into a population, the usual outcome is improved adaptability to changing environments. When the gene pool is limited, inbreeding creates the perpetuation of the negative genes and the species suffers from lost vitality and low adaptability.

    Every farmer knows these things even if they don’t understand how recombinant genetics work. So, with tongue-in-cheek, I strongly suggest that these economic data comparisons, though probably not statistically valid, reflect the biology of life on earth. Too bad Republicans don’t get that. They’re doomed to extinction.

  7. Our world gets smaller even as it gets larger in terms of population. How can we fail to embrace diversity when we know what’s going on everywhere? Even remote areas like Eritrea, South Sudan, Bangladesh are in our news feeds every day. If we fail at that simplest of tasks, it follows that we will fail at everything else.

  8. Here’s the good news: We have enough capability and knowledge to survive the world of our own making that is coming at us.

    Here’s the bad news: We are too locked into an obsolete and dysfunctional culture to access all of the talent available.

    We are cooking our own goose by our inability to collaborate.

  9. Tokenism and underlying assumptions themselves questionable inhering in definition of causation v. correlation make me question today’s quote. Other than that – what Patrick wrote.

    Real talent and expanding markets for old as well as new goods and services know no gender or color either in the workplace or on boards of directors, thus rendering tokenism to allay the politics of the day unnecessary. Good job, Patrick. . .

  10. Having worked for large multi-national corporations my whole life, in order to advance you must become “Corporate”. You need a corporate sponsor so to speak. As they say now a days you need to network. Corporations do not care in sense what you look like, your allegiance must be to your sponsor and profit. It is a long vetting process.

    Opportunity enters into the equation. If you are born into a poor or lower middle class family your opportunities are limited. Families with wealth can subsidize their children through higher education. The wealthy families have connections and networks.

    Inclusion for the sake of a rainbow look to the Board of Directors is good for appearances. America is supposed to be the land of opportunity. We have a class system and an Ala-carte basis for advancement – If you can afford good heath care and a higher education (college or trade schools) you are OK, if not Ohh Well.

  11. The “left behinds” under age 40 in rural areas are fully armed with no local news, GOP state legislatures and “weapons of singular destruction”. As long as we ignore them for the glory of “the professional class” and its diversity and inclusion we racket up the risk to American democracy. Are we the “our way or the highway”?

  12. I just wrote to my state Senator and gave him some ideas of what message democrats need to give to people in rural areas if they want to appeal to rural voters i.e better access to health care, protection of small businesses etc.

    I heard on PBS or NPR that some rural communities have been revitalized by immigrants who move and stay in rural America. They are more open to diversity because they have been exposed and gotten to know immigrants. Yes,immigration is good for our country. I am also certain that some rural communities have discussions about diversity and how it empowers innovation and growth. After all, they are NOT a monolith.

    The above study simply shows that corporations that value increased diversity in management,marketing, Board Rooms seem to grow more and make more profit due to better innovation. Because our population is growing more diverse, companies that want to be successful must respond to the growing diversity of its consumers to succeeed. That’s just common sense.

  13. So – I’m sorry – the scourge of every psychology and sociology professor I ever had, I strike again.

    Do the more diverse companies generate more revenue because they are more diverse, or are they more diverse because they are newer, younger, more open, etc.; in essence, they are open to better ways to develop products and market them?

    A company that is not tied down to the “old ways” in their “corporate culture” might be more open to hiring a diverse work force and those more diverse employee base might prefer to work at such firms.

    Correlation – suggestive, but …

    On the other hand, beyond being a trouble maker, I do agree with your conclusion. Real change in corporate culture will lead to a better economy, among other things, so, thanks for bringing up the correlation. I stimulates thought. 8)>

  14. This is just identity collectivism, this idea of corporate diversity.
    It’s resisted because it ignores competence, the real goal of hiring.
    A functional company can be all white, all brown, all asian, all female, but the success of the company won’t depend on diversity, but on hiring decisions based. on competence.
    A white person can be quite capable of understanding diverse markets, locational cultures, other ways of thinking. Lived experience is grossly overrated, just another swell-sounding blurb.
    In short, interview diversity, but hire competence.

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