Today's headlines are filled with social commentary on board initiatives such as DEI (diversity, equity and inclusion), SRI (socially responsible investing) and ESG (environmental, social and governance factors). As you and your board wade through each of these concepts, you are likely to ask yourself what value such programs can bring to your company.

A diversity of talents/skills is obviously necessary for any company. To build a building, you need architects, engineers, carpenters, electricians and plumbers, to name just a few. What is less obvious is how other measures of diversity would help a team achieve their goals. Luckily for us, this is a topic that has intrigued researchers for decades. They have studied many of the ways heterogeneous teams outperform their homogeneous counterparts. Studies have shown that diversity of thought, race, and gender have measurable improvements on group performance and decision making. 

Diversity of thought

Jack Treynor, world-renowned economist and thought leader, had one of the most fun ways to prove this concept. He would put a jar of 850 jellybeans in front of his classes and ask the group to guess how many of the candies were in the jar. Of the 56 students, only one had a closer guess than the class average of 871. This simple experiment demonstrates that a group can make a good decision by leveraging everyone’s collective judgments rather than relying on any one opinion.

This experiment has been repeated many times, using estimates of the current temperature, how much the stock market will rise and even the weight of a prize ox at a county fair. In all cases, gathering varied viewpoints always outperforms a singular opinion, no matter how educated that one expert may be.

Diversity of race

In 2006, Katherine W. Phillips, Gregory B. Northcraft and Margaret A. Neale studied how racial diversity affected group decision making and performance. In the study, groups of  three were formed, and each member was given unique information they would need to use in collaboration to solve a murder mystery. The racially similar groups performed poorly, assuming their information was the same and sharing less information with the group. The racially diverse teams shared their insights more broadly, leading to superior performance of the task.

Teams whose members have mixed backgrounds must work harder to communicate, and that effort is a good thing. It gets the group to fully explore their positions and insights to arrive at a better solution, rather than using shortcuts and assumptions from their backgrounds.

Diversity of gender

Racial diversity is not the only metric shown to improve performance. In 2014, Credit Suisse studied its database of 3,000 companies with 28,000 senior managers across 40 countries. The financial services company concluded that companies with higher female participation at the board level or in top management exhibit higher returns, higher valuation  and higher payout ratios.

The results were striking and only improved with higher concentrations of women in top management roles. For example, a company with zero female representation on its board had a return on equity of 11.2% compared with 14.1% for companies with at least one female board member. Companies with women representing at least 15% of top management did even better, returning 14.7%.

Now it should be clear that greater diversity will bring immense benefit to your family business. We do need to acknowledge that building a diverse team, company or board is not easy. Finding candidates can be difficult, managing conflict can be more treacherous and cohesion could be more difficult to form; there are no free lunches.

The conclusion? We should all strive to expand our horizons when searching for new team members. Inclusivity is inherently the right thing to do but will also help you increase the resilience of your family business for generations to come.

Chris Yount is led his third-generation family business before selling the company in 2018. He is a writer and frequent contributor to Family Business magazine.