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Ethnic diversity on boards is growing in importance, survey finds

The diversity of company boards stands to be a “key factor” in deciding whether or not to invest, according to a survey by executive search firm Green Park.

The poll of 63 institutional investors found that more than half (56%) believed the ethnic diversity of company boards would become more important in the next five years. Only 6% said they thought this factor was an important element of decision making currently.

Green Park also asked investors for their theories as to why the majority of company boards were all-white. Half of respondents said companies tended to appoint senior leaders in their own image and were slow to change. More than a third (37%) said boards didn’t understand the financial benefits of diversity at board level.

“Institutional investors increasingly recognise companies with homogenous all white boards aren’t best placed to deliver future success,” said Raj Tulsiani, CEO of Green Park. “Regressive companies with a mono-cultural leadership don’t represent the diverse views of their employees, business partners or customers.

“Indeed, firms without a demonstrably diverse workforce may struggle to attract investment and funding in future. Progressive investment professionals recognise that firms need to increase their diversity pipelines immediately, to deliver effective succession plans for the future.”

However, other results within Green Park’s survey indicated that there was not a strong consensus about the benefits of diversity. A quarter said they didn’t think boards needed to be more diverse, while 30% said an ethnically diverse board would not have a commercial impact on a company.

In addition, more than half of respondents said companies wanted to avoid positive discrimination by hiring to hit quotas rather than recruiting the best talent.

Green Park cited a McKinsey survey from 2015 and argued that “companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians”.

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