There have been many reports (see Additional Reading below) about how diverse groups are better at collective problem-solving accuracy, innovation, and analytical thinking - but the hard financial benefit claims of organization diversity was lacking until Harvard Business School Economist, Paul Gompers
, applied his analysis toward the publicly available data of endowed (gender, ethnicity) and acquired (education, work history) traits.
To him, the evidence is clear:
Diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns.
According to his findings, Gompers suggests that candidates with the maximum likelihood of securing VC funding are those resembling the VC investors themselves - white males are disproportionately over-represented.
Only 8% of the investors are women. Racial minorities are also underrepresented—about 2% of VC investors are Hispanic, and fewer than 1% are black. Those groups have seen significantly increased representation in other fields…, but not in the VC industry.
This result is then counterproductive to what Gompers’s findings: businesses and VC investors are missing opportunities (and frankly, more money) by “keeping it in the clubhouse.”
He states that VC investors are susceptible to what scholars refer to as homophily - a tendency to associate with people resembling one’s defining characteristics such as ethnicity, education, and gender.
Read the full article below to learn more about the profit-limitations built-in to homogeneity in business and the authors’ evidence-based recommendation for managers.