More women, more money -- study finds link between diversity and profit

Companies may be throwing away cold hard cash by not hiring women.

Sean Hollister Senior Editor / Reviews
When his parents denied him a Super NES, he got mad. When they traded a prize Sega Genesis for a 2400 baud modem, he got even. Years of Internet shareware, eBay'd possessions and video game testing jobs after that, he joined Engadget. He helped found The Verge, and later served as Gizmodo's reviews editor. When he's not madly testing laptops, apps, virtual reality experiences, and whatever new gadget will supposedly change the world, he likes to kick back with some games, a good Nerf blaster, and a bottle of Tejava.
Sean Hollister
2 min read
Patrick Holland/CNET

Facebook leadership is white and male, and Google can be a sausage fest, too. They're just two of the tech companies struggling with diversity -- and a new report in the Harvard Business Review shows they may have more to gain from that diversity than different points of view.

When the publication took a close look at every venture capital firm in the United States -- "thousands of venture capitalists and tens of thousands of investments," HBR says -- it discovered that VC firms who hired more female partners were notably more profitable than their counterparts.

Here's the money quote, literally:

"Venture capital firms that increased their proportion of female partner hires by 10% saw, on average, a 1.5% spike in overall fund returns each year and had 9.7% more profitable exits (an impressive figure given that only 28.8% of all VC investments have a profitable exit)."

Watch this: Google CEO says 'I don't regret' firing author of diversity memo

If you remember your statistics class, this is more likely correlation than causation, meaning there could also be another reason that explains both diversity and profits -- for instance, perhaps the VC firms that picked women are more open-minded, period, about both investments and hiring.

But companies are fundamentally made of people, so it would make sense that women are driving the profit.

Speaking of open-mindedness, HBR discovered that the VC world is pretty dang insular right now. Only 8 percent of VC investors are women, 2 percent Hispanic, fewer than 1 percent black, and 45 percent of VCs with MBA degrees come from just three business schools (25 percent from Harvard).

And yet, HBR says that the success rate of acquisitions and IPOs was 11.5 percent lower for partners with shared school backgrounds, and 26.4 percent lower for those with shared ethnicity.

You can read the rest at Harvard Business Review.