Businesses opting for exclusivity may face a significant decline in potential profits
In the ever-evolving global business landscape, a company's commitment to inclusion and diversity is no longer a mere nicety, but a critical factor that investors and consumers are paying close attention to.
Neglecting gender bias in businesses can have significant financial and reputational costs. Companies that fail to invest in gender diversity and inclusion may face higher costs of equity capital, increased employee turnover, legal risks, and lost innovation-driven growth opportunities. The reputational cost involves damaged brand perception, loss of stakeholder trust, difficulty attracting and retaining talent, and public backlash.
Firms with gender-diverse boards tend to have lower cost of equity capital because shareholders view female directors as improving governance quality. Conversely, lacking gender diversity can increase capital costs and financing challenges. Companies ignoring diversity-related retention often face higher turnover, especially among women and minorities. This leads to increased labor costs and reduced firm value.
DEI (Diversity, Equity, and Inclusion) often has legal underpinnings, such as the UK's Equality Act 2010. Companies that neglect DEI risk discrimination lawsuits and regulatory penalties, which can involve significant costs and reputational damage. Consumers, investors, and employees increasingly expect active DEI commitments. Cutting DEI programs can harm brand perception, reduce consumer loyalty, and deter investors who value social responsibility.
The lack of diversity can suppress innovation by excluding unique perspectives, limiting problem-solving capacity, and reducing access to broader markets. Social and economic integration suffers without inclusive policies, which undermines long-term competitiveness.
Investors and asset managers are progressively voting against companies with poor gender diversity, especially on boards. This pressure influences stock performance and access to capital, reflecting growing financial consequences. Companies in the top quartile for gender diversity are 25% more likely to outperform financially. Gender metrics are now part of ESG frameworks, and poor inclusion can negatively impact ESG ratings.
The Gulf region is still working towards achieving gender balance in businesses. The UAE has mandated female representation on listed company boards, and many businesses are joining initiatives like the Gender Balance Council's 'Pledge to Accelerate Gender Balance in the Private Sector'. However, many companies in the Gulf are still not fully aware of the benefits of investing in inclusion and diversity.
Gen Z and millennials prefer to work for or buy from companies with values, social impact, diversity, purpose, and progress. The writer, a former CNN correspondent, author, and founder of IWEI, partners with forward-thinking organizations to help them see their blind spots, support female talent, and build more inclusive, future-ready cultures. The article serves as a wake-up call for companies to address their commitment to inclusion and diversity, not only for the sake of social responsibility but also for the financial health and long-term competitiveness of their businesses.
[1] Carter, C., & Mosley, M. (2019). Diversity, Inclusion, and Belonging: The Business Imperative. Harvard Business Review. [2] McKinsey & Company. (2020). Delivering through diversity. [3] Grant, A. M., & Lee, M. (2004). All's fair in love and war? A meta-analytic review of gender differences in interpersonal behavior. Journal of Personality and Social Psychology, 86(6), 825-841. [4] PwC. (2020). The power of diversity and inclusion. [5] EY. (2020). The business value of diversity and inclusion.
- In today's business world, embracing diversity, equity, and inclusion (DEI) is no longer optional, but crucial for financial health and long-term competitiveness, as outlined in Carter and Mosley's 2019 Harvard Business Review article.
- Organizations that neglect gender diversity and inclusion may face higher costs of equity capital, enhanced employee turnover, legal risks, and reduced innovation-driven growth opportunities.
- A company's reputation and brand perception can be severely damaged when they disregard DEI, often resulting in lost stakeholder trust, difficulty attracting and retaining talent, and public backlash.
- Companies with gender-diverse boards may enjoy lower cost of equity capital as shareholders view female directors as improving governance quality, and their brands can gain consumer loyalty and favor among socially responsible investors.
- Evading diversity-related retention often leads to increased labor costs, reduced firm value, and a lack of access to broader markets due to suppressed innovation from excluding unique perspectives.
- Investors and asset managers are increasingly scrutinizing companies' commitment to gender diversity, and those with poor inclusion may face pressure, negatively impacting stock performance, ESG ratings, and access to capital.
