Ethnically diverse US boards perform better

Calvert study finds return difference of 1.49%

Ethnic diversity on boards at US companies has a positive impact on performance, a Calvert Research and Management report has found.

Does an Ethnically Diverse Board Mean Better Stock Performance? looked at 845 large-cap companies, including 65 Australian, 83 Canadian, 87 UK and 610 American firms, between December 2012 and December 2020. It found board ethnic diversity in US companies had an impact on performance, but that there was less of an impact for Australian, Canadian or UK companies.

The report found there was a performance return spread of 1.49% between companies with the greatest number of people of colour on corporate boards (quintile 1) and those with the least (quintile 5). More specifically, “number of people of colour” and “number of ethnic groups” were the most meaningful drivers of the relationship with equity performance, it said.

Source: Calvert

“We therefore concluded that board ethnic diversity factors are good indicators for stock picking in the US large-cap equity market,” report author Yijia Chen, ESG quantitative research analyst and index manager at Calvert said.

Commenting on finding less of a correlation in other countries, Chen added: “Perhaps results stem from the fact that the US economy is relatively more reliant on talent and innovation, which will provide equal opportunities for individuals of diverse backgrounds to progress through the corporate sector, while a large portion of the Australian and Canadian economies remain natural resources-based.

“Nonetheless, comparing the results with and without controlling country, we noticed that the difference in board ethnic diversity across the four countries was a clear performance differentiator.”