Diversity’s influence on performance

Prof. Dr. Michael Erkens is Professor of Financial Reporting at Nyenrode. His research includes the field of reporting and publication practices among companies. In this research programme, Erkens and his team focus on the questions: What effect does diversity have on organizations’ performance and the satisfaction of their employees? And does it matter whether organizations actually want to work on diversity, or if they are ‘forced’ to do it?

Five questions for Michael Erkens

1. Isn’t every organization today convinced of the importance of diversity?

“The issue has received widespread attention in society. But the Netherlands isn’t really leading the way in this area.

A lot of alumni are old enough to remember the occupation of Nyenrode Castle by the Dolle Minas in the 1970s. The feminist activists demanded that women be admitted to the study programme at Nyenrode. It’s hard for us to imagine now that women weren’t welcome at our university until 1972.

When you look inside a lecture hall today, you see a better reflection of society. But the Dutch business community still isn’t an accurate reflection of society. So the government has to intervene sometimes. For example, in 2022 the government approved a decree requiring large companies to include a section in the annual report on the ratio of men to women in the Executive Board, the Board of Commissioners and upper management. One third of the positions have to be filled by women. Companies also have to show which target figures and relevant action plans they have drawn up to improve diversity in upper and middle management.

So even 50 years after the occupation by the Dolle Minas, women are still so under-represented that we need a quota for them.”

2. Why is diversity important?

"We know that teams with diverse compositions make much better contributions to an organization’s creativity and innovation. Cognitive diversity helps us make better decisions."

“Look at the composition of the Dutch population: According to figures from 2017, 22% of the population has at least one parent who wasn’t born in the Netherlands, compared to 9% in 1972. Those people also want to see themselves represented in companies and organizations. It’s not just about backgrounds either, but also gender and language.

California has even passed a law requiring a sufficient mix of sexual orientations among board members. It might not get that far in the Netherlands, but we know that teams with diverse compositions make much better contributions to an organization’s creativity and innovation. Cognitive diversity helps us make better decisions.”

3. That sounds like something every organization would want.

“You would think so. Attention to diversity makes you more interesting for clients, but also as an employer. The call to make organizations reflect society at large in terms of gender, race, ethnicity, etc. is growing ever louder. And it’s not just society demanding it: we’re increasingly seeing that financial markets are also demanding clarity from organizations in this area too.

In the new requirements for annual reports, organizations are asked to report on what they are doing in the fields of diversity, equality and inclusion. The Dutch legal requirement to have 1/3 of management be women is actually fairly modest when you compare it to Norway’s norm of 40%. And to truly reflect the ratio of women to men, the norm should be around 50%. Plus, we haven’t even talked about other diversity criteria that are just as important, like ethnicity, language, education levels, etc.”

4. So requirements help companies make progress?

“That’s precisely what we aim to clarify through our research. We’ve seen an enormous growth in appointments of historically under-represented groups in the boardroom. In 2021, 72% of the boardroom appointments in the United States were from these groups. But when you work on diversity from the conviction that it will result in better, more balanced decision making, it will have a different effect then if you feel forced to do it, or if the outside world believes you do. The board, the CEO, has an important role to play in that. We already know that if he or she truly believes diversity is important, then the company will perform better and offer better working conditions.

"When you work on diversity from the conviction that it will result in better, more balanced decision making, it will have a different effect then if you feel forced to do it."

In the end, it’s not just about the CEO and the board room; the shop floor is even more important. Almost no research has been done in that area, even though employees are the heart of every organization. The organization must be inclusive, and employees must feel welcome there. Organizations should offer equal opportunities for development and be an accurate reflection of society.”

5. Why do we need to invest in this research?

“Because we want to find out how far we’ve come with diversity in the Netherlands and Europe, and we want to look beyond the reported figures. Like the concept of greenwashing, ‘diversity washing’ is all too common in business today.

Through surveys, analyses, meeting minutes and other methods of data collection, we will develop a picture of an organization’s actual diversity efforts and the policy for inclusiveness. We will then compare that with the organization’s results, communication methods and employee and customer satisfaction. That will eventually offer us a better idea of the current state of this urgent issue. Where can organizations learn from both best practices and the failures of other organizations? That knowledge foundation will help companies work on improving their relevance to society and better appreciate the importance of diversity.

Nyenrode has a good starting position to claim expertise in this area. The combination of our academic approach and our practical orientation allows us to immediately put new insights to use for organizations. Society expects businesses to make progress in this area, and we can apply this research to do that in a responsible manner. Not just to improve an organization’s relevance to society, but also to ensure healthy performance.”

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About Michael Erkens

Prof. Dr. Michael Erkens is Professor of Corporate Reporting at Nyenrode. He is affiliated with the Nyenrode Faculty Expertise Centre Corporate Reporting, Finance & Tax. 

Erkens’ research has been published in periodicals such as Journal of Accounting and Economics, Journal of International Business Studies, Accounting and Public Policy, and Accounting, Auditing and Control. His work has also been honoured with many awards from organisations such as the American Accounting Association and the Chinese Governmental Accounting Research Center.