As it turns out, some of the best financial advice ever imparted to new investors comes from a four-hundred-year-old novel about a minor Spanish nobleman with a penchant for embellishment. It was Don Quixote’s long-suffering squire-farmer Sancho Panza who first warned against putting all one’s eggs in one basket. Multiple baskets woven from rich and varied materials saves more eggs.
The same could also be said for investment portfolios and businesses looking to boost profits. Diversity is the new buzz word within the hallowed halls of corporate America and inclusivity is not far behind. While empowerment tends to raise both celebratory hands and political hackles, the benefits extend far beyond the warm fuzzies that being a model citizen company inspires. In short, today’s smart investor knows diversity is good for business.
In 2015, Morningstar released their Diversity Matters report that reveals a strong correlation between top-level commitment to inclusivity and a company’s bottom line. Businesses in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their national industry means.
For those industries that rely heavily on innovation, nothing disrupts the status quo more than a medley of opinions, ideas and perspectives. Research conducted by the Hamilton Group in 2018 shows a direct correlation between a highly-skilled immigrant population and the level of innovation (by patent applications) and economic prosperity in urban centers and areas.
Singapore, for instance, was rated by the World Economic Forum and Business Insider as tops for tech readiness – the Economist also ranked it as one of the best places to invest over the next five years. It’s well-placed in the international rankings for diverse education and ease of doing business. In fact, escalating trade tensions between the US and China have many companies turning to Singapore for what is a rather specialized niche in the supply chain process. One prominent example is pharmaceutical giant GlaxoSmithKline (NYSE: GSK) who have opened two manufacturing plants within the last week.
For those keen to tap into the profitability driven by diversity on the home front, Morningstar and Sustainalytics teamed up to create the Morningstar Minority Empowerment Index. They included 200 large and mid-cap US companies with a commitment to racial and ethnic diversity within the workforce, board, supply chain and larger community. Morningstar also create a gender-equivalent index with similar criteria to their minority effort.
Not surprisingly, a number of the companies that fared well with these metrics are already household names. They tend to have the resources to take these initiatives from concept to creation and are keen to attract top talent. There were four companies that took the top spots on both indexes, including: Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Johnson & Johnson (NYSE: JNJ) and JPMorgan Chase (NYSE: JPM).
While scoring entry into JPMorgan’s empowerment index club is a feather in any company’s cap, it’s not going to be the final word for investors. Microsoft and Amazon remain strong investment options for those who love their blue-chip stocks others like J&J have been mired in scandal and lawsuits which has made their stocks volatile over the past year.
Sources:
https://www.bcg.com/en-us/publications/2018/how-diverse-leadership-teams-boost-innovation.aspx
https://www.weforum.org/agenda/2019/04/business-case-for-diversity-in-the-workplace/
https://www.morningstar.com/blog/2018/12/18/diversity-inclusion.html
http://www.hamiltonproject.org/charts/high_skilled_immigration_increases_innovation
https://venturebeat.com/2018/06/10/the-best-countries-for-tech-companies-2018-rankings/
https://www.straitstimes.com/politics/singapore-drawing-more-high-mix-low-volume-investments
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
