Is corporate diversity linked to ethical behaviour? Americans think so

The news that United States corporate profits hit an all-time high – increasing $71.3 billion in the third quarter alone – and the public negative reactions that ensued, suggest Americans see a related rise in the Scrooge-like practice of overworking employees at the bottom rung for gain at the top. And the images of those corporate leaders is of mostly white men. 

Timothy Durham, the former CEO of The National Lampoon, was sentenced recently to up to 50 years in prison for cheating investors out of about $200 million. In the last weeks, reports emerged that the Securities And Exchange Commission and the FBI are investigating hedge fund giant SAC Capital Advisors for reported insider trading. Recurring news such as this along with reports that the board of Hostess Brands took record bonuses while 13,000 employees lost their jobs, tell us it’s time to acknowledge the connection between a lack of diversity across corporate America and the perception of unethical behaviour. 

In the ideal world, one would hope for a changed scenery and a break from our unbroken history of mostly white, mostly male faces in American board rooms.

It is true that the US financial crisis of recent years has prompted many changes in the corporate landscape. Companies have been forced to adopt more stringent policies on regulation, bailouts and executive compensation through the 2010 Dodd-Frank Act [PDF] that attempted to legislate Wall Street reform.

And yet, we are not doing enough diversifying, particularly for leadership positions. This poses the question: Would a more diverse corporate America make for a more ethical corporate landscape?

Our recent findings in a joint study at Northwestern University and Columbia University with my colleague, Katherine W Phillips, over the past two years suggest that this intuition may ring true: People perceive diversity with relevance to ethics. This is so predominant a notion that people prefer diversity in times of ethical turmoil. In a series of studies, we have found just how closely Americans link corporate diversity to ethics.

For example, in one study, we varied the racial diversity of a particular company keeping gender diversity consistent. We then told participants that this company was the subject of some recent media scrutiny suggesting as-yet unproven but questionable events that negatively impacted investors and cast doubt on the company’s ethicality.

Overwhelmingly, the more diverse the company was perceived to be, the more ethical the company was believed to be. Participants were far less likely to perceive that the diverse company was acting in its own self-interest and were more likely to believe the company was less at fault than a homogeneous company facing the same rumours of wrong doing. They also reported the diverse company to be more ethical, to value ethics more, and that it should be penalised less for their behaviour.

To see how diversity impacts the perception of how companies combat unethical behaviour, some participants were told that a task force made up of diverse members was charged with fixing the company’s ethical problems, whereas others were told that a task force of homogeneous members would be on the case. Although companies that were initially homogeneous did get a small boost if they used a diverse task force rather than a homogeneous one, people were far more likely to perceive that a firm that was initially diverse and also took on a diverse task force was truly interested in rooting out the bad behaviour. 

One of our most striking findings was when we presented participants with a company faced with either a marketing, financial, or ethical problem and instructed them to choose three candidates to include in a task force from a set of eight candidates that had equivalent expertise on the subject matter. Not only did people choose more diverse candidates when the issue was ethical than when it was a marketing or financial matter, but the reason that participants cited in their choice relayed back to reasons of wanting greater diversity to help remedy the situation. 

To be sure, there is no direct evidence that diverse firms will in fact act more ethically than their homogeneous counterparts. Let’s not forget that key figures guilty of ethical violations have also included females and non-whites such as Martha Stewart as queen of her own empire, and Herman Cain as head of the National Restaurant Association. 

But there is also some research that does suggest diversity can play a role in influencing ethical behaviour. For instance, a recent study [PDF] in September 2012 at the University of Minnesota by Lisa Leslie and colleagues finds that gender diversity in organisations can increase the level of charitable giving in the workplace. 

We also know from social phenomena such as groupthink that more homogeneous groups experience more conformity than diverse groups – people in a homogeneous group are more likely to try “getting along and going along” as a way to remain part of the group and are less likely to counter questionable behaviour. 

It’s not hard to imagine then that companies that are too homogeneous can create environments where people are more concerned about conforming rather than solving problems, which then leads them to be more susceptible to unethical behaviours. And it is here that diversity can provide the necessary checks and balances for actions and behaviour that would otherwise be left unchecked.

Our results suggest that the diversity of a company signals a strong message – diversity contributes to the perception of ethicality. For organisations, having a balanced workforce is central to instill confidence in consumers that this is an ethical organisation worthy of their trust. 

I propose as companies look back at the end of the year and draft strategic plans for the New Year and years to come, that at the top of the list is an initiative to diversify at the top. Perhaps then Americans companies will bolster the perception with consumers that they play fair. 

Sun Young (Sunny) Kim is a Lecturer at Northwestern University’s Kellogg School of Management and is also a Public Voices fellow through The OpEd Project. Her work has appeared in the Journal of Experimental Social Psychologyand Social Psychology and Organisations.