No. 33




Impact of diversity on the efficiency of Estonian companies *

08 June 2016


RiTo No. 33, 2016

The Praxis Centre for Policy Studies conducted a study in Estonian companies to establish the existence of data that describe diversity, to describe the diversity in the management boards of Estonian companies, and to evaluate the links between diversity and economic performance.

International studies examining the connections between diversity and economic indicators of companies have reached different conclusions. The results of studies have been diverse, finding proof of both the negative and the positive effects of diversity. However, one of the most widespread conclusions is that the impact of diversity to a great extent depends on the context of the organisation. The companies that actively create such working environment that respects diversity and consciously make use of the advantages of diversity benefit the most from it. At the same time, ignoring of diversity may result in a situation where it becomes an obstacle to the development of a company.

The study included all Estonian businesses and their management boards which have two or more members on the board. In total, information about the management boards of approximately 25,000 companies was analysed. The following aspects were analysed: gender (man and woman), nationality (Estonian and other nationality), age (the difference of the ages of the youngest and the oldest member of management board), health (no long-term health problems / has a long-term health problem) and religious beliefs (religious and non-religious).

The analysis of diversity showed that, from the various aspects that were studied, a great number of Estonian companies lack diversity. 45% of companies can be considered diverse by gender. In less than one third of Estonian companies, members of the board differ due to their health; in 23% of companies, there are both religious and non-religious members in the board. 91% of the companies have the board of only Estonians or only of people of other nationalities, thus only 9% of companies have Estonians working with other nationalities on the board.

Analysis of the links between diversity and business efficiency showed that age and gender diversity has a positive correlation with corporate profit margins. The profit margin of companies where both genders are represented in the management board is 1.3 percentage points higher than that of the companies where the board consists of only one gender. Companies which have age diversity at the board level have a 2.3 percentage points higher profit margin than companies where the board is homogenous by age.

The study confirmed that diversity can be a competitive advantage for businesses, and the opportunity to stand out. The positive impact of diversity on companies and on the society as a whole is evident through conscious management of diversity. In further studies, it should also be analysed in order to get a bigger picture.

Full article in Estonian

* Praxis study “Diversity in Estonian Enterprises” was a part of the Law School of Tallinn University of Technology project of promoting equal treatment.