More than just good ethics: new research links corporate diversity to better investment decisions
- Written by Adam G. Arian, Lecturer Accounting & Finance, Australian Catholic University
When we talk about diversity in business, it’s usually in moral or social terms – fairness, inclusion and representation. But our new research[1] suggests diversity also pays off in a very practical way: helping companies make better financial and investment decisions.
Company boards often get the attention in discussions about corporate leadership. Yet much of the real decision-making happens within smaller, specialised board committees – groups of directors responsible for areas such as audit, risk, remuneration and sustainability.
These committees are where many of the big investment and governance decisions are debated and ultimately shaped.
Our study[2] looked at the effect of diversity within these board committees across Australia’s 300 largest listed companies (the ASX 300).
The results were striking. Firms with more diverse committees – in terms of gender, independence and professional background – made smarter and more efficient investment decisions.
Our research
To conduct our research[3], we built a detailed index to measure how diverse committees really are. This went beyond simple gender counts.
We considered whether companies had key committees in place, how large they were, the proportion of women, the diversity of professional backgrounds, and the mix of independent and non-executive members.
We then linked this “committee diversity index” to how well companies invested their capital.
In simple terms, we looked at whether companies were putting their money to productive use. That is, investing in projects that would generate long-term value, not wasteful spending or short-term gambles.
Smarter decisions
Across our study period (2018–2020), the results were consistent. Companies with higher committee diversity achieved better returns on invested capital and returns on equity. Both are measures of how efficiently they use their funds to generate profits.
More importantly, the benefits appeared in strategic investments, not just in day-to-day operations. Diverse committees were more disciplined and forward-looking when deciding where to allocate resources.
They were less likely to overinvest when times were good or underinvest when markets turned. Put simply, diversity improved judgement under uncertainty.
A wider lens for decision-making
Why would having a mix of people around the table make such a difference? It’s likely because complex decisions benefit from a wider range of perspectives.
Think about how a company decides whether to expand into a new market, buy a rival firm, or launch a risky product line. A committee made up of people who share the same background and experience may overlook risks or alternative strategies.
A more diverse group – bringing together financial experts, engineers, marketers and people with different life experiences – is more likely to ask hard questions and spot blind spots early.
Our results suggest this mix leads to less waste and more focus on long-term value. Larger, mixed-experience committees helped avoid over-investment and misallocation of resources. In contrast, smaller or more homogeneous groups were more prone to inefficient decisions and short-term thinking.
Seeing more sides of the story
These findings add to a growing body of research showing diversity[6] isn’t just a moral imperative but a governance advantage. Studies have linked gender-balanced boards to lower risk-taking[7], better innovation, and improved financial performance.
Diverse teams of employees also tend to outperform more homogenous ones because they bring different viewpoints to problem-solving[8].
When people with different backgrounds and expertise work together, companies see more sides of the story before committing to a particular path.
Diversity beyond the boardroom
Our findings fit within a wider global conversation about diversity in business leadership. For years, researchers have debated whether diverse boards and workplaces actually perform better financially.
Some studies find strong evidence[9], others less so[10] – partly because most research has focused on the main board rather than the specialised committees where many critical investment decisions are actually made.
But committees are often where the real decisions happen. Audit and risk committees oversee financial integrity; nomination and remuneration committees shape leadership and incentives; sustainability committees increasingly guide long-term strategy.
As organisations face uncertain markets, economic transitions and growing scrutiny, the ability to see problems from multiple angles is becoming a core strength.
Why this matters
In Australia, regulators and investors are placing more emphasis on transparency, governance quality and environmental, social and governance (ESG)[11] accountability.
As these expectations rise, companies are under pressure to show not just that they have diverse boards, but that this diversity extends into their decision-making structures.
For investors, our research has a clear message: diversity is a signal of sound governance and smarter resource allocation.
For companies, it’s a reminder that inclusive leadership is more than a reputational box to tick. It’s also a practical way to build resilience and long-term value.
References
- ^ new research (doi.org)
- ^ study (doi.org)
- ^ research (doi.org)
- ^ Ali mkumbwa/Unsplash (unsplash.com)
- ^ Steven Markham/AAP (photos.aap.com.au)
- ^ diversity (doi.org)
- ^ lower risk-taking (doi.org)
- ^ problem-solving (www.mckinsey.com)
- ^ strong evidence (www.sciencedirect.com)
- ^ others less so (journals.aom.org)
- ^ environmental, social and governance (ESG) (www.asic.gov.au)
Authors: Adam G. Arian, Lecturer Accounting & Finance, Australian Catholic University
