What Sesame Street Can Teach About Good Management

Big Bird and his friends have always known that diversity has value. Too bad so few businesses have learned the lesson

Written by James Cowan

Founded in 1921 by Henry Ford, Kingsford charcoal started as a way to make money from the wood scraps left over from the production of the Model T. Later purchased by Clorox, the briquette manufacturer was a profitable venture—until the gas barbecue decimated demand for its lone product. The brand would have died, if not for a group of Latino employees who approached Clorox CEO Don Knauss with an idea. Latino families still loved grilling over charcoal; why not target that customer group? This insight turned the moribund firm into a business with 6% annual growth.

Stories like Kingsford’s reinforce what we all learned from Sesame Streetthat diversity has value (Big Bird left out that value is sometimes an actual dollar figure). Yet too often, workplace diversity is treated as a public relations issue. Witness the summer of penance currently underway in Silicon Valley. It started in late May when Google disclosed a report that seven-in-10 of its U.S. employees are guys and 61% are white. LinkedIn, Yahoo and Facebook soon unveiled their own dispiriting numbers, with stats for all four companies getting gloomier for tech and senior management roles. (Only 15% of tech employees at Facebook and Yahoo are women; just two percent of the senior leaders at Google are black.)

Once one tech giant released its numbers, the others had little choice but to follow. Along with the data came statements of contrition. “We’re the first to admit that Google is miles from where we want to be,” wrote senior vice president Laszlo Bock in a blog post. If benchmarking is one part of the solution, the other is cash. Google has already invested US$50 million in “Made with Code,” a program aimed at encouraging more women to become computer programmers, while Facebook partnered with #YesWeCode, which wants to teach relevant skills to 100,000 underprivileged young people. Depending on your level of cynicism, these efforts look like either damage control or philanthropy. But they’re neither totally craven nor purely noble: they’re simply savvy investments in long-term prosperity by two forward-looking companies.

Wattpad, a publishing tech startup that’s chosen to remain in Toronto, views the city’s multiculturalism as a competitive advantage. “We have users in pretty much every single country around the world and support over 50 languages,” CEO Allen Lau recently told CBC Radio. “We need the staff that has a global perspective to help us.”

Read: The Entrepreneurial Career of Allen Lau

Companies with diverse workplaces consistently out-perform more homogenous organizations. Sales revenue jumps by 9% for each percentage point increase in racial diversity and 3% for each improvement in gender diversity, up until the point the company reflects the wider population, according to a University of Illinois study. As well, researchers at Simon Fraser University found a board with a single woman on it will have stronger corporate governance practices than one that is men only.

Companies with diverse workplaces consistently out-perform more homogenous organizations.

All of this makes the current push towards “comply or explain” rules in Canada particularly frustrating. In January, Ontario announced plans to force companies to report female representation on their boards and in senior management, or explain why they aren’t making the disclosure. Six more provinces are now considering similar rules. But politicians needn’t impose boardroom diversity when rewards and penalties already exist for either pursuing or eschewing it. Let those who don’t seek diversity suffer where it matters: their bottom line.

James Cowan is the editor-in-chief of Canadian Business. This editorial is from the August 2014 issue of the magazine. Subscribe now!

Read: Why Diversity Does a Business Good

Originally appeared on PROFITguide.com