Authors
Max Nathan
Abstract
High levels of migration to the UK have contributed to growing cultural diversity. Researchers are now exploring the effects of this diversity on firms’ productivity. This paper focuses on the owners, partners and directors who set firms’ strategic direction. Top team demography might generate production externalities through diversity (a wider range of ideas/ experiences, helping problem solving) and/or ‘sameness’ (via specialist knowledge or better access to international markets). These channels may be balanced by internal downsides (lower trust) and external barriers (discrimination), so that overall effects on performance are unclear. I create a repeat cross-section of over 6,200 firms from the RDA National Business Survey. I construct measures of diversity and sameness across ethnicity and gender ‘bases’, alongside information on revenues, exports, product and process innovation. I regress these measures of business performance on top team demographics, plus controls, area, year and industry fixed effects. My results suggest a small but robust inverse-U relationship between the share of minority ethnic top team members and business performance measures – especially process innovation, turnover and exports. For female top team membership, the inverse-U also holds for product innovation and turnover. Further tests on diverse and minority/female-headed firms find positive links for diverse top teams, negative for minority- and female-only top teams. This implies that while diversity has benefits, any kind of homogenous top teams carries performance penalties. For all-minority and all-female groups, these probably result from external constraints such as discrimination, and limits to market access.