New research reveals that the cultural heritage of leadership teams can influence corporate profitability and success, underscoring the need for diversity at decision-making levels.
Led by academics from University of Edinburgh Business School and The University of St Andrews, the research study analysed the performance of banks directed by more than 600 US-born chief executives who were children or grandchildren of immigrants.
The study found leaders whose cultural heritage emphasises restraint, group-mindedness, and long-term orientation were safer, more cost efficient and as a result more likely to outperform under pressure.
It suggests CEOs of German, Italian, Polish and Russian heritage were associated with delivering 6.2 per cent higher profitability than average under competitive pressures. Those with British or Irish heritage demonstrated no difference in performance to the market average.
“At a time when the economic benefits of immigration are increasingly questioned, our study offers a glimpse of the positive and lasting contribution that people of immigrant heritage make in the business world,” said Professor Jens Hagendorff, chair in Finance at University of Edinburgh Business School.
Researchers analysed data on national cultural characteristics from the GLOBE Project and the World Value Survey. Information on publicly listed US banks’ performance from 1994 to 2006 was then compared to ancestral records on their CEOs from the world’s largest genealogy database, Ancestry.com.
The financial services sector is notorious for its white-male-led leadership teams, which is why the need for diversity and inclusion has gained a bigger foothold in strategic planning. “This study provides a nuanced understanding of the role of culture in financial decision making. Our findings unambiguously show that diversity matters in the banking sector, and by implication, in similar finance organisations,” Dr Arman Eshraghi, senior lecturer in Finance at University of Edinburgh Business School, said.
“In particular, we focus on the diversity of cultural background which is often overlooked in the common discourse that chooses to focus on gender diversity – given it is easier to measure.”
Dr Louis Nguyen, lecturer from the School of Management at the University of St Andrews, noted that heritage and ethnicity are becoming areas of interest to policymakers, which makes this research all the more relevant.
“Cultural heritage is a topic of significant interest to policymakers. A growing body of research shows that managerial traits explain a lot of the variation in a firm’s capital structure, investment, and profitability,” he said.
“These studies investigate the usual attributes, such as age, gender, experience, and educational achievement but the role of cultural heritage in shaping managerial behaviour and firm outcomes has been overlooked.
“Our research shows that the cultural values that can be traced back generations ago can influence decision-making in the present time. This implies that culture is deeply-rooted and slow-moving. Our study is especially timely, given the ongoing debate about immigrants around the world.”