Minorities in leadership and financial performance of their Fortune 500 companies

Abstract

While the minority population of the U.S. is on the rise, minority leaders of Fortune 500 companies, especially in the CEO position, remain underrepresented. Notably, in 2010, fewer than 4% of Fortune 500 CEO positions were filled by minorities.

The research on the relationship between diversity in leadership and organizational performance has yielded equivocal findings. To further our understanding of the impact of minorities in leadership ranks, this study was conducted to (a) determine whether there is a relationship between minority leadership and financial performance of the firm; and (b) identify commonalities among career strategies of minority CEOs. Such research is important as it provides a foundation for the organizational focus on human capital management.

The financial performance of minority-led Fortune 500 companies was determined through four commonly used financial metrics: return on assets, return on equity, earnings per share, and earnings before interest tax depreciation and amortization multiple. These data were gathered from a sample of ten minority-led companies. Additionally, the researcher determined whether three common career success strategies, as identified in the literature, were applicable to the minority CEOs. These strategies are (a) attaining higher educational levels, which encompasses the quality or prestige of the school attended and the degree type earned; (b) gaining international/global experiences; and (c) becoming members of boards.

The findings of this study revealed no statistically significant performance differences between Fortune 500 companies led by minorities versus those led by non-minorities. In other words, the presence of a minority CEO does not improve or diminish financial performance, on average. Additionally, the results of this study indicated that both minority CEOs and non-minority CEOs shared similar levels of education. Finally, minority-CEOs had several international assignments and diverse board memberships.

This study contributes to the literature by linking minority leadership to the financial performance of their firms. Most importantly, this study demonstrated that race or ethnicity has no bearing on a company's financial performance.