In the weeks since Silicon Valley Bank’s collapse, a strain of seemingly bad-faith argument has emerged pinning the bank’s failure on an over-focus on diversity and environmental and social considerations. In particular, one Wall Street Journal column highlighted the makeup of SVB’s board of directors, noting: “The company may have been distracted by diversity demands.”

To understand what research actually says about the link between board diversity and financial performance, we reached out to Wharton assistant professor Stephanie Creary, whose scholarship on diversity, equity, and inclusion includes qualitative research on how diverse boards affect their companies’ bottom line. Here is a transcript of our conversation, lightly edited for clarity:

What’s your response to the accusations that SVB failed at least in part because it was too focused on diversity?

The first thing I always do is lead with science and say, what is it that we actually know when we think about the relationship of diversity to any type of performance outcomes? What we know is that academic research, for the past three-plus decades, has helped us to understand that there are various ways in which diversity can positively affect firm performance on a whole host of outcomes. The research does not typically find that diversity can harm firm performance. That is not a consistent finding in the literature. More often than not, it's found through various mechanisms that diversity can positively impact firm performance.

I also think it’s important to clarify what we do know to be true: that many of these effects are often seen, the positive impact on firm performance, in firms that are already doing well. For example, there's a variety of papers that say for more innovation-focused banks, they were more likely to benefit from diversity. Diversity is the amplifier. It's the thing that helps to catapult the firm from a good place to an even better place.

We don't have research that says when a firm is doing well, adding diversity will make the firm perform worse. That's not a finding. It’s a hypothesis that these folks who are anti-diversity have, but this has been tested. Scholars have tested whether diversity helps, hinders, or does nothing to an entity. And usually we either find that it has some positive effect or no effect, that it either does nothing or does something positive. We do not find consistently that it harms, that it hinders. And so their hypothesis that it hinders what was counter to the academic evidence on this topic.

But what we also know from the research on broader diversity is that diversity, in many cases, is brought in when a firm is failing. And this aligns with this longstanding research on the glass cliff, which would say that we're more likely to promote a woman CEO or hire a Black person for the job when the firm is failing. It's called the glass cliff phenomenon because when the already failing entity happens to fail, who gets blamed? It’s the woman or the Black director. That's already been established.

So now the parallels I'm about to draw to boards: The bank is failing. The bank has some amount of heterogeneity—I wouldn't call it diversity. There’s like two women and one Black person, and it's still overwhelmingly a white male board. So the numbers are very small. But that said, we have two things happening at the same time. We have a firm that is increasing its commitments to ESG and to diversity. And we also have a bank that has a highly risky portfolio. And so it is not surprising that a bank that has a highly risky portfolio, when the economic conditions start pressuring the bank, would start to struggle. We can look at every economic crisis to understand that.

What then is not surprising from the research that we just talked about is that the people who are underrepresented in this bank would be those who were to blame. This is a common fallacy that we follow. We forget the compilation of things that the bank does on a day-to-day basis, and we feel the need to attribute it to something. And more than likely, when we think about the diversity research, is we attribute it to the people who are underrepresented. It's just a bias that happens.

I also think it's important to understand that the average person doesn't actually understand what a board director does. They think of board directors as the people who actually run the firm or who have anything to say about who gets on the board. Shareholders elect board directors. It is the case that there is some overlap between the people who manage the firm day to day and those who are on the board, but the board directors oftentimes are necessarily independent, meaning that they don't have day-to-day responsibility for what the firm does. They can advise, but it's management's responsibility to take that advice or not take that advice. So I think what's also happening here is people are fundamentally not caring to understand what a board does in relation to a firm, relative to what the managers do in relation to the firm. And how much influence does any director have over the firm?

Yes, it is the board's responsibility to make sure that that firm stays healthy, but then to relegate it to a small number of underrepresented people on a board, and to pass the blame onto the fact that we focused on diversity as being the whole explanation for what happened, is just illogical. I think that's the nicest way I can say it. It's not empiric. There's not a single academic study that's been done over the past three decades that people have been doing research on the links between diversity and performance that would ever lead to these same illogical conclusions.

What are the mechanisms through which diversity can enhance performance?

Oftentimes when we talk about the stats on firm performance, they're a variety of firm-level financial outcomes: financial metrics, accounting metrics, revenue metrics, profit margins, things that firms are often used to determine the financial health of an organization. Over time, what scholars have done—as opposed to just looking at the relative diversity of gender or race or educational institution of the board members or the leadership team—is looked at how diversity affects things like market access as one set of metrics, meaning the more diversity that exists, the more access to a broader range of customers. The idea is that they would somehow know more about different markets than a non-diverse team. So market access or reach in a marketplace is often one mechanism through which scholars have explored diversity affecting financial outcomes.

The other one is about turnover intent. When employees turn over, that is an operating cost, because it costs more relatively to hire and onboard new employees than to keep your employees happy. We've known this for a long time. Companies know this as well. So we look at how diversity helps to convince more people, particularly people from underrepresented groups, that they should stay in that organization and not leave. It lowers their turnover intent, and lowering the turnover intent can help to enhance the firm's financial performance.

So one way is as a revenue-generating mechanism, with access to markets. The other one is a cost reduction, a cost-lowering mechanism. And then if we back up before lowering turnover and reducing costs and increasing revenue, we get to, so where does all this inclusion and belonging stuff come in? This is where we say it's actually oftentimes not just the diversity, that it's diversity leads to better decisions and it's the better decisions that leads to increased market access. Diversity needs to enhance innovation and creativity, or diversity can help to create the sense of belonging for people who don't see people who look like them represented in top leadership. Feeling like I can belong can make me want to stay in this organization. So that whole initial starting place is ‘Yes, diversity,’ but it's all these related concepts called inclusion and belonging that are the predictors of these mid-range revenue-enhancing or cost-reducing mechanisms that lead to financial performance.

Are these findings focused on boards or on firm leadership more broadly?

A lot of it is upper top management teams. Some of it is about employees, and increasingly it's also about boards. There has been some research on boards that has found links between female representation on boards and a variety of accounting metrics. Now, these studies are newer and oftentimes scholars rely on archival data, publicly available data. We know that that's not super great, meaning it's not super detailed. So there's less understanding for board-level information of the mechanisms by which diversity, specifically gender diversity, can enhance a firm's financial performance. That's why I do qualitative research: because although I'm not testing or showing causality, what my research has been saying is, well, then it must be something that's happening in the boardroom. How does this indirect entity—that doesn’t manage the firm, but indirectly supports the firm—how might it actually enhance?

That's what my Harvard Business Review article was about, was trying to understand what is going on here. When I had collected the data In 2018, the most prominent diversity conversation on boards was gender diversity. Most of the boards I studied didn’t even racial diversity or LGBTQ diversity on their radar. They didn't have this understanding that there was a business case for diversity. And by and large, in 2018, most of the boards that I studied were focused on just trying to enhance the diversity of their boards. They weren't yet to a place where diversity was necessarily changing the way that they made decisions.

Why, you might ask? Because women get on these boards and they don't let them talk. One of the issues is that while we would like boards to be highly functional and effective, a lot of people have gotten on boards as their retirement gigs, and they're kind of there signing off. So there's not all this rich discussion and exchange happening. In manu cases, it's literally the chair of the board, who's often the CEO, presenting hours upon hours of material to the board and saying, ‘Do you have any questions?’ I’ve talked about those as hierarchical boards. In hierarchical boards, that diversity isn't really mattering because no one's really talking. They’re not tapping into the diversity. They're not doing any of that. And my research suggests that most boards are hierarchical boards. Was SVB a hierarchical bank board or not? I don't know. I don't know this board.

Inclusive boards or egalitarian boards are boards that see that bringing in diversity is important, but actually elicit ideas and suggestions and integrate the ideas and suggestions from board directors into what the board does. If one of the jobs of the board is to advise management—their other jobs are, by the way, compliance with regulatory affairs and keeping fiduciary responsibilities—then if they're able to shape the minds of the operating managers or leaders, that's supposed to be something good. So I call that an inclusive set of boards.

I've since expanded this research—post George Floyd's murder, I collected a second data set. I'll have an article coming out in the next month in MIT Sloan Management Review with two leaders at Deloitte: Janet Foutty, who's currently the chair of Deloitte's board, and Kwasi Mitchell, who is Deloitte's chief purpose officer. We've combined our insights to talk about how to make diverse boards more effective, and we offer a model, but I share in that paper a couple of quotes from the Black directors that I interviewed after George Floyd's murder, where these boards now are doing much more around enhancing racial diversity. The same sentiments hold true based on my qualitative research: Some boards really want to hear from them, some boards really do not. Some boards really want to hear about how they can be more effective in helping the firm to support its diversity and ESG goals, some do not. I’m hard-pressed, based on my own research and existing research, to imagine that this [SVB] is the one bank that listened to all of its directors, including the minority directors, and that everybody on the board was pushing diversity at the cost of risk management related to its portfolio. It would be an exceptional scenario if that happened. Not saying it couldn't happen, but it would be the outlier in my data.

You’ve mentioned how diversity impacts companies that are doing well and companies that are struggling. What about those in the middle?

Research is not clean. So when we have a whole bunch of firms, what patterns end up holding? And then you're like, well, what about the rest of them in the middle? Well, there's no clear pattern. That's what it's telling you, is that for firms that are outside of those parameters, there's no clear consistent pattern around what diversity does for them. On the one hand, what scholars and consulting firms would argue is, ‘Well, maybe you should focus on implementing good organizational processes before you focus on diversity.’ On the other hand, other scholars and participants would say, ‘Maybe by increasing the diversity of the people who are making decisions, you can actually change said policies and processes so that they are better and more effective.’

So that's the debate, is chicken and egg. But again, I think the punchline here is that there is no evidence to suggest that diversity causes harm when we're thinking about firm performance. It can cause conflict, but conflict doesn't necessarily undermine financial performance. And I think what's happening is lay people are mistaking conflict—meaning, ‘I don't want to do this, I think this is dumb’—for something that can harm financial performance, when in fact that's not the relationship.

Why would something like market access only hold true for a firm that's doing well?

Think about it this way: Diversity can help firms that are really focused on doing more, finding lots of opportunities, to find those opportunities. That's what market access is. Innovation-focused means you're actually focused on finding opportunities, and then tapping into these new markets. But if you're not super-focused on innovating, on creating new stuff, how the heck is diversity actually going to help you access new markets?

So there's a motivating principle in there too. That idea of diversity, plus the motivation to innovate, as determined by your past history of innovating—that taken in total becomes something that helps to increase market access. But if you don't have the motivation or track record, it's harder for diversity to help you access that market.

What would you say to organizations that aren’t performing as well, and that may use that as a crutch to excuse a lack of diversity?

As I always advise people, it is natural to feel anxious about the changing economic conditions. It's perfectly normal to feel. And psychology would say that when we feel anxious, what often happens is we tend to take less risks and we tend to narrow our focus. But the reality is when we're talking about, for example, the promise of diversity—whether that's about recruiting people or leaders or any type of talent to the firm that's going to help us gain access to new ideas, etc.—by narrowing our focus, we're closing our eyes off to potential opportunities that are sitting out there. And so how is it that we can begin to channel that anxiety towards advancement and growth and away from a sense of safety that is not growth- and advancement-oriented? How do we shift the anxiety from being what I call a preventive focus to what I call a promotive focus? Preventive anxiety is inhibitory, and it causes people to restrict their attention and their focus. Promotive anxiety is about thinking about the future, being future-oriented, growth- and advancement-oriented.

In order for people to do that, from a leadership perspective, it's about data—consuming the research that actually refutes the arguments that people are making out of their own anxiety, or whatever other emotion that you want to come up with, maybe contempt for diversity practices. Use data to say, does that make sense or not? And so if all the scientific evidence says that makes no sense, then maybe you just say, you know what? That's just somebody else's emotions talking. I choose to lead from a place of evidence. Leaning on the evidence has the potential to help very anxious leaders become calmer and become more focused on the future and learning and growth, and less focused on short-termism that is fueled by inhibitory types of anxiety that's going to lead them to make bad choices.

What we always see in an economic downturn is, companies lay off workers, they get rid of HR benefits, they cut diversity offices, and then when the downturn's over, they're scrambling and they can't find anybody. And so there's this reactivity that isn't always necessary. So this is about being forward-looking and organizations learning to engage in predictive types of analyses and less reactive to emotional experiences that aren't grounded in evidence. It's hard to not just be like, ‘They're so stupid.’ But that's not my job is to call people names. My job is to be like, ‘Let's go back to the science and understand that they are being illogical and leaning on irrational emotional experiences that they have about diversity. And they are creating mania amongst other anxious people who don't like leaning on evidence. So let's drop some evidence into this conversation.’