Abstract
Globally corporate company are embracing both gender and racial diversity and they are beginning to witness its impact on performance. Several researchers have revealed that with increased diversity, companies can gain access to unique networks, information and human capital which ultimately improves financial performance (Carter, D’Souza, Simkins, & Simpson, 2010). In this paper, we investigate whether racial diversity at executive management level bears financial benefits, particularly in a South African context where since the dawn of democracy, regulations such as the Employment Equity Act of 1998 require companies to racially diversify their workforce. This research analyses data from 21 major State Owned Companies (SOC) from (2011 to 2014). The study used correlation and regression analysis to examine the relationship between the racial composition of executive managers (i.e. whether they are Black, White, Indian or coloured) in these companies and the companies’ financial performance (i.e. Profit Margin, Return on Assets as well as Fruitless and Wasteful Expenditure as a percentage of revenue). The results indicate that there is slow progress made by the South African government on including blacks at their executive management teams within SOCs. Furthermore, we also find no correlation between the racial diversity of the management teams and the financial performance) of these SOCs. These findings are significant, particularly for South African regulators and policy makers, as they provide justification for increased efforts to racially diversify the South African executive management teams in SOCs. This is important since numerous studies have demonstrated that such diversity was financially beneficial particularly in the private sector.