Of all the characteristics you’d like to see in a company that you’ve invested in, a good culture has to be near the top of the list. If the culture is wrong, success is likely to be short-lived no matter how many other things are right. As Warren Buffett has put it: “In businesses, culture counts”.

So how do you spot a good culture? Unlike sales figures or business strategy, there’s no definitive source of information, no simple way to gauge if things are going in the right or the wrong direction. It’s not in the annual report. There are no quarterly estimates. You need to look elsewhere for the signs. One surprisingly simple place to look is the leadership team. Specifically, diversity in the executive suite and the boardroom can be a simple and meaningful indicator of a good culture.

That’s because even though a lot of the talk about diversity in corporate leadership focuses on the beneficial effects that it may bring – wider perspective, altered group dynamics – it’s also a symptom. It’s not just that diversity makes businesses better, it’s that better businesses are more diverse.

Here’s why. Picture an organization that’s aced the culture test. People know what they’re working for and they believe in it. They feel like they belong. They aren’t watching their backs. It’s an environment that can bring the best out of everyone. All sorts of good things follow from this great culture model, one of which is that it will be easier to attract and retain high caliber individuals, including women who have found the playing field elsewhere to be subtly (or not so subtly) tilted against them. The same goes for individuals from different social or racial backgrounds. Keep that culture in place for long enough and it’s a pretty safe bet that this organization will end up with greater female and minority representation at senior levels. 

Researchers have found that firms with more women in the C-Suite are more profitable. This is no surprise if we’re correct about diversity in the C-Suite being a marker of good culture. Good culture, diversity and success are all interrelated, supporting each other. 

Today, of course, things are changing. Diversity is attracting more attention than ever before. Governments, investors and companies themselves are all taking steps to increase female and minority representation. And, as Goodhart’s law puts it: “When a measure becomes a target, it ceases to be a good measure.” As diversity becomes a policy, an unintended side-effect will be that its value as a symptom of a good culture is weakened. 

Indeed, we can even take a short detour into funky correlation-land here and argue that we should probably expect future studies to reveal a weaker relationship between women in the C-suite/boardroom and profitability than was found in the past. That won’t mean the whole thing has been a failure – it’s likely to happen even if every new appointee does her job wonderfully. It’ll happen because diversity will no longer be as strong a signal of an unusually good culture. 

In other words, for investors looking for simple ways to gauge the quality of a company’s culture, they just took our best measure away!