Diversity policies in America suffered a blow last year when the Supreme Court ruled against universities that consider race in the admissions process — a practice known as affirmative action.
Now there are fears that diversity initiatives in the business world will be challenged too. Already PwC, one of the Big Four accounting firms, has dropped some of its goals.
Despite this setback many companies and their workers still value diversity. In a poll of 400 companies in the UK and US almost all the heads of human resources said diversity, equity and inclusion was important to business strategy. The survey, by OnePoll on behalf of Monica Motivates, also found that employees were more engaged with the issue.
Diversity is not only a matter for talent managers. Leaders have to understand that the arguments for diversity go beyond moral issues. The most important point is that workplace diversity ensures that companies do not overlook talent because of discrimination.
On gender alone, an International Labour Organization survey from 2017 (updated in 2022) said 72 per cent of men were in employment compared with 47 per cent of women. Last year the IMF estimated that emerging and developed economies could boost gross domestic product by 8 per cent if they raised female labour participation by 5.9 percentage points.
Other groups are even more under-represented. In the UK in 2023, unemployment was far higher for those from minority ethnic backgrounds. By contrast in the US, Mexican-Americans had the highest employment rate that year and Puerto Ricans the lowest.
More creative and innovative teams
Those who live with a disability make up one in six of the global population, according to the World Health Organisation. The Center for American Progress says that while disabled workers experienced big employment gains in 2023 they were still twice as likely to be out of work. Significant advances can be made by enabling digital participation, says the web accessibility initiative from W3C, the World Wide Web Consortium. Among the benefits are an enhanced reputation and extended market reach.
Haben Girma, the first deaf-blind person to graduate from Harvard Law School, points out that people’s disabilities have led to innovations that have gained broad adoption, from the typewriter to dictation software and text to speech.
Kate Tancred, the founder and chief executive of Untold Fable, the content production company, says that more diverse crews with dissimilar backgrounds and perspectives make “different and better work”.
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Her company has diversity integrated in its hiring process and it uses this information when it forms teams for specific projects. For instance, a client such as Nike might request that a team is made up of 50 per cent women, 25 per cent people of colour and 17 per cent differently abled people: proportions that represent the population in its target market.
Vivienne Ming, a theoretical neuroscientist and co-founder of Dionysus Health and the Human Trust, says: “Diversity of the population involved [is] one of the principal factors that predicts . . . the smartest teams, the most innovative organisations.”
A team’s diversity can range from gender to race to socio-economic status and to geographical divides, such as north and south in the UK or coasts and centre in the US.
Recruitment and Retention
Broader access to talent is one aspect; attracting and retaining talent is another. In 2023 YouGov, the data and analytics group, found that two-thirds of the 2,000 UK employees it surveyed felt that diversity in the workplace was important when considering job opportunities. The figure was similar in the US with nearly one-fifth of surveyed workers saying they had left a job because of a lack of worker diversity and inclusion. That proportion reached nearly one-third for those aged 18 to 34.
Diversity and inclusion — aka the sense of belonging — are also key for retention. Druthers Search, a DEI firm that specialises in senior placements in the tech sector, studied UK unicorns and found that companies with a low DEI score were nearly twice as likely to lose staff. Mercer, the recruitment expert, says engagement and support is critical in retaining under-represented employees. This is not only important for minority groups. The workforce as a whole needs to see that their company is inclusive or “relatable”, Mercer says.
This matters even more to younger people who “want to work for a company that does good whilst obviously operating as a business”, Tancred says. She finds that this is reflected not only in recruitment and retention but also in “how staff show up at work — with a lot more passion”.
Those companies that lag on inclusion and belonging should consider how much they will spend on replacing disaffected leavers. In 2014 Oxford Economics and Unum estimated this to be as high as £30,000 per role and undoubtedly it is a lot more today. Kiri O’Brien, co-founder of Druthers Search, says it can take six to nine months to find a hire — a costly distraction at senior levels.
The business case for diversity
Better financial performance
If access to talent, recruitment and retention do not convince companies of the importance of DEI, they should take a look at the effect on financial results.
A 2021 analysis by the London Business School found that higher levels of gender diversity on FTSE 350 boards correlated with better Ebitda margins after three to five years. The research also showed a “significant but weaker” relationship between ethnic diversity on boards and less shareholder dissent, although confidence in this finding was not as high. Similar to W3C’s conclusions, the business school found that board diversity resulted in better reputations, greater corporate social responsibility and higher innovation levels. Company boards also reported better internal collaboration.
The financial case for diversity is becoming even stronger, says McKinsey, which has studied the trends since 2015 — five years after the Equality Act was passed in the UK.
In its fourth study in 2022, the consultancy found that the relationship between diversity at executive level and the likelihood of financial outperformance had strengthened. On gender, it said that companies in the top quartile for diversity were 39 per cent more likely to financially outperform those in the bottom quartile.
The outperformance was the same for the most ethnically diverse company leaderships versus the least, with more diverse boards also outperforming financially. McKinsey adds that companies that are leaders in diversity have a more positive effect overall, for instance on society and the environment.
Progress overall remains poor, though. The proportions of female and ethnic representation rose only slowly between 2014 and 2019, McKinsey says. Gains were made by those companies that already performed well. The laggards did not play catch-up but fell further behind.
Demographic imperative
Older workers are often an overlooked and excluded group. Enabling their participation will become more important as populations age and people live longer. An ageist approach will become more of a drag on economies.
Those that retire at 65 and live until 100 could have 35 years of no productivity at the tail-end of their lives, when their experience could be put to good use. Put another way, for those who undertake tertiary education and have long lives, the years in which they contribute to the economy are likely to be fewer than the years in which they draw from society.
Partly for this reason the International Longevity Centre UK says the state pension age will have to rise faster than the UK government projects, requiring people to work for longer. Based on 2017 figures the Department of Work and Pensions said keeping more people aged in their 50s and 60s in work could add 1 per cent to nominal GDP. This need not threaten younger workers. The Centre for Ageing Better said in 2018 that the UK was facing a shortfall of school and college leavers, while less than half the population is working in the year before they take their state pension.
Better customer representation
A further argument in favour of employing the older worker — and every under-represented demographic — is for businesses to reflect society more accurately. A diverse workforce helps companies to understand their diverse customer base and to serve it better. On age alone, by 2040 the ILC estimates that 63p in every pound will be spent by someone aged 50 or over, for a total value of £550bn.
Regulation and stakeholder requirement
In addition to all the above, a study by the Investment Association and PwC pointed out that diversity data are increasingly required by regulators, investors and other stakeholders. A lack of diversity can be a reputational drag.
One example of this is the drive to recruit more women on to boards in the UK. Boards that had early female representation were lauded while laggards were named and shamed.
Worse still can be the hit to companies whose executives express disdain for diversity, as was the case last year with Roland Auschel, the chief sales officer at Adidas, who received a “final warning” over “inappropriate and unacceptable” remarks.
The role of technology
More companies now realise the importance of DEI. International development consultancy HCL says this was the most common area where help was requested in its 2023 survey of clients. More technology applications can help to measure and promote diversity. Factorial, SAP and Paradigm are a few of the talent management programs that either drill into the issue or have add-ons to formulate and execute diversity strategies.
Action plan
Gather data — either upfront or through surveys
Be transparent about what and why
Get feedback from the employee base
Set goals
Make people accountable for achieving them
Highlight the wins
Gathering data
Measurement of diversity data makes it possible to understand how a business performs. Gathering figures when people join a company is the most straightforward way, which is easier for young companies that have a “diversity-first” approach.
At Untold Fable, diversity data are collected with a creative’s portfolio, Tancred says. This is then integral when a project team is pulled together. “People are selected from our technology platform which displays their portfolio — but it also displays their diversity data,” she says. “The aim [is] to make it part of the decision-making process.”
Untold Fable quantifies its diversity requirements — such as 50:50 male to female — alongside the expertise required, budgets and timeframe. From its 3,000 freelancers the company’s technology will assemble the best team for the job.
For older companies, gathering data is harder but not impossible. Conducting internal surveys through digital polling is one way to fill holes. O’Brien says: “You have a tonne of data on people that already work for you, so start there. Figure out what you want to measure and then do the surveys.”
She points out that it is hard to start a recruitment diversity programme without knowing what your organisation looks like at present.
Culturally, the DEI strategy consultant, says any data-gathering questionnaires must be well designed to foster trust and ensure a meaningful response rate. Transparency of intention as well as process are essential, as is using inclusive language that is universally relevant and sensitive to regional differences.
What data?
When it comes to the type of data a company should collect, measuring the composition of the workforce is a starting point. This though will not show how diversity contributes to business outcomes.
Discrimination can affect operations all along the employment chain, from hiring to managing and promoting individuals. McKinsey’s 2022 Women in the…
Read More: How technology can improve your company’s DEI strategy