Seven Considerations for Business Leaders
You’ve no doubt likely heard the term diversity, equity and inclusion (or DEI), given such an increased an intense focus on the subject in the last few years. DEI programs, often led by human resources departments, are seen as offering valuable education, interactions and adding to an organization’s moral and ethical “compass.” But DEI efforts are also viewed as measures that do not add to the financial bottom line. Nothing could be further from the truth.
This article will address how business leaders, from C-suite executives to HR and everyone around them, can offset this narrow view and more fully realize the business case for diversity.
Organizations with strong DEI initiatives are more likely to meet or exceed financial targets. A comprehensive 2014-2019 study by McKinsey & Company found that workplaces with strong gender and ethnic diversity are more likely to produce better financial results than less diverse competitors. The study found that in 2019 companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the bottom quartile. What’s more, in terms of ethnic and cultural diversity, top-quartile companies outperformed those in the bottom quartile by 36 percent in profitability that same year.
Organizations with strong DEI initiatives are more likely to have high-performing teams. The business case for diversity goes beyond quarterly financial reports. Competition for talent in the business world is often fierce, and organizations viewed as prioritizing DEI are in a better position to succeed. The job search engine Glassdoor reports that 67 percent of job seekers indicate that a diverse work environment was a key factor in their decision to work for an employer.
In addition to employees, the investment community is also prioritizing DEI criteria. The Institutional Limited Partners Association’s (ILPA) Diversity in Action initiative requires participants to track hiring and promotions by race and gender and report employee demographic data while raising funds. Private equity firms low in DEI indicators risk losing coveted investments from large-scale institutional investors.
Organizations with strong DEI initiatives are more likely to be considered agile and innovative. In today’s fast-moving corporate environment, agility and innovation are imperative to success. Business agility is the ability to adapt quickly and effectively in the market and the environment. Agility embraces a people-centered, organization-wide capability that strongly encourages continuous improvement, trust, and collaboration. Agility empowers teams, individuals, and companies to satisfy customers’ changing needs and expectations, in turn driving innovation.
Barriers that impede agility and innovation include:
Lack of prioritization – A business may take its customers for granted, assuming they are satisfied with periodic product upgrades. Such a firm may not invest enough in innovation, in turn neglecting customers’ needs and failing to reward the strong innovators on their team, some of whom may accept job positions elsewhere. In these cases, the organization will lose headway to competitors.
Apathy dampens original thinking – “Success breeds success,” but it can also lead to complacency and initiate procedures more intent on protecting that success rather than ensuring its evolution or identifying the next big idea. There is no question that certain standardized systems and practices are important. The danger lies when an organization begins accepting only one right way of doing things.
Humility is overlooked and undervalued – Any organization needs confident, assertive leaders. But problems occur when they are not approached with humility, that is, an acknowledgment that others may have a piece of the puzzle that others have not discovered. A lack of true empowerment can lead to arrogance, stifling agility and innovation.
Organizations with strong DEI initiatives are more likely to achieve or exceed business outcomes. A 2018 study by Boston Consulting Group (BCG) found that companies with above-average diversity among their leadership ranks have a greater financial return on innovation and higher earnings before interest and tax margins. Moreover, BCG found that firms with above-average diversity on their management teams reported revenue that was 19-percentage points higher than organizations with less diverse management.
In conclusion, while important, business drivers should not be the only reason to act. There is a compelling moral and ethical case to pursue DEI programs, as all workers deserve the right to be treated with dignity and compensated equitably.
