A lengthy debate has happened in recent years if there is a genuine Business Case for Diversity. Last October, the Wall Street Journal issued for the first time research based on the S&P 500 grouping, that looked at how Diversity impacted the performance of the various companies. The researchers looked at ten performance indicators, including the age and ethnic Diversity of the company’s employees, how many women occupy leadership roles, and board composition. The ranking, developed by the journal’s environment, social, and governance research analysts, found that the top 20 most diverse companies outperform the least diverse firms when it comes to share price and operating results.
This was achieved both over five- and ten-year periods, comparing the sample with non-diverse firms. Led by the financial industry, the top companies had an average operating profit margin of 12%, compared with the 8% average profit margin of the least diverse companies. Progressive Corp. and JPMorgan Chase & Co. earned the highest individual rankings.
Diverse and inclusive cultures are providing companies with a competitive edge over their peers.Wall Street Journal, The Business Case for More Diversity
Also, The Financial Times has published a ranking of the top 700 European Firms on Diversity. In this case, the direct link on performance is less visible, but initial analysis has been able to link strong past year performance of the top companies compared to the peers in their industry and markets.
Diversity and Innovation
This research has confirmed what other analyses already pointed out: there is a direct link between Diversity and Innovation. Something that Investment Firms have already been looking at.
Morgan Stanley recently launched a score that assesses the level of gender diversity within a company’s workforce. Diversity has been a focus for corporates and investors alike for nearly a decade, with the 30% Club launched in the UK in 2010 and France introducing board gender quotas in 2011. More countries have followed, and in many cases, projects like Paradigm for Parity are also acting on this. Morgan Stanley concluded that High gender diversity companies had delivered slightly better returns, with lower volatility, compared with their low diversity or sector peers, and they have moderately outperformed on average in the past five years. According to the study, companies with more women outperformed less diverse companies “even after controlling for size, yield, profitability and risk”.
Also, McKinsey in 2016 published a report that looked at the financial performance of 366 companies and found a link with their Diversity: more diverse companies were likely to find better performance than their industry Median.
Accenture has also published a recent report, which looks at a Culture of Equality as the driving factor for Innovation. Out of their research, they found out that Employees in more equal cultures see fewer barriers to Innovation and are less afraid to fail. All characteristics that we have seen are key and necessary to create a culture of Innovation based on Creativity. And Innovation is Six Times higher in companies with high equality vs peers.
Diversity positively influences an innovation mindset, and equality is the multiplierAccenture, Getting to Equal 2019
A caution tale about Data and Local Context
One of the issues with Diversity studies is the availability of data. If for Gender data usually is available, recent trends in Data Protection, as well as the possibility for individuals to challenge their traditional gender belonging, do create issues with confront ability and availability of data. Disclosure practices vary too much by country and/or even by voluntary disclosure practices. This is even more true for other diversity dimensions, where data is not widely available. The Financial Times in its approach has chosen to move towards perception (and so did Accenture in its research), by directly surveying employees.
The issue in most organisation is that they tackle Diversity from a People Analytics perspective. The issue is that “most organisations have a great deal of data on certain groups, but far less on others” states a recent article appeared on HBR. As you try to break down Diversity into groups, numbers become very small and difficult to manage, and People Analytics approaches become meaningless. Which is why companies resort then again to just reason in terms of broad categories. Women are a perfect example: easy to report, data is normally available, normally pretty broad as an example. If you, however, start to understand women that belong to a further group, let’s say Black, or Asian, or LGBT+, you end up in very small ranges, which also then carry the issue of multiple belonging at the individual level. But the problem is that data shows that efforts directed at women broadly, tend to over reward white women at the expense of women of colour.
Another critical issue is how to relate company data to local practices and cultures. For example, Switzerland, despite its high presence of multinational companies, still struggles in improving its gender representation practices. Its labour market even stagnates for women, primarily due also to its relative closure to the outside world.
Availability of Data and Local Context, however, should not push to dismiss the business case for Diversity. On the contrary, they should push for more attentive analysis of data on one side, exchange of good practices, and a clear focus on the improvement across all the targets that a company can identify.
The Business Case for Diversity: Investing Today to make Equality work
If the business case is becoming more and more valid, the question is, what is the type of investment that we need to do? Workplace environment and culture are first.
To make diverse teams work, you need investment in people managers [and] in the emotional safety for peopleElizabeth Uviebinené
The focus is twofold. We need to act on people managers and pursue the right level of psychological safety for individuals to express their own individuality. Wed have already seen this as an element that needs to be tackled, as belonging becomes the right link that makes equality work.
A workplace that supports a diverse workforce exemplifies the best practice of an engaged, creative and healthy culture.Tweet
In this scenario, each employee will know that their voice will be heard. They are valued as individuals that belong to a team and share a sense of purpose with their organisation. Everyone knows that they are safe in expressing their viewpoints regardless of their experience level, background, education or age. People are encouraged to do so, and culture of candour takes away the patina of “political correctness” that sometimes affects some of the conversations, making everybody able to express their true self. Lean management practices allow people to take responsibility and drive commitment in the organisation, following collaboration and ensuring success. Leadership rewards consistency in behaviours, incentivising risk-taking and action orientation. The organisation is designed to support Diversity, equality and belonging, by ensuring that all operating processes support the tracking of the progress to an equal culture.
Simply adding social diversity to a group makes people believe that differences of perspective might exist among them and that belief makes people change their behavior.Katherine W. Phillips, How Diversity Makes Us Smarter
The critical question is where to start to achieve the above. I see three elements that need to be radically thought over to allow the creation of real equality.
- Organisation Design. Way too often Diversity and Equality don’t make it to the organisation design agenda until the very last moment, and often just as a “value” element that does not embed true Diversity in the designs system. Traditional Organisation design, by focusing on work separation and task division, creates in itself a Diversity Challenge, by anchoring people to organisational elements (silos) that are often dysfunctional compared to the strategic needs of the company.
- Talent Acquisition. Once the company has been redesigned to allow for more collaboration based on Diversity, it is essential to acquire more diverse talent from the outside. This is probably the one scenario in which I genuinely see internal development not “fit for purpose”. It would help if you got different perspectives from the outside, to show the way and help bolster diverse talent.
- Business Agility. With the entire diversity concept, we need to apply Lean and Agile principle to assess what works. Experimentation is vital, also because the dimensions of Diversity are too many to be managed off a checklist.
You cannot recruit a diverse workforce without having a healthy culture that attracts talent.Stuart R. Levine, Diversity Confirmed to Boost Innovation and Financial Results
Your Individual Business Case
There’s one last concept that I think it’s valuable to stress in the conclusion of this post. Thanks to the diffusion of more awareness around this topic, it’s also essential for each individual to assess even more carefully where to “invest” your own diversity quotient and talent. Because also as an individual, there is a robust Business Case in contributing to your individuality for a company that can generate better results.
Building Your Own Business Case for Diversity means deliberately choosing where to invest your Creativity and passion, based on the sense of equality, respect and belonging that it can generate.
Are you ready to build your Business Case for Diversity?