Over the years, I have continuously had to build a business case for diversity. But recently, I've begun to detest the idea that I even have to do it. We say "not only is it the right thing to do, but look it also saves us money!" But over time, I realized that the upper echelon wasn't typically listening to the "it's the right thing to do" they were just listening to the "why would I do this financially".
I know I'm biased because discussing diversity only in terms of financials goes against my values. To me, "it's the right thing to do" should be enough. So I contemplated how can I create a business case for diversity that would let me sleep better at night. So here goes:
The dollars and 'sense' of it
Many argue that a corporation's purpose in a capitalist society is to make money for its shareholders. Who are our shareholders? Are they a diverse group of people? Are they only composed of most the 'haves' versus the 'have-nots'? If we focus on just our current shareholders we are also focused on a limited group of spending power. So focusing on only current shareholders is a limiting mindset and it's not strategic. We never think of business in this way, it's never just about current customers, it's also about future customers. We need to think about who we can lift up to create greater purchasing power to have a greater pool of shareholders.
Additionally, at a macro-level corporations are not just about making our shareholders money, but corporations truly exist to stimulate the economy. Businesses create jobs, employees have more money to spend within the community, governments collect more taxes which stimulate further growth, and so on. But, we cannot have a healthy economy when only some members can contribute to spending within it. When only the 'haves' have disposable income and the 'have nots' go into debt to try and pay bills, the debt and interest payments further add to the 'haves' wallets--creating larger and larger discrepancies. These discrepancies are creating billionaires that can't possibly spend that level of wealth within one lifetime, never mind one that stimulates the economy for all, implying an eventual ceiling of wealth growth. Therefore, it's in everyone's best interest to have more equal wealth distribution to drive growth at all levels of the economy.
Decades of research shows that increased diversity and inclusion actually allows for more innovative solutions by challenging views and greater breadth of experiences/knowledge/ competencies (CEB, 2009; Martin, 2015). This provides companies with a competitive advantage over their less diverse and less inclusive competitors. We see tangible results in the form of greater return on equity and sales (Catalyst, 2008; Corporate Executive Board, 2009; 2012; Credit Suisse; Deliotte; 2012; Herring, 2009; McKinsey, 2010; 2012), increases market share (CEB, 2009; Centre for Talent Innovation, 2013) and higher customer satisfaction (CEB, 2012; Deliotte, 2012; McKinsey, 2012).
Positive Gain Spirals
Having a competitive advantage may already be a good enough case for some, but for those looking for a more systematic, holistic argument--a more inclusive workplace begins to great positive gain spirals towards greater employee and business results. Specifically, it creates positive momentum by increasing employee engagement (CEB, 2012; Deliotte, 2012; McKinsey, 2012) which increases productivity (Martin, 2015) and increases retention of employees (CEB, 2010; Martin, 2015).
We see this pull through again to the financials with more inclusive companies having higher operating profit (Towers Watson, 2012), higher profitability (CEB, 2009), and greater EBIT margins (CEB, 2012; Deliotte, 2012; McKinsey, 2010; 2012)
The more engaged and happy employees are, the more that they promote the organization as a good place to work which, in turn, helps promote more people to want to work for the company, as well as ensure a positive reputation for customers and shareholders.
"The Right Thing To Do"
At the beginning of this article, I glazed over the fact that diversity, equity, and inclusion is "the right thing to do", but this cannot be overstated. Diversity itself is not a value but a fact. That is every individual comes from a different story, experience, and values framework, so pretending that we are all the same, or that subgroups of us are all the same, just doesn't make sense.
So if we know that we are all unique, and we want to be treated as individuals, why would we treat anyone else as just a number or part of a group. We need to understand individuals, as such--individuals. Understanding people's unique needs, motivations, experiences, and struggles helps us better understand how to work with, lead, coach, and support them. This is the epitome of inclusion.
And diversity, equity, and inclusion are bigger than just one company's money and business results. If we invest in a greater pool of diverse employees, suppliers, and shareholders, we can increase prosperity within a greater number of families and communities. This allows for increased wealth to be distributed to a greater piece of society.
But…What's In It For Me?
If you are still not convinced that diversity, equity, and inclusion are good for business and society, let's talk about how it can benefit you personally. For instance, being more inclusive enhances your cognitive ability/agility, emotional intelligence, and leadership skills (CEB, 2015; Chally Group, 2015; Harvard Business Review, 2010). Specifically, learning people's individual needs, motivations, and strengths helps you understand how to better adapt to them, helps develop your creative problem-solving skills, which, in turn, will drive better team performance (CEB, 2015; Harvard Business Review, 2010)).
Developing these skills will, then, help you get noticed more by your organization. That is, most organizations use agility/adaptability as a key criteria for identifying high potentials (CEB, 2005; 2009; Harvard Business Review, 2010) and a greater number of organizations are using emotional intelligence as a key criteria (CEB, 2009; Chally Group Worldwide, 2015). So by being more inclusive, you also increase your likelihood of getting access to promotions, specialized development programs, and pay increases.
Overall, the typical business case for diversity, equity, and inclusion only outlines a fragment of why it's imperative. Not only is it good for business, but it also is good for yourself, your employees, and society. If you feel you are in a position where you are asking people to justify the costs or the efforts of the work, it's time to take a step back and consider how you would want to be treated, what you value, and what kind of society you want to live in.
The community has always been a part of the creation and development of any business. We consider the community based on our potential target market, access to raw materials and suppliers, and the costs of operations. Sometimes, but rarely, we also consider the local talent pool and skills availability.
But the community is more intertwined with the business than we recognize. That is, each stakeholder is connected to the community in a larger way. For example, when we utilize local resources and suppliers, our business expansion or contraction is now directly impacting job creation and reduction for those businesses to meet our demand. Additionally, we impact the employee's partners/family when we create compensation policies, work schedules, and working climate. Compensation policies also impact the employee's disposable income and how much they will spend in their local community.
This level of intertwinement sometimes makes business leaders uncomfortable. We justify that we don't need to consider this breadth of the community because businesses are required only to provide profits to their shareholders. However, the community is a major stakeholder and are even usually shareholders themselves. For example, employees (insiders) in the U.S. can be up to 20% of shareholders, directly impacting their family, and the disposable income available in the local economy.
Too often when companies choose to enter or leave a market, we only look at the P&L statements. We think this factory is no longer viable because there are better tax incentives in another state or country. We don't consider the broader implications of what it means to leave that community. We see examples of this in towns where one business is the main employer.
For example, let's take Newton, Iowa as an example. A local member of the community, Frederick Louis Maytag founded the Maytag Corporation in 1893 and by 1925 it was primarily a washing machine company. Maytag was one of the very few companies during the 1930's Great Depression to be growing and making a profit. And Newton, Iowa's population grew by 74% because of it. Despite being profitable, Maytag decided they wanted to cut employee's wages by 10%. Reasonably, the workers went on strike. Even though this company was founded with a local leader, the company decided this strike was unacceptable and martial law was declared with tanks and machine guns being brought in against the workers. The workers were forced to go back to work with a 10% pay cut. Then, in 2001 the company decided it was cheaper to move the facility to Mexico and severed ties completely from the city by 2007. This resulted in 1,800 people losing their jobs, or 12% of the community. The city of Newton was forced to incentivize new companies to come to their town and diversify their economy to ensure mass relocation or poverty spikes didn't occur.
The impact of these types of choices has a detrimental effect, not just to the community, but to all stakeholders at large. Consider the spouses who may need to adjust their work. Or the suppliers who then also have to relocate. But even consider the negative publicity's impact of how shareholders will feel about these decisions. Sure, a few will be excited that their dividends will go up, but many will feel sour from the disloyalty and heartlessness. Divestiture of company's based on moral reasoning has long been a trend and shareholders are requiring more and more disclosure.
Small businesses typically understand this dynamic as they are members of the community themselves and see how they a cog in the larger wheel. However, as larger and larger corporations take over, the distance between CEO and the local community increases and the inevitable lack of empathy surrounding that community takes hold.
Company's need to be more mindful if they choose to enter a community, especially if they will be a majority employer. If it no longer makes sense for a company to operate within a community, adequate notice and planning should be required to allow for the community to adjust. Very rarely are you going to see your good news story in the headlines, but layoffs and divesting will be. Therefore, during these times, it's important to make decisions with respect, dignity, and while considering the larger implications. Overall, there is a larger obligation to that community not just morally, but potentially financially.
While some employers believe stress to be a “necessary evil” to remain productive and profitable in today’s global economy, research indicates otherwise (1). In the United States, 26-40% of employees report being extremely stressed or burned out (1), in the European Union, 28% of employees reported feeling stressed at work, and in Japan, 63% of employees reported serious work anxiety or stress (2).
Ongoing stress can also contribute to longer-term issues and it's even been found that stress could contribute up to 90% of health symptoms and disorders (5). Long-term stress can manifest as psychological disorders (e.g., depression, anxiety, post-traumatic stress disorder), emotional disturbances (e.g., dissatisfaction, fatigue, tension), maladaptive behaviours (e.g., aggression, substance abuse, accidents, injury, suicide), physical illnesses (e.g., cardiovascular disease; cancer; ulcers, decreased immune system, neuroendocrine disorders, autonomous nervous systems, blood pressure, blood lipids, uric acid), and cognitive impairments (e.g., sleep disorders; 1; 2; 4; 6; 9; 10; 11).
It's time to re-think overworking yourself or your employees to get greater productivity and realize that in the long-run it will lead to lower productivity as well as many other consequences including hurting profitability. Now it's time to re-focus on engagement, motivation, and purpose.