Why make Diversity & Inclusion a business priority?

Read time: 5 mins

Much talk, little action. These words sum up the growing interest in diversity and inclusion in corporate statements, combined with companies’ failure in improving fairness in their governance and structures. As evidenced by statistics, only 15% of companies in Europe treat diversity and inclusion as business and organizational issues. But civil society’s pressing demand towards institutions to better represent it in the decisions that collectively and individually impact citizens, cannot be overlooked. Neither by governments nor by the private sector, which should focus on the proven benefits of diversity and collective intelligence on performance to move forward.

There is a growing interest in the value of Diversity and Inclusion (D&I). Companies are increasingly taking fairness, respect and inclusion into account in their external communications, as well as in their corporate policy (HR, management, purchasing, etc.). The reasons for it are diverse, ranging from regulatory or social pressures, demographic trends and investor demands to purely commercial motivations.

Companies are pressured by society and regulators to act for more social justice

From a historical perspective, the pledge for D&I has been closely linked to pressures from social groups. With protest movements leading to laws and regulations, companies find themselves in a framework of constant adaptation to ensure compliance.
Back to the 1950s in the US: minority groups’ protests against discrimination probably paved the way to the evolution of diversity models within the workplace. The affirmative action original scheme drew strength from the law Civil Rights Act of 1964 that implemented equal opportunity employment objectives. Focus was then made on the idea that any individual academically or physically qualified for a specific job could strive for at obtaining it without being discriminated against based on identity.
As another example, more recently in Europe, several countries have enforced gender quotas in governance bodies, mainly in boards of directors and supervisory boards. (Copé-Zimmerman Law in France, 2010, with a 40% minimum of women or men in the boards of directors of medium or large companies; Golgo-Mosca Law, 2011, in Italy with a 30% minimum of women or men in the board of listed and state-controlled companies.; in Germany, for the 108 biggest listed companies, a 30% minimum of women).

The compliance basis has been a constant driver for corporate policies in the fields of diversity, inclusion and other ethical values. France’s example in gender policy is insightful about this. In the governance bodies submitted to quotas, women now account for 44% of their members, in the top 120 listed companies. At the executive committees of such corporations, where there is no specific diversity obligation yet, women struggle to be a 22%.

Businesses increasingly embrace brand activism to prevent reputation or ESG risks

Organizations realize that making diversity and fairness a business imperative will help them avoid tarnishing their reputation. Inclusion is seen as a key differentiating factor in retaining and developing talents, or attracting new generations of employees. It is also a mean to grasp changing consumer expectations, as more and more customers expect companies to positively contribute to society. They consequently want companies to take a stand on social, environmental or even political issues.

Echoing the resounding outrage caused by George Floyd’s killing, many companies have taken action in support of #BlackLivesMatter movement.

Black Lives Matter Vogue Runawaylist of tech companies joined protesters in voicing their outcry and sympathy. As noted by Built In tech job board:

  • Some companies went further, donating money to anti-racist groups like Equal Justice Initiative NGO that received $M1 from Grubhub.
  • Others unveiled initiatives for addressing racism in their products or organizations.
  • A few shared the racial make-up of their workforce and their recruitment and retention plans dedicated to employees from underrepresented groups.

“I share in your outrage and frustration. [Our company] will always stand for inclusiveness and celebrate our diversity.”

A note from GrubHub CEO Matt Maloney, in support to #BlackLivesMatter

Consumers have the power to retaliate against companies they judge behaving unfairly or inappropriately. Businesses know about that, specially in B2C markets. Remember in 2017, when 200,000 people quickly deleted their Uber accounts to punish the company for taking advantage of New York taxi drivers’ strike. The drivers were protesting against president Trump’s ban on entry of citizens from a number of Muslim-majority countries. Uber apologized publicly afterwards.

Meanwhile, investors are ones of the stakeholders most aware about the potential impact of a company’s approach towards D&I and its business stability. More and more investors have come to believe that Environmental, Social, and Governance (ESG) criteria have a practical purpose that goes beyond ethical concerns. They look after staying away from companies whose practices constitute a risk factor. See the 2010 Deepwater Horizon oil spill and the 2015 Dieselgate, which both shook the share prices of BP and Volkswagen and resulted for them in billions of dollars in associated losses. As ESG-minded business practices develop, investment firms are increasingly demanding from companies’ social standards related to D&I so that commitments and progress in that field can be measured and benchmarked.

The concept of social justice has evolved over the years. It now recognizes that individuals who do not belong to the dominant group must be given opportunities within the workplace, not only because it is a legal obligation, but also because it is a moral one. But despite deep changes in regulations and mindsets, companies are still perceived as unfair.

Companies are seen as failing to improve inclusion and fairness

The general context of mistrust. The growing concern about increasing income inequality, worsened by the COVID19 crisis, is clearly undermining trust in the institutions, including businesses. In the latest Edelman Trustbarometer , institutions are overwhelmingly seen as unfair: the majority of respondents perceive them as massively serving first the interests of a few, instead of generating value equally and fairly for everyone. In a global, long-lasting context of mistrust, every statistic that highlights gaps in salaries or leadership strengthens concerns about discrimination .

Leadership Diversity in Tech
[Source: mediapost.com]

The question is then: how to convince managers that diversity is important? For that to happen, experts argue, the appeal for diversity needs to be consistent with business discourse.

"Diversity initiatives must be sold as business, not social work."

Kevin Sullivan, an exvice-president of Apple Inc.

Throughout their landmark Women Matter and Women in the Workplace reports, McKinsey & Company have been researching gender diversity issues and assessing their economic costs. In particular, the 2017 issue of Women Matter noted that, “women generate 37% of global GDP despite accounting for 50% of the global working-age population”. Furthermore, McKinsey & Company argued, closing the gender gap by 2025 would help add up to $12 trillion to global GDP and 240 million workers to the world’s labour force.

In addition to macroeconomic analysis, proponents of greater diversity also focus on management performance studies. Russell Reynolds Associates have found out that executives of organizations with advanced D&I strategies are about 30% more likely than others to feel very loyal, innovative and willing to perform at a high level.

In a pragmatic need to reflect the diversity of customers – women make up half of humanity – many companies are doing their utmost to recrute more women and appoint them to key positions (sales, top management, etc.) with a view to accessing new markets. A good example of this strategy is provided by the automotive industry.

Women in the automotive industry

Research shows that 62% of new cars in the US are bought by women, who are believed to influence more than 85% of all car purchases . However, women only account for a quarter of the workforce in US car industry .
The automotive sector remains a male-dominated activity, but efforts are being made to recruit more women. In the Renault group, where women represent nearly 25% of its workforce worldwide and over 20% of its executive committee, the car manufacturer is aiming at having 30% women in technical positions and 50% in sales positions in France.

In another study, BCG consulting firm bridges diverse leadership teams with higher innovation revenues.

There’s growing evidence on the impact of diversity on growth, business performance and innovation

While emphasizing the macroeconomic, financial and organizational benefits, proponents of inclusion also refer to the untapped potential that can bring a diversity of experiences, perspectives and cognitive skills that act as levers to improve collective intelligence, agility, innovation and resilience in complex environments. Using research conducted by MIT and the Carnegie Mellon University, cognitive psychologist Émile Servan-Schreiber has demonstrated the positive influence of diversity on collective intelligence and group IQ . In order to produce collective intelligence effectively, Servan-Schreiber argues, the diversity of views and mindsets must be arranged in a way that organizational, cultural or individual prejudices really counterbalance each other.

With demographic, technological and societal shifts, D&I have become even more important as they affect an organization both internally and in its relationships with all its stakeholders, customers, markets, supply chain, etc.
In times of social unrest and economic uncertainty, companies should clearly focus on the proven benefits of diversity and collective intelligence on performance to move business forward and create value for all. It takes courage from the senior leadership and bold actions to engage their organizations in a long-lasting, positive transformation.

A quick snapshot on such transformation process covers:

a) Acknowledging the issue and assessing the risks (from compliance, financial, ESG standpoints mainly)

b) Driving change from the top, starting with senior leadership’s example

c) Building inclusive cultures within the organization and in its interactions with all its stakeholders

d) Creating inclusive talent management processes to provide a clear path and mentoring to advancement.

It requires courage and boldness, we said. Investments and targets too, with precise, measurable and time-bound objectives, to make real and sustainable change happen. But it is worth the effort.

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