When it comes to diversity and inclusion (D&I), most of us think of the moral obligation of organisations to create a working environment where every individual, regardless of race, ethnicity, and gender, is respected and able to achieve their full potential.
But what about the business imperative? Can D&I be a sound business strategy that gives companies a competitive edge over rivals?
Even before a growing body of research provided clear evidence that companies that embrace diversity are doing better in general, business leaders sensed it. “Many of us know intuitively that diversity is good for business,” Vijay Eswaran, Executive Chairman, QI Group of Companies, wrote in an article for the World Economic Forum. “Having built and scaled a multinational enterprise over nearly two decades, I’ve learned that diversity in the workplace is an asset for both businesses and their employees, in its capacity to foster innovation, creativity and empathy in ways that homogeneous environments seldom do.” Just look at the richest and most innovative cities in the world, Eswaran wrote. New York, Dubai, London, and Singapore are all international melting pots.
While intuition leaves some room for doubt, scientific data does not. Research shows that high-skilled immigration is a major driver for innovation and economic performance. A company with a diverse workforce is much better at considering a problem from many different angles and likelier to come up with a wide range of solutions than a group of people with similar profiles. A Boston Consulting Group study found that companies with more diverse management teams achieve 19% higher revenues thanks to a higher level of innovation. Another survey, the 2018 Hays Asia Diversity and Inclusion report, showed that diversity contributed to a better company culture, leadership, and innovation.
Diversity in the boardroom
One of the most compelling cases for D&I at the executive level was made in a McKinsey & Company report published in 2020. The report covers 15 countries and more than 1,000 large companies. “Our latest analysis reaffirms the strong business case for both gender diversity and ethnic and cultural diversity in corporate leadership—and shows that this business case continues to strengthen. The most diverse companies are now more likely than ever to outperform less diverse peers on profitability,” the management consulting firm said.
The analysis found that companies that embrace gender diversity on executive teams are more likely to have above-average profitability. In addition, the report found that the greater the representation, the higher the likelihood of outperformance. Companies with more than 30% women executives were likely to outperform companies where this percentage ranged from 10 to 30. In the case of ethnic and cultural diversity, the business case findings are equally persuasive.
Diversity and inclusion during the Covid-19 crisis
Against the background of the current pandemic, there are even more reasons to advocate a stronger emphasis on D&I. If history is any guide, the lessons from previous crises point to the risk of organisations attaching less importance to inclusion and diversity while busy with more immediate challenges. Yet the evidence described above suggests that companies will put themselves at a disadvantage if they neglect D&I, because when the crisis is over they will find it more difficult to recover.
Besides, companies must take into account some particular threats arising from this specific crisis. “In this period of heightened uncertainty, a perceived lack of control and the spread of misinformation increases risks of bias, xenophobia, and racism (especially against those of Asian descent) that impact people in the workplace and beyond,” Deloitte said in a paper. The consultancy noted that organisations must continue to strengthen diversity while actively building inclusive cultures.
For all the undisputed benefits for business, progress has been slow. According to the McKinsey report, female representation at companies based in the United States and the United Kingdom rose from 15% in 2014 to 20% in 2019.
A study by the Alliance for Board Diversity and Deloitte published in January 2019 found that the percentage of minorities and women on the boards of the largest public companies in the US has increased only slightly in the last two years. The study showed that women and minorities occupied 38.6% of board seats at Fortune 100 companies in 2018, compared with 36% in 2016.
So, what can be done to encourage diversity and inclusion in the corporate context? Sadly, there is no consensus yet on what actually works. David Pedulla, an associate professor of Sociology at Stanford University (US), noted in an article for Harvard Business Review that programmes designed to promote D&I in the workplace often fail. There is no silver bullet, he noted, but pointed out that some approaches such as concrete goal setting, alternative complaint systems that prevent retaliation, and measures to counteract stereotyping are promising based on empirical evidence. Another approach that might work, and that is yet to gain traction, is tying executive compensation to goals for the hiring and promotion of workers from underrepresented groups.
The advancement might be slow, but there are still reasons for optimism. Commitment to D&I is on the rise in the corporate world. Hopefully the mounting evidence that diversity, equity, and inclusion are drivers of business growth will give companies a further push in the right direction.
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By Valentin Vassilev