Quantifying D&I Practices in the Workplace

In his recent TEDx talk Aleria’s CEO, Paolo Gaudiano, introduces the need, opportunity, and power of quantifying the value of Diversity & Inclusion. A transcript is included below the video.

The following transcript has been edited for clarity.

For the last 10 years or so Bitcoin has done really well. But would you put most of your retirement savings into Bitcoin? And how about marketing? We’ve had televisions for about 100 years, but would you put all of your ads on TV like this? And for more than 100 years now, white men have been very successful business leaders. But would you ever build a company where the executive team was mostly white and male?

The reason why we can immediately reject the first two of those ideas, but not the third one, is because in finance we have portfolio management, which helps us to allocate financial assets in a way that increases returns. In advertising we have programmatic, which helps us to allocate marketing assets to increase sales. But we don’t have any tools that can help us allocate human capital assets in a way that maximizes the performance of a company.

Which means that we don’t know whether a company that is completely homogenous like this one is actually ideal. We don’t know whether adding that token person of color is going to make it perform better or worse. We don’t know whether hiring diverse people from the bottom up, as so many companies are doing, is actually a good idea. And we don’t even know whether having a company that reflects the heterogeneity of society is a good idea. That is a huge problem.

To put it in perspective, I’m going to show you two numbers in a moment: the total amount of money spent by companies across the United States in one year in advertising and in payroll. And if you think that advertising is bigger, as many people do, you’re going to be really surprised, because not only is payroll bigger, it’s 30 times bigger. $5.4 trillion a year in payroll alone. Not labor costs, just payroll. Which means that if we cannot tell the difference between which of these is a better company, we’re leaving a lot of money on the table.

But a lot of times when I talk about this, people say: “Wait a second. You’re talking about personal characteristics. But that has nothing to do with the performance of a company. We are color-blind. We only hire the best.” Those kinds of sentences are not only insensitive, they’re also insensible.

Let’s think of a very simple example. A company just hired two identical twins. They were born on the same day, they went to the same school, they have the same exact experience, the same skills. But they differ because of some personal characteristic. And two years later one of those twins is making more money than the other. The only way that you can explain that is somehow the company is doing something that is creating a different experience for an employee versus the other, just on the basis of personal characteristics. This is the problem. Because the performance of a company is nothing more than a collection of what all of its employees are doing. So to the extent that any company is doing something that gives a lesser experience to any person for whatever personal reason, they’re shooting themselves in the foot.

If only we could quantify how a company impacts its people, and how the people then contribute to the success of the company, we would be able to quantify the value of diversity and inclusion. And that’s exactly what I do with my colleagues. We draw from a combination of behavioral sciences to understand how people react to different things in their work environment and how they behave, and computer simulations that capture the dynamics of what happens within an organization on a day-to-day basis, to understand how the individual people contribute to the performance of the company.

Let me show you a very simple example. Here is a company (simulated) that has four layers, from entry-level all the way to executives. There are two kinds of employees, male in blue and female in yellow. The company grows over time. You will see this in a moment when I start the simulation. And as people leave the company or the company grows, when there is a vacancy people get promoted to higher levels as a function of their seniority. Let’s see what that looks like. So here are the people doing their business. You can see some people getting promoted and moving up. Some people are turning grey and disappearing. But in general, if you start with a balanced company, after five years of week-by-week simulations you find that the company remains balanced.

I wanted to ask the question, what is the impact of gender bias in promotions? So we take the same exact simulations, but now when somebody is being promoted we inject a gender bias so that men are slightly favored over women. Let’s run the same simulation again for five years. And what you see is that fairly quickly you begin to see a very familiar pattern. And within five years we find that the company is dominated by men in a way that we see in real companies. Even though the bias is uniform, all of the men end up at the top, even though the company is still roughly 50/50 in terms of gender.

What if we take it a step further. “Oh, we see the problem. Let’s do unconscious bias training. Let’s remove all the biases.” Is that going to work? Take the same simulation. Begin with a company that is imbalanced, remove all the biases, and you find that after five years very little has changed. You make a few changes in the middle, but you still have a male-dominated leadership.

Now this is clearly a very simple example. But it turns out that we can start to make predictions such as the fact that it can take more than 20 years to undo the damage that it took only five years to create. The kind of methodology that I’ve shown you here is really great because even though this is, again, a simple example, it can begin to capture what I call “the complexity of diversity.”

And let me explain what I mean by that. I believe that most companies, in order to be successful, need four pillars — what I call “the four pillars of performance.” First of all, they need to be able to attract talent. Secondly, they need to be able to retain that talent that they worked so hard to attract. Third, they need to be able to use that talent efficiently within their operations. And finally they need to be able to attract the marketplace.

Many times when you hear people talking about diversity there are descriptions that suggest that diversity can impact each of these. “Oh you need to have a more diverse workforce to match the society that you’re trying to sell to.” “You need to be able to have diverse HR people so you can attract more talent.”

What most people don’t realize is that these are linked very tightly. Let’s think of a very simple example. A large Silicon Valley company decides that they want to diversify. What do they do? They hire a bunch of Black programmers. These programmers go in on day one. They realize that nobody up in leadership looks like them. Their manager does not know how to deal with them. They go to the cafeteria for lunch and people get up and move to a different table. In six months they leave. When they leave what’s going to happen? One, talent retention goes down. Two, operational efficiency goes down, because now you have to rehire and retrain people and it costs money. Three, you get a bad reputation. And that can make it harder for you to attract talent as well as to attract customers.

Now in addition to being able to address these kinds of complexities, the methodology that I showed you has another very important benefit. You see, when I began being interested in Diversity & Inclusion I felt that I only had two choices. I could either be an activist or I could do nothing. And what I’ve realized is that this kind of modeling and simulation can actually help me, and help all of us, to understand what each of us can do.

If you think about what I told you, the company influences the employees. But what is a company? It’s not the building. It’s not like the building says, “Hey, there are some Black guys coming. Let’s lock the doors.” Right? The company is the people inside the company, which means that every single person from the CEO to the janitor has an influence on the experience of their colleagues. And that means that what you do in your professional life can also have an influence in making the place better.

For example, if you’re going to a meeting or to an event, bring someone along with you that is not like you. If you’re a manager, make sure that you’re allocating projects and that you’re giving your time equally, not just to the people that you like because they’re similar to you. Beyond the physical, think about the digital world. Go home tonight and look at your Twitter and your LinkedIn accounts and find out how many white men you follow. And ask yourself when was the last time that you retweeted or shared content from a woman, a person with disabilities, a person of color.

And finally, diversity is not just something that you turn on and off at work. It also impacts your personal life. If you live in a place like New York, go up to Harlem and see a show at the Apollo. This is Pride Month, it just started yesterday. Whatever city you’re in, find a Pride parade and go to that. Find books by minority authors and read them. Because every time that you expose yourself to diversity in your personal life you become more comfortable with people that are different from you. And that will make you act more inclusively even at work.

So in conclusion, if you want to make a difference, not just in your personal life but in your work life, and make your company a better place to be, you don’t need to be an activist. You just need to be active.

Thank you.