What is the business case for diversity?

We need to get better at diversity — at talking about it and putting it into practice. Few would deny the social, ethical, and moral drivers for equality and inclusion, but what about the business case?

Mainstream media tends to use the term ‘diversity’ to mean race and/or gender. Combine the two and it’s easy to see why: a Pew Research Center survey found black women are 13% more likely to experience gender discrimination at work than their white (female) colleagues. Nevertheless, they are not the only factors in the diversity discussion.

Inherent diversity can be characterised (broadly) by a person’s gender, sexual orientation, race and/or ethnicity, disability, religion, or age. But diversity can be acquired too: through language knowledge or cultural experience. According to the Harvard Business Review, workplace cultures who actively embrace both types of diversity have better market outcomes all round.

So, what is the business case for diversity?

One of the most compelling statistics illustrating the business case for diversity is from McKinsey’s 2015 ‘Diversity Matters’ report, which states companies with the highest proportion of ethnic and cultural diversity are 33% more likely to outperform their competitors.

Before we jump into the myriad of ways in which diversity has a positive impact on businesses, are there any negatives?

Yes, according to some (and they’re not all white men, either). Among those who believe diversity — or, at least, the politicisation of diversity — is actually bad for business is Tessa L. Dover, professor of Applied Social Psychology at Portland State University. Her study found that companies who proactively promote diversity policies may find themselves alienating majority groups, while doing little to encourage minority groups to speak out.

However, these findings — and others — say more about the way in which diversity is applied, communicated and managed than they do to discredit its intentions.

By way of example, just look at Google’s firing of software engineer James Damore — an act that was no doubt intended as a public declaration of zero-tolerance for intolerance. Yet it has done little to mask the huge diversity division at the heart of techland. In an anonymous survey, more than half of Google employees felt that Damore should have kept his position despite his apparently extreme views.

But moving on from Google…

We already know that having a strong commitment to social responsibility boosts both internal engagement, and shareholder value. The connection between corporate social responsibility and diversity is clear: research by the Center for Talent Innovation shows that companies that extend their socially responsible ethos by taking a public stand against racial bias are viewed more positively across all sections of society.

But it’s not just race, and it’s not just reputation: nearly half of all Americans say they are “more likely to spend money with brands that are LGBT inclusive.” In other words, however you define diversity, consumers care when companies care.

Innovation, intelligence, and diversity of thought

In my experience, no business can survive (and certainly not thrive) in the long term without innovation. But it doesn’t just happen: innovation needs a safe space to think, fertile ground to grow, and a supportive network to support it from seedling to fruition. All of which will happen more naturally if you have a diverse workplace culture.

Innovation is, by definition, doing something differently. When you increase the number of perspectives in a room — by including mixed teams of both inherent and acquired diversity — the variety and quality of new ideas increases exponentially. Celebrating differences, it seems, is the key to creative stimulation.

There is no shortage of behavioural research here: everyone from Cisco to IBM recognises and capitalises on the link between diversity and innovation. Likewise, there are a plethora of studies showing the stifling effect of homogeneity in terms of idea-generation — negatively influencing decision making, risk taking, and accuracy.

But it’s not all about the innovators and the inventors: diversity makes the entire workforce smarter. According to Scientific American, the benefits of socially diverse teams can be felt well beyond those tasked with creative research and new product development, outperforming homogeneous groups in everything from complex problem solving to diligence and productivity.

Diversity of thought is key too: big business is finally beginning to recognise the value of non-traditional cognitive styles — particularly when it comes to innovation. When you consider that Newton, Darwin and Einstein were all purportedly on the autistic spectrum — not to mention Richard Branson’s dyslexia and IKEA founder Ingvar Kamprad’s ADHD — it’s almost unbelievable that most workplaces are designed for neurotypical individuals. Leading the way are firms including EY and Microsoft, who have built-in programs of active recruitment for workers of different cognitive styles into their existing diversity and inclusion policies.

To sum up, those who consciously incorporate both cultural and cognitive differences will reap the benefits across the whole business: from the creative to the commercial.

Expanding the talent pool

Talent and success: you can’t have one without the other. The ability to attract, hire and retain the best people depends at least in part on the availability, abundance, and, you guessed it — diversity — of talent. If a company continually employs and promotes candidates from the same universities, industries, and social networks, groupthink culture (innovation’s adversary) is a real risk.

But what does ‘casting the net wide’ and ‘expanding the talent pool’ mean in practice? We need to move beyond assumptions of quotas and tokenism — more, it’s about creating a framework in which managers are encouraged to curate teams with a wide range of voices to speak the unspoken, ideas which challenge the norm, and cultural reference points that draw on diverse life experiences.

For startups in particular, prioritising diversity from the word ‘go’ can be problematic. The 2017 ‘State of Startups’ report — which surveyed over 800 venture-backed startup founders — found that 59.5% of boards are all male — while 22.4% are ‘mostly male.’ And it’s not just in Silicon Valley: the UK startup scene too is still overwhelmingly male. So how can entrepreneurs ensure they are consciously embracing diversity, before they scale up? Algorithm-based apps like DOXA provide one solution, helping business owners eliminate accidental bias and prioritise diversity from the beginning. As we know, AI isn’t perfect, but it can go one step closer toward democratising merit in job applications.

The bottom line — market share, growth, and profitability

Time for some more numbers.

A Harvard Business Review study found that companies who demonstrated both inherent and acquired diversity traits in their leadership were 45% more likely to report market share growth over the previous year, and 70% more likely to capture a new market. Why? Well, for a start, diverse businesses are better placed to serve their communities: most markets are based on a consumer need rather than any arbitrary marker of race, gender, sexuality or anything else.

Meanwhile, US think tank the Peterson Institute found that a company with 30% (far from equal) female leadership could “expect to add up to six percentage points to its net margin when compared with a similar business with no female leaders.”

Here’s another: funds managed by mixed-gender teams attracted six percent more inflows than those run solely by men or women. Scale that up to a country level and the potential monetary benefits are staggering: the UK alone is estimated to be £24 billion a year bigger if employees from black and ethnic minority backgrounds were to progress at the same pace as white workers.

But, while the numbers are compelling, the motivation for diversity must be foremost a moral one. Without the social and ethical emphasis to drive real change (particularly as cultural revolutions do not happen overnight) there is the danger that flimsy initiatives may backfire. Plus, today’s consumers can sense inauthenticity a mile off.

Complete culture changes are possible though. In just a few short years, GoDaddy has gone from being synonymous with sexist advertising, to one of the most inclusive companies in tech. The bikini-clad commercials were the first to go. Two years later, CEO Blake Irving identified a gender discord between their target market of small business owners — which was more than 50% female — and its engineering and graduate hires, then 39% female.

Now, following a complete overhaul designed to overcome the unconscious biases that every workplace has, half of new engineers hired are female, with women making up 26% of senior leadership roles. And it’s working — their total 2017 revenue was up 20.8% year on year, totalling $602.2 million.

There is still much work to be done before our offices and boardrooms truly reflect the fabric of our society — but we’re getting there.

The social and moral case for diversity is clear, but so too is the business one — and it’s important to remember that good ethics and good economics are not mutually exclusive. From investment through to innovation, the benefits of having a robust equality, diversity and inclusion strategy can be felt throughout your business — including your bottom line.

Firm Ethics believes that what’s good for the world is good for business. Each week, I shine a light on people and projects I’ve found inspirational, and (hopefully) inspire other business leaders to think about their role in a more ethical future. Why not join us?