What is the Business Case for Diversity?

The business case for diversity is an organizational discourse connecting a diverse workforce with organizational outcomes. For example, business leaders often make a business case for diversity, claiming that hiring more women or people of color, ethnic minorities, or sexual orientation results in better financial performance.

The business case for a diverse and inclusive workplace is clear – not only do organizations with stronger LBGTQ representation and inclusion policies attract better diverse backgrounds, but most also see significantly higher profits and better business performance. For example, a 2015 Harvard Business School alumni survey revealed that 76% of people in senior executive roles believe that “a more diverse workforce improves the organization’s financial performance.” 

What is the Purpose of a Business Case for Diversity?

Diversity in leadership is essential for equal opportunities, talent, drive, and success. In addition, women and other underrepresented groups must be given equal access to opportunities to reach their full potential.

Diversity efforts give access to a range of talent. In addition, it helps provide insight into the needs and motivations of all of your clients rather than just a small part of them.

The purpose of diversity and belonging is to incorporate the different features that allow individuals to bring their authentic selves to work and honor their contrasts. Companies also benefit from this diversity of thought.

What are Examples of Business Cases for Diversity?

The following are some examples of business cases for diversity.

Gender Business Case

Companies with more female representation in executive management have been shown to outperform companies with no women in senior roles financially.

Improved Financial Performance from Women in Leadership

  • Firms with a higher share of women in senior roles have a significantly larger return on assets, even within narrowly defined industries.
  • Companies with women CEOs have stronger financial performance.
  • More women on corporate boards and executive teams are a form of promoting women to rise through corporate ranks.
  • Companies with female senior management score higher on organizational criteria than firms with no women at the top.

Greater Capitalization of Talent

  • Drawing leaders from the talent pool will give the organization more flexibility.
  • Highly educated and qualified women are being underutilized.
  • Women are less present in finance and STEM sector boards.
  • Losing talent is expensive in both opportunity and employment costs. A rule of thumb for the cost of attrition is 150-200% of the annual package.

Enhanced leadership, Team Performance, and Motivation

  • Heterogeneous teams are more creative and better at generating new ideas, but only if the organizational culture values diverse viewpoints.
  • Women bring different behaviors and leadership skills to the table.
  • More women in leadership opportunities highlight roles for women to succeed.
  • Diversity programs have a beneficial impact on motivation, and diverse workforces accomplish more financially.
  • Employee satisfaction and engagement are critical to organizational success and directly impacted by diversity. What women find unappealing about organizations is increasingly reflected in the attitudes of male employees. Employees who are not engaged with company behavior and values perform poorly.
  • Greater diversity in organizations reduces staff turnover.

Corporate Governance

  • Companies with women perform better in key board committee roles (such as risk and audit).
  • There is a link between women on corporate boards and good governance credentials.
  • Companies with at least one woman on their committees reduce their risk of bankruptcy.
  • Lagging in this area exposes your organization to public relations challenges.

Economic Growth

  • Unlocking the underrepresented value of the labor pool of women is useful for the economy.
  • Reducing the gender gap in work spaces can increase GDP.

Corporate Social Responsibility and Culture

  • More gender diversity on boards can lead to greater corporate transparency and improved ethical orientation.
  • More gender diversity protects women against sexism and sexual harassment.

Racial Business Case

A Boston Consulting Group study found that companies with more diverse management teams have 19% higher revenues due to innovation. This finding is significant for tech companies, start-ups, and industries where innovation is the key to growth. Moreover, it shows that diversity is not just a metric to be strived for; it is an integral part of a successful revenue-generating business.

  • Potential boost of £24bn to the UK economy annually, if employers get race equality in the workplace right.
  • Organizations with ethnically diverse leadership teams outperform their peers by 33% 
  • Women from Pakistani and Bangladeshi backgrounds are the least likely to be employed.
  • Black Americans comprise ten percent of the United States graduates, but only four percent hold executive positions.
  • Hispanics and Latinos comprise eight percent of graduates versus four percent of executives, and Asian Americans, seven percent of graduates versus five percent of executives.
  • In the UK, the inequality is even greater: twenty-two percent of university students identify as black and minority ethnic, yet only eight percent of UK executives are from these backgrounds.
  • Black women are underrepresented in positions and face a harder path to CEO.

LGBTQ Business Case

Companies worldwide are increasingly recognizing, and committing to, LGBTI+ (lesbian, gay, bisexual, transgender, and intersex) diversity and inclusion.

  • 28% of LGBTI employees did not tell anyone at work about their sexual orientation or gender identity, and 23% told only a limited number of people. 
  • On average, one-third (33%) of respondents had “never” been open about being LGBT at work in the past five years, and 23% had been so “rarely.”
  • Having LGBT-inclusive policies is associated with reduced incidences of discrimination, and that is associated with better psychological health and higher job satisfaction among LGBTI employees.
  •  A supportive workplace climate, including LGBT-supportive policies, is associated with a better likelihood that LGBT employees will feel comfortable expressing their sexual orientation at work. Higher disclosure of sexual orientation is linked to better psychological health among LGBT workers.
  • LGBTI employees are more satisfied with their jobs when covered by supportive policies and working in positive climates of employee resource groups.
  • LGBT-supportive policies and workplace environments are associated with improved relationships among LGBTI employees, co-workers, and supervisors. In addition, LGBTI employees are more engaged in their job, are more likely to go above their job description and contribute to the workplace, and convey a greater commitment to their jobs.
  • Although there are initial costs to enacting LGBT-supportive policies, such as extending health benefits to same-sex partners of LGBTI employees, costs are likely negligible. Cost savings can offset them in other areas. Healthier, more committed LGBTI employees are likely to make greater contributions to the workplace.
  • Among consumers and job-seekers who value LGBT-inclusive diversity practices, businesses with LGBT-supportive policies are seen as better companies, thereby increasing their customer base and pool of prospective employees.

What are the Benefits of Business Cases for Diversity?

Forbes research conveys that decisions made and executed by diverse teams delivered 60% better results, and an inclusive environment makes better business decisions 87% of the time.

It has been well-documented that inclusive and diverse organizations are more prosperous. Whether it includes adding more women at a senior level, realizing the full potential of minority, black and ethnic workers, or being thoughtful of those with poor mental health, workplace diversity can catalyze business growth and success.

Organizations with Women Being More Profitable

We have seen little progress towards gender parity in the past five years. Moreover, the pandemic has created an additional setback, with one in four women considering leaving work compared to one in five men.

However, a lot of data shows organizations with more women in top roles are more profitable. McKinsey research shows that organizations with fewer than 20% of women at the exec level reported decline, flat or slow profitability. There is a 48% performance difference between the most and least gender-diverse companies.

These compelling statistics propel organizations to look at why women are leaving or not advancing in their work lives, including looking at parental policies and flexible working to address the 17% of women who leave employment after childbirth. 

Truly inclusive organizations also recognize the impact of menopause in the workplace, which affects 50% of employees.

Ethnic Diversity and Business Success

McKinsey research in 2014 and 2017 indicates a higher likelihood of outperformance differences with ethnicity rather than gender.

Black and minority ethnic people in the UK are less likely to work and progress in the workplace than white individuals. As a result, in Britain, there is a loss of £24 billion annually due to the failure to bring talented Black or minority ethnic professionals into the workforce.

It is important to consider what barriers exist in your organization, from entry to board level, preventing everyone from reaching their full potential. 

People are Looking for Diverse Workplaces

In the current competitive recruitment market, companies need to work hard to attract the best candidates to their organizations. People are considering organizational culture more now, and 76% of job seekers report that a diverse workforce is a non-negotiable factor when considering job offers and companies.

Cultural inclusiveness in the workplace is mandatory. There is little point in hiring people in a culture that will not support or include them; the shift needs to come first.

Need for Safe Spaces and Environments

A culture where people feel appreciated, included, and safe will positively impact productivity. Therefore, companies must encourage employers to build safe spaces where everyone feels welcomed and bring as much of themselves to perform as they choose.

A psychologically safe environment will not only bring improved productivity and profitability but can also bring other benefits for organizations, including improved engagement, increased trust, and better teamwork.

LGBT Job Priorities 

Studies have shown that the LGBTQ+ pool is well-educated, more engaged than most, and highly empathetic. In addition, clear LGBTQ+ inclusion is an increasingly powerful business differentiator for organizations. For example, more 60% of LGBTQ+ employees believe being at work has improved their capacity to do business and engage with customers.

In a competitive labor market, LGBTQ+ inclusion is a talent differentiator – more than 80% of workers believe that having a supportive focus on LGBTQ+ has provided their organization with the best talent. 

Companies must look at their internal and external communication platforms and determine if their organization has an authentic, supportive LGBTQ+ focus.

Why Inclusion and Diversity Are Important to Younger Job Seekers

Gen Z and Millennials’ expectations of inclusion and diversity differ from those of other generations. However, these groups actively look at employers through an inclusion lens, with 83% of Gen Z candidates mentioning that a company’s commitment to inclusion and diversity is important when choosing a workplace.

Additionally, these generations are said to be more engaged with an organization that fosters an inclusive work environment and has a corporate culture with a diversity plan, increasing productivity and developing loyalty and trust.

It is estimated that almost half of the working population is now made up of Millennials and Gen Z, so the business case for taking an authentic approach to inclusion is clear.  

Organizations must give their workers and colleagues a voice. Companies must be able and willing to listen, adapt and flex to make their organization welcoming to all generations.

The Relationship Between Inclusion and Mental Health

When mental health comes into the picture, the business case for inclusion cannot be clearer. Work-related mental health costs the UK economy up to £45 million annually through absent days, lack of working days, high staff turnover, less retention, and lower productivity.

The impact of the COVID-19 pandemic on employees’ mental health has yet to be properly figured out. Every inclusive employer needs to see accessible, inclusive mental health as essential for both business and ethical reasons. Many organizations have increased the awareness and support around mental health during the pandemic. This focus must continue so all employees can perform at their best by being comfortable sharing how they are feeling at the moment and what is going on in their lives at present.

Inclusion and The Equality Act

Without the Equality Act, we cannot discuss the business case for diversity and inclusion. 

Employers are responsible for people employed and people following their instructions regarding discrimination complaints. Over the last year or so, employment has increased for characteristics such as race, age, sexual orientation, and sex. Therefore, taking steps to prevent employees from acting unlawfully, including policies and regular inclusion and diversity training, is essential for all organizations.

Of course, alongside the legal and business case for inclusion, there is also a compelling moral case to be a fair employer. Ensuring everyone is treated fairly and equally is the right thing to do.

Conclusion

Despite a higher focus on inclusion and diversity in many organizations, women and people of color remain seriously underrepresented in many industries and most organizations’ senior ranks.

Increasing the number of traditionally underrepresented people in the workforce does not automatically translate or lead to the production of business benefits. Being a just and inclusive employer is much more than collecting flattering data. It is about how you embrace diversity, bring this data to life, and use it to evolve your inclusive culture.

 

Josh Fechter
Josh Fechter is the founder of HR.University. He's a certified HR professional and has managed global teams across 5 different continents including their benefits and payroll. You can connect with him on LinkedIn here.