Business spending on diversity, equity and inclusion (DEI) initiatives has skyrocketed in the past decade. It is estimated that the global market for DEI reached $7.5 billion in 2020 and is expected to double by 2026. To justify these initiatives, many organizations claim that a diverse workforce is good for business.
These organizations claim how their diversity efforts will result in improvements to their bottom line by increasing organizational effectiveness, improving morale and increasing productivity. Now experts are warning that using this business case to justify diversity initiatives may backfire.
New research finds that linking diversity to corporate profits may be a hindrance to the underrepresented individuals that organizations are trying to attract. In fact, using the business case to justify diversity may result in underrepresented groups anticipating belonging to fewer organizations, which, in turn, makes them less likely to want to join the organization.
Research conducted by Oriane Georgeac, a professor at the Yale School of Management, and Aneeta Rattan, a professor at the London Business School, found that a large majority of organizations use the business case to justify their diversity efforts. A whopping 404 of the Fortune 500 companies included the business case for diversity on their corporate website suggesting that diversity was important because it would contribute to their bottom line in some way.
“First and foremost, we were curious about how this kind of rhetoric shaped underrepresented job seekers’ anticipated sense of belonging. And second, as a consequence of their anticipated sense of belonging, we were interested in how much they wanted to join the organization,” Rattan explained the motivations for their search.
To answer these questions, the researchers asked their participants, including women in STEM fields, college students of color, and LGBTQ+ individuals, to read diversity messages from a fictional employer’s website. The website excerpt either offered the business case justification for diversity suggesting that diversity will improve the bottom line, a fair justification suggesting moral and rights reasons for diversity, or no justification at all.
Compared to the other two groups, those who read the business case for diversity reported that they were less likely to feel like they belonged to the company, more worried about being stereotyped, and more worried that the company would see them as interchangeable with other members of their group. As a result, underrepresented groups were less likely to say they wanted to join the company that used the business case.
Rattan explains that the business case “made members of these underrepresented groups feel like they were going to be seen as interchangeable. It’s like being known as the black engineer or the female professor. These people were reporting feeling depersonalized by the business case.”
No excuse for diversity is best
Neither excuse was ever the best when it came to attracting underrepresented groups. “The first recommendation based on our research is to get rid of the business case,” explains Rattan. Instead, she recommends that companies express their commitment to diversity without excuses. But she has faced many leaders who are reluctant to drop their pretext for diversity. She explains to these individuals, “You don’t justify why you have a corporate value around trust or integrity, so why do you feel the need to justify diversity? Why do you think people will ask why you value underrepresented groups?”
Getting diversity to impact the bottom line takes more than ‘Add diversity and mix’
Not only can stating the business case have detrimental effects when trying to attract underrepresented employees, but some academics doubt the accuracy of claims of a direct link between diversity and profits. Harvard Business School professor Robin Ely and emeritus professor David Thomas have urged organizations to do more than just add more women and people of color to their ranks if they expect to increase their bottom line. “Increasing the number of traditionally underrepresented people in your workforce does not automatically produce benefits. Taking an ‘add diversity and mix’ approach while continuing business as usual will not drive leaps in your firm’s effectiveness or financial performance,” they write. What’s important, they say, is how a company uses that diversity. If not handled properly, increasing diversity in the workforce can also increase tensions and conflicts.
Failure to meet profitability goals can lead to disappointment
University of Toronto professor Sarah Kaplan has argued that the business case for diversity can also set unrealistic expectations of increased profits that come from adding more underrepresented groups to the workforce. For example, an oft-cited Credit Suisse study found that companies where women made up at least 15% of senior managers had more than 50% higher profitability than those where female representation was less than 10%. A McKinsey study suggested that advancing women’s equality would add $12 billion to global growth. These significant profit and growth numbers can create high expectations.
Failure to meet these lofty goals can lead to disenchantment with diversity policies, and Kaplan suggests that these effects are exacerbated when profits are declining. In declining conditions, employees who subscribe to the business case for diversity may be more likely to view diversity efforts as unnecessary and ineffective.
Fortunately, there is no need for organizations to provide any justification for diversity programs. As Georgeac and Rattan write about the implication of their research findings, “You don’t have to explain why you value innovation, resilience, or integrity. So why should we treat diversity any differently?”