Corporate spending on diversity, equity, and inclusion (DEI) initiatives has skyrocketed over the past decade. The global DEI market is estimated to have 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 tout how their diversity efforts will result in improvements to their bottom line by increasing organizational effectiveness, improving morale and improving productivity. Now, experts warn that using this business case to justify diversity initiatives can backfire.
New to research reveals that linking diversity to business profits can discourage the underrepresented individuals that organizations are trying to attract. In fact, using the business case to justify diversity may lead underrepresented groups to anticipate less membership in organizations, which, in turn, ultimately makes them less likely to want to join the organization. .
The to research conducted by Oriane Georgeac, professor at the Yale School of Management and Aneeta Rattan, 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 Fortune 500 companies included the business case for diversity on their corporate website suggesting that diversity was important because it would contribute in some way to their profits or bottom line .
“First and foremost, we were curious about how this type of rhetoric shaped underrepresented job seekers’ anticipated sense of belonging. And second, because of their anticipated sense of belonging, we were interested to know how badly 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, black college students, and LGBTQ+ people, to read diversity posts from a fictional employer’s website. The excerpt from the website either provided the business case for diversity suggesting that diversity will improve the bottom line, an equity case which suggests moral and fairness reasons for diversity, or no case at all.
Compared to the other two groups, those who read the diversity business case said they were less likely to feel like they belonged in the company, more worried about being stereotyped, and more worried about the company considering them as interchangeable with other members of the company. their group. Therefore, 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 would be seen as interchangeable. It’s a bit like being known as the black engineer or the female professor. These people reported feeling depersonalized by the business case. »
No justification for diversity is the best
No justification at all was preferable when it came to attracting underrepresented groups. “The first recommendation based on our research is to get rid of the business case,” says Rattan. Instead, she recommends that companies express their commitment to diversity without any justification. But she has encountered many leaders who are reluctant to abandon their justification for diversity. She explains to these people, “You don’t justify why you have 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 care about underrepresented groups? »
For diversity to impact the bottom line, it takes more than “add diversity and stir”
Not only can declaring the business case have deleterious effects when trying to attract underrepresented employees, but some academics doubt the accuracy of claims of a direct link between diversity and profits. . Robin Ely, professor at Harvard Business School, and David Thomas, professor emeritus urged organizations that they need to do more than just add more women and people of color to their ranks if they expect to grow their bottom line. “Increasing the number of traditionally underrepresented people in your workforce does not automatically yield benefits. Taking an ‘add diversity and stir’ approach, while business is business as usual, will not boost efficiency or the financial performance of your business,” they said. write. What’s important, they say, is how a company harnesses that diversity. If not managed properly, adding diversity to a workforce can even increase tension and conflict.
Failure to meet profitability targets can lead to disillusionment
Sarah Kaplan, professor at the University of Toronto argued that the business case for diversity can also create unrealistic expectations of improved benefits from adding underrepresented groups to the workforce. For example, an oft-cited example Swiss credit One study found that companies where women made up at least 15% of senior management had more than 50% higher profitability than those where female representation was less than 10%. A McKinsey A study suggested that promoting women’s equality would add $12 billion to global growth. These meaningful earnings and growth numbers can create high expectations.
Failure to achieve these lofty goals can lead to disillusionment with diversity policies, and Kaplan suggests that these effects are exacerbated when profits are down. During a downturn, employees who buy into the business case for diversity may be more likely to view diversity efforts as wasteful and ineffective.
Fortunately, organizations don’t need to offer any justification for diversity programs. Like Georgeac and Rattan write on the implication of their research findings, “You don’t have to explain why you value innovation, resilience, or integrity. So why treat diversity differently? »