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Why the ‘business case’ for diversity isn’t working

SARAH KAPLAN

02/12/2020

Workplaces and executive boardrooms should reflect the world’s diversity, and lots of companies are using the so-called “business case” for diversity to instigate action. But, popular as it may be, it’s a failed strategy.

You’ve likely heard a variation of the argument that companies with more diverse staffs produce better results for shareholders, or make decisions better than their homogenous counterparts. Unsurprisingly, you can read this logic trumpeted in the Wall Street Journal and the Financial Times, but lately even nongovernmental organizations such as Oxfam have been championing equality for its business value.

But, what’s puzzling about everyone’s obsession with the business case logic is that it’s not working. The  2020 Global Gender Gap report by the World Economic Forum shows that at the current rate of progress, Europe won’t reach gender parity for 50 years, and it will take 100-150 years in North America. We are even further behind on achieving racial equality. Studies show that rates of hiring discrimination against African Americans haven’t declined in 25 years.

Corporate leaders would be better served if they stopped trying to justify diversity with profit margins and stock charts—a mentality that can ultimately hurt the very groups these policies are meant to help (more on that in a moment)—and instead embrace diversity because it is the right thing to do.

ORIGINS OF THE BUSINESS CASE FOR DIVERSITY

The idea that corporations have to justify their diversity programs economically is a relatively new phenomenon.

Women and people of color have long been excluded from corporate America. In the 1960s and 1970s, civil rights and social justice movements set about trying to change that. At that time, help wanted ads often specified that certain jobs were only for men. The job ads targeted to women—secretarial roles and the like—might put in a requirement that women applicants be attractive. Similarly, in 1970, only 25 African American (men) were in vice president roles in major corporations.

Amid pressure from the Civil Rights and Women’s Liberation movements, companies started integrating their workforces. Federal equal opportunity laws got the ball rolling, notes Harvard Professor Frank Dobbin in his book, Inventing Equal Opportunity. The Kennedy administration, for example, mandated affirmative action to end discrimination in hiring against African Americans (the mandate got later reinforcement from the Civil Rights Act of 1964). Pioneering women and people of color still faced bias and prejudice, but businesses were forced to comply.

Throughout much of the 1980s, President Ronald Reagan’s administration actively sought to end affirmative action, arguing that diversity undermined meritocracy. This theme has been echoed by President George W. Bush with his comments about “the soft bigotry of low expectations” and more recently by James Damore in his now-infamous screed, “Google’s ideological echo chamber,” which subsequently got him fired. Hiring women engineers, to his way of thinking, was somehow undermining quality.

In the face of these attacks, those seeking to create equal opportunity for people of all races and genders turned to “business case” rationalizations. Terms just as “the business case for women” or the “business case for diversity” arose first in the late 1980s as a coping strategy for attacks on social justice action.

But, what people fail to recognize is that the current system is actually an affirmative action program for those already in positions of privilege (read: straight white men). Take the recent study of Harvard undergraduates, which showed just that: 43% of white students were admitted because of legacy or donations, but only 26% of them would have made the cut based on grades or other indicators of merit. On the other hand, research on quotas shows that such targets tend to increase quality by giving highly qualified women and people of color a chance and eliminating the unfair advantages that the less qualified straight white men have had.

FALSE PROMISES

Yet, people are hellbent on making the business case for diversity. One of my concerns is that they make false promises. Take McKinsey & Co’s claim that improving women’s economic inclusion could add $12 trillion (or more!) to global GDP (full disclosure: I was once employed by McKinsey). That’s a lot of money, and the impetus for making the calculation is to motivate more concrete progress.

But, this claim is misleading and also potentially damaging to the cause. First, that number doesn’t consider the following: Will jobs be available? Will women be paid at equal levels as men? Who will do the lower paying jobs if women move into higher paying sectors (there’s lots of evidence that even unemployed men won’t go into relatively well-paid nursing because they think it is women’s work)? Will women be able to work as many hours on average as men given the gendered expectations for who is responsible for care work at home? Who will do the childcare, eldercare, and other work for households if women work for pay?

The result: we are highly unlikely to see these promised trillions. And, such failures may lead to disillusionment with diversity efforts.

The same concerns about false promises exist at the organizational level as well. To be sure, there is plenty of evidence that diversity is associated with more innovation and better decision-making. But, it’s not automatic. The evidence of a positive impact of women on boards, for example, is equivocal at best (though it is worth noting that adding women to boards doesn’t decrease performance either!)

As the late great professor Kathy Phillips of Columbia University has shown, diversity also creates friction just as it breaks down groupthink. Only the organizations that invest heavily in building their inclusion muscles are going to reap the benefits of diversity. What this says is that gaining the benefits of diversity also requires serious investments in organizational transformation.

    Gender Equity/Diversity
    Racial Equity/Diversity

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