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A Report Card on Corporate Diversity

corporate diversity

Part 1 in a 2-part series:

How are we doing America? In regards to corporate diversity, that is. Well, let’s put it this way…we’re not there yet. While many companies pay lip service to the importance of diversity, there are still a lot of corporations that are not practicing what they preach. That’s not to say that we haven’t made some progress, but considering the changing demographics of our country, that progress should be happening more quickly.

It should be a priority, not only because it is the right thing to do, but because it is a smart business decision. An E-book produced by SocialTalent called How to Increase Diversity Through Improved Hiring & Recruitment Processes, uncovers some interesting insights including:

  • Many studies have found that for every 1% increase in gender diversity, company revenue increases by 3%.

  • Higher levels of ethnic diversity increase revenue by a whopping 15%.

  • According to Glassdoor, 67% of active and passive job seekers say that when evaluating companies and job offers, it is important to them that the company has a diverse workforce.

In another study focused on gender diversity, business professors Cristian Deszö of the University of Maryland and David Ross of Columbia University studied the top firms in Standard & Poor's Composite 1500 list. In their words, they found that, on average, “female representation in top management leads to an increase of $42 million in firm value.” They also measured the firms' “innovation intensity” through the ratio of research and development expenses to assets. They found that companies that prioritized innovation saw greater financial gains when women were part of the top leadership ranks.

Racial diversity can deliver the same kinds of benefits. As early as 2003, a study was conducted by Orlando Richard, a professor of management at the University of Texas at Dallas, that surveyed bank executives at 177 national banks. After the survey was conducted, the researchers put together a database comparing financial performance, racial diversity and innovation. For innovation-focused banks, increases in racial diversity were clearly related to enhanced financial performance.

So given the positive stats, why aren’t more companies making more progress? According to John Fitzgerald Gates, Ph.D., Principal and Chief Strategist of Criticality Management Consulting, many diversity strategies are stuck in an “affirmative action” matrix of guilt, fear, conflict avoidance, and head-counts packaged as “diversity management.” And when some organizations do make token efforts, it is based on a fear of lawsuits rather than because they have a strategic and sustainable plan for diversification.

Other theories point to unconscious bias and the fact that people naturally gravitate towards other people who look and act like them. Even when companies advertise for positions, they tend to use words that they are comfortable with, rather than thinking about what those words might mean to a varied applicant pool. For example, words like “competitive” or “dominant” in a recruitment ad might be less appealing to women applying for jobs that are already highly male-dominated. According to an article published in the Chicago Tribune, tech workers, executives and diversity advocates believe that the blame lies with subtle biases in hiring, work environments, and a scarcity of diverse role models in top positions.

Although many companies still have a lot of work to do in making workforce diversity a priority rather than an afterthought, there are organizations that are leading the way. In our next blog, we are going to highlight the companies that have made significant progress and focus on the strategies that they are using that are truly making a difference.

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