<p>SUMMING UP: Diversity in business leadership is certainly an enviable social goal, but does it improve company performance? <strong>James Heskett's</strong> readers look for the research evidence.</p> <p> </p> <div class="citrus-inherit story-body"> <div class="ExternalClass29FA5501BF5E4441A6C3EACE97049DB6"> <h3 class="bold2 eta extra-body-padding-right">SUMMING UP</h3> <h3 class="bold2 eta extra-body-padding-right">Does Diversity Really Enhance Performance?</h3> <p class="extra-body-padding-right">As I’ve pointed out in the past, a tenet of the MBA classroom is that if a case problem splits the class, it will produce a good discussion. This appears to have been what happened among respondents to this month’s column.</p> <p class="extra-body-padding-right">A number of readers put forward well-tempered comments questioning research on whether diversity and inclusion enhance organization performance. The implication is that this may account in some part for the slow pace of progress on this front. Well-intentioned leaders may need more data to convince those in the ranks that diversity and inclusion are in the best interest of the entire organization. The question posed—Why don’t more organizations understand the power of diversity and inclusion?—may have gotten ahead of the research to date.</p> <p class="extra-body-padding-right">The first issue regarding the research is that old bugaboo, correlation vs. cause and effect. As commenter Diogenes put it, “Prove with a cogent methodology that racial and gender diversity lead to greater profitability. Prove causation, not correlation (which studies to date primarily by consultants have relied on, a technique that identifies parallel phenomena, not causation of one by another).” He goes on to present anecdotal counter evidence: “Silicon Valley has been wildly successful, though notoriously homogeneous. Yuval Harari points out that Cairo and Istanbul were diverse and tolerant but the scientific revolution occurred in intolerant and homogeneous Europe.” CJL stated the issue with correlation this way: “Maybe organizations with an edge in their markets are more profitable and therefore can afford to devote more effort to diversifying their workforce.”</p> <p class="extra-body-padding-right">Another issue is measurement. Nick commented, “I would like to see the evidence … how is diversity defined, what traits are you looking at to be measured, and how are they shown to improve things?” Measures of diversity are legion, but what do they mean? Measures of inclusion, which could help explain why some organizations are able to retain diverse talent, are illusive and varied. “While diversity is easier to measure quantitatively,” Laurie pointed out, “inclusion metrics are currently qualitative and inconsistent.” Bob put it in personal terms: “I was able to hold myself accountable for diversity results, but not so much with inclusion, though I certainly practiced and preached about it.”</p> <p class="extra-body-padding-right">In addition to questions about the data, there is the moral issue of whether diversity and inclusion should be promoted with or without supporting data regarding performance. David Wittenberg posed the issue this way: “Diagenes is correct to ask for evidence … If there is a positive causal relationship between diversity and profitability, then management can safely argue that managing for diversity is a way to increase shareholder value. If, however, the relationship is negative, then management cannot morally go out of its way to promote diversity at work.”</p> <p class="extra-body-padding-right">Several respondents objected. They supported the notion of diversity and inclusion regardless of economics. As Yin put it, “We should promote diversity and inclusion because it’s the right thing to do.” Sterileneutrino added, “… wasn’t the USA built precisely on this concept? E pluribus unum.” Adam was more adamant, saying that, “It is manifestly ridiculous, if not actively racist, to frame this issue of justice as being worth doing because it is profitable.”</p> <p class="extra-body-padding-right">The point, of course, is that economic data may be needed to counter negative gut reactions to the notions of diversity and inclusion. As Angela commented, “many of our existing leaders have not had the experience of not being included in their companies’ cultures because of factors related to their race or gender.” That observation probably applies to many in the lower ranks of leadership as well.</p> <p class="extra-body-padding-right">One thing is clear. Respondents have identified an important need and opportunity for more careful, definitive research that would help to resolve a basic issue: Does diversity really enhance performance? But there may be an even more basic issue in American democracy: Does it really matter? What do you think?</p> <hr /> <h3 class="bold2 eta extra-body-padding-right">Original Post</h3> <p class="extra-body-padding-right">Several large organizations announced recently they would increase efforts to recruit persons of color, in part a response to the Black Lives Matter movement. Some of the same organizations made similar announcements in the past—yet the numbers of persons with minority backgrounds in those organizations have remained about the same.</p> <p class="extra-body-padding-right">This is in the face of research findings that organizations with significant minority representation are stronger than their peers. A <a class="ext" href="https://www.mckinsey.com/featured-insights/diversity-and-inclusion">McKinsey &amp; Company study</a> in May of top executive teams in more than a thousand organizations in 15 countries concluded that the most diverse organizations have an edge in their markets. These firms are “more innovative—stronger at anticipating shifts in consumer needs and consumption patterns that make new products and services possible, potentially generating a competitive edge.”</p> <p class="extra-body-padding-right">Of equal significance is a finding that the top third of the organizations in the study are pulling away from the other two-thirds in diversity and inclusion, registering increasingly higher probabilities of being the most profitable. They are exhibiting progress in achieving greater gender and ethnic diversity, and increasingly positive impacts on bottom-line performance, according to the researchers.</p> <h3 class="bold2 eta extra-body-padding-right">Differentiating between diversity and inclusion</h3> <p class="extra-body-padding-right">I differentiate between diversity and inclusion by thinking of progress in diversity as depending primarily on successful recruiting of diverse talent. It can be measured. It’s what we see on the corporate dashboard of performance measures. It is quite likely that the rich get richer in this effort; organizations exhibiting greater diversity are more attractive to talented people with diverse backgrounds.</p> <p class="extra-body-padding-right">Talent retention depends to a large degree on inclusion. At least that’s what people of diverse backgrounds tell us. Inclusion is related to such things as “voice”—the belief by workers that they are heard—as well as recognition and equal opportunity in rewards and promotions. Harder to quantify than diversity, inclusion is more nuanced and measured in comments in interview and surveys. It doesn’t provide the numbers and simple headlines often associated with diversity.</p> <p class="extra-body-padding-right">Some organizations are good at both diversity and inclusion; others can’t seem to get either right. Some companies, for example, are strong recruiters but lack the ability to be inclusive of talent with diverse backgrounds. Try as they might, they are not making progress on diversity. Instead, they have low retention rates for their diverse talent. In many cases, the “last in, first out” phenomenon may apply in times of crisis.</p> <p class="extra-body-padding-right">The key to achieving both diversity and inclusion is committed leadership at all levels, not just a few at the top who have already made it. Transformation has to take place on the front lines and the middle levels as well. This takes effort and time, perhaps more than many organizations are willing to invest.</p> <p class="extra-body-padding-right">Inclusion may present too many challenges; it requires leaders with the hearts and minds to understand personal challenges and provide mentorship for all of their direct reports, listening to them, and being willing to accept new ideas from them. They must recognize those with diverse backgrounds as resources rather than consumers of their effort.</p> <p class="extra-body-padding-right">Achieving these objectives requires more than training. It involves constant measurement, counseling, and follow-up with managers at all levels in the organization to produce results. Given the potential payoff, is this too much to expect of well-meaning leaders? Why don’t more organizations “get it” regarding diversity and inclusion? What do you think?</p> </div> <div class="shim1"> </div> </div> <div></div>