The Business Case For Diversity Is Backfiring

Business spending on diversity, equity, and inclusion (DEI) initiatives has skyrocketed in the last decade. It’s estimated 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 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 enhancing productivity. Now experts are cautioning that using this business case to justify diversity initiatives may backfire.

New research reveals that linking diversity to corporate profits may be a turnoff for the underrepresented individuals the organizations are trying to attract. In fact, the use of the business case to justify diversity can result in underrepresented groups anticipating less belonging to organizations, which, in turn, makes them ultimately less likely to want to join the organization.

The research conducted by Oriane Georgeac, professor at Yale School of Management and Aneeta Rattan, professor at 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 by suggesting that diversity was important because it would contribute to their profits or bottom line in some way.

“First and foremost, we were curious about how this kind of rhetoric shaped the anticipated sense of belonging of underrepresented job seekers. 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 research.

To answer these questions, the researchers asked their participants, including women in STEM fields, Black college students and LGBTQ+ individuals, to read diversity messages from a fictional employer’s website. The website excerpt either provided the business case justification for diversity suggesting diversity will improve the bottom line, a fairness justification which suggests moral and fairness reasons for diversity or no justification at all.

Compared to the other two groups, those that read the business case for diversity reported that they were less likely to feel belonging to the company, more concerned they would be stereotyped, and more worried that the company would view them as interchangeable with other members of their group. As a result, the underrepresented groups were less likely to say they wanted to join the company which 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 kind of like being known as the Black engineer or the woman professor. These people were reporting feeling depersonalized by the business case.”

No Justification For Diversity Is Best

No justification at all was best when it came to attracting underrepresented groups. “The first recommendation based on our research is to shed the business case,” Rattan explains. Instead, she recommends that companies express their commitment to diversity with no justification. But she’s encountered many leaders who are hesitant to scrap their justification 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 question why you value underrepresented groups?”

Getting Diversity to Impact Bottom Line Requires More Than “Add Diversity And Stir”

Not only can stating 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. Harvard Business School professor Robin Ely and professor emeritus David Thomas have urged organizations that they need to do more than just add more women and people of color to their ranks if they’re expecting to increase their bottom line. “Increasing the numbers of traditionally underrepresented people in your workforce does not automatically produce benefits. Taking an ‘add diversity and stir’ approach, while business continues as usual, will not spur leaps in your firm’s effectiveness or financial performance,” they write. What’s important, they say, is how a company harnesses that diversity. If not handled correctly, adding diversity to a workforce can even increase tensions and conflict.

Failure To Meet Profitability Goals Can Lead To Disillusionment

University of Toronto professor Sarah Kaplan has argued that the business case for diversity can also set unrealistic expectations of enhanced profits resulting 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 set high expectations.

Failure to meet these lofty goals can lead to disillusionment with the diversity policies, and Kaplan suggests that these effects are exacerbated when profits are down. In downturns, employees who subscribe to the business case for diversity may be more likely to see diversity efforts as unnecessary and ineffective.

Fortunately, there’s no need for organizations to offer 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 treat diversity any differently?”