It’s Time to Act on Diversity, Equity and Inclusion
The case for diversity is more than a moral position—it's become a source of competitive advantage for businesses and investors.
The value of diversity has been proven over and over. For years, studies have documented the fact that companies with diverse boards, diverse management teams and diverse workforces outperform rivals. They make better decisions. They grow faster. They make more money. But the case for diversity has become more than noise; it has become imperative. A year after the murder of George Floyd, it’s not just the moral case for DE&I that has become more urgent; the business case has, too.
Why?
Investors are demanding it. In April, 84% of DuPont’s shareholders voted for a shareholder resolution, despite management’s opposition, to track and report diversity, equity and inclusion data. Note that 81% of DuPont’s shareholders are institutions—the pension funds and others, some of which PE firms look to as sources of capital. Investors such as Black Rock are among many calling for disclosure and action by the companies to which they direct capital.
Regulators want it. Last fall, NASDAQ proposed requiring companies to disclose DE&I data as a condition of being listed on the exchange. The Securities and Exchange Commission has now made it a requirement that companies under its purview disclose material human capital data; while the SEC leaves it up to management to decide what’s material, DE&I tops many lists—and failure to disclose information later deemed material could open registered companies to shareholder lawsuits.
Customers reward it. There are many reasons why a diverse workforce might help companies win customers. Their marketing might be more sensitive to diverse customer segments; their customer service might be more empathetic; they might be better at spotting underserved markets and emerging trends. Whatever the cause, the result is clear: A rigorous analytical study by Cedric Herring of the University of Illinois at Chicago looked at data from the National Organizations Survey and concluded “both racial diversity and gender diversity are among the most important predictors of relative profitability” for companies.
Current and prospective employees want it. According to a Harris survey conducted for Glassdoor, more than 3 out of 4 job seekers and employees—76%—say a diverse workforce is an important factor when they evaluate companies and consider job offers. Diversity, equity and inclusion are important for retention, too. Overall, 63% of all employees say that their companies should be doing more about diversity, equity and inclusion. At a time when talent is scarce, it makes no sense to alienate employees while simultaneously ignoring pools of potential candidates.
It makes companies more innovative and agile. Research conducted (mostly among large companies) by Josh Bersin for Deloitte shows that diverse companies are nearly twice as likely to be innovation leaders as their peers, and also more change-ready.
Private equity firms are motivated by opportunity, managed by data, and biased toward action. They should approach diversity, equity and inclusion with the same mindset.
It’s a competitive necessity. Companies that ignore DE&I risk falling behind their rivals that are seizing these advantages in access to capital and talent, revenue and innovation. Vistage, surveying its CEO membership, found that 38% said DE&I is a key part of talent strategy and critical to company success. A survey of mostly middle-market financial decision-makers by Hanover Research and OneStream Software found that 52% are already investing in DE&I support and training, while just 6% say they have no intention to invest. In financial services, support and investment are even higher—77%.
And above all, it’s a problem. In industry after industry, company after company, distressing data about the lack of diversity—and the consequences of that lack—continue to appear. In the professional sports industry, for example, a recent study by AchieveNEXT revealed significant gaps between diversity on the field or court and the back office. According to the IBM Institute for Business Value, 8 in 10 Asian American professionals say they’ve personally experienced discrimination based on their ethnicity or race.
It is also an opportunity. Private equity firms are motivated by opportunity, managed by data, and biased toward action. They should approach diversity, equity and inclusion with the same mindset, developing a three-stage process.
ASSESS – using a combination of surveys, focus groups and interviews, enterprises should get a 360-degree view of their current level of DE&I capability and maturity. Almost always, executives’ view of the issue differs significantly from that of other stakeholders.
ANALYZE – Strategies for social good succeed best when they are tied to enterprise growth strategy, rather than managed off to the side as a “nice to have.” When DE&I plans are explicitly linked to the advancement of enterprise goals, funding, executive support and clear KPIs are much easier to come by, and change comes much faster.
ADOPT – Specificity matters. It’s critical for companies to adopt and activate solutions for talent acquisition, talent development, leadership development and succession planning, as well as specific activities focused on attracting and serving investors and customers.
This kind of financially oriented approach is more than practical. It is also scalable and adaptable—it can be developed for a private equity firm and also deployed across the companies in the firm’s investment portfolio. That is an action that will make those companies more profitable now and more valuable when the time comes to sell them.
Thomas A. Stewart is the Chief Knowledge Officer of AchieveNEXT. He is an influential thought leader on global management issues and ideas, an internationally recognized editor and publisher, authority on intellectual capital and knowledge management, and a best-selling author.
Milton Corsey is the Director of Human Capital Solutions at AchieveNEXT. Prior to joining AchieveNEXT, he was the Founder and Principal of The Kaizen Group, where he advised companies, from high-growth start-ups to Fortune 500 enterprises, looking to align the skills and behaviors of their employees with their strategic needs.
