September 27, 2018 – A vast industry revolving around corporate diversity has developed in recent years.
A new wave of research, in fact, shows that diversity is a proven driver for improving proﬁt margins.
Although there’s a ﬁnancial incentive to boost diversity, and a willingness to invest in it, there’s still room for everyone to do much better, in both the search industry and in the C-suites of their clients, say Judith M. von Seldeneck, founder and chairman of Diversiﬁed Search, and Dale E. Jones, the firm’s president and CEO.
Ten years ago, a title like “diversity and inclusion officer” was nonexistent. Today, executives who are charged with making sure their workforces and C-suites reflect the nation’s diversity are widespread, the two leaders said in a recent discussion with Hunt Scanlon Media. Nowhere is this more evident than in the board space: These days, it is commonplace to find boardrooms pouring resources into diversity.
But much work remains – by companies and recruitment firms alike. “A large share of the public remains skeptical of the sincerity and efficacy of these initiatives,” said Ms. von Seldeneck. “When the banking sector was beset by lawsuits in the 1990s and early 2000s on account of racial and sex discrimination — which resulted in hundreds of millions of dollars in settlements — there was a wave of pro-diversity rhetoric. There remains a persistent feeling that corporate America has voiced its commitment to diversity before, and yet it seems as if every other week there is a report in the Wall Street Journal or some other publication lamenting the lack of real progress nationwide.”
It would be hard to find two better authorities on the subject of diversity and the world of executive recruitment than the two top leaders at Diversified Search. A pioneer in the search industry, Ms. von Seldeneck has been identifying and placing senior-level executive talent around the country for more than four decades. Mr. Jones has been president and CEO since 2013. His responsibilities include oversight and management of the Philadelphia-based recruitment firm and its global CEO advisory services.
Stagnating Minority Growth
In 1980, African-Americans held just three percent of all management-level jobs at American companies with 100 employees or more, said Mr. Jones. By 2014, that number had risen to just 3.3 percent. After an immediate uptick in the percentage of white women in management, since Y2K that ratio, too, has stagnated.
“Despite this, a massive industry has cropped up around the ideals of corporate diversity,” said Mr. Jones. “The search industry specifically focused on minority recruitment is estimated to be more than a billion-dollar industry. Fortune 500 companies spend $2.5 million on average each year recruiting these candidates. The financial commitment reflects the populism of the moment — where issues of race, gender, and equity fly into our newsfeeds each day.”
But there is something bigger at work here, “a winning argument to be made,” Mr. Jones added. “It’s the same one we’ve been making for years, but its relevancy has never been more urgent. A new wave of research around diversity shows that it a clear-cut catalyst for improving profit margins.”
The two leaders pointed to a 2018 McKinsey report titled “Why Diversity Matters,” which showed empirically that companies that are more diverse noticeably outperform their peers. And the inverse correlation also holds: The less diverse a firm, the higher likelihood of underperforming the competition. “For every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes rise 0.8 percent,” the McKinsey authors noted. What’s more, these companies are setting themselves up for the future. Research shows that once a corporate team diversifies, it steadily becomes easier to recruit and retain top-tier minority talent. And the importance of the talent pipeline is obvious: By 2040, America will be a majority-minority nation.
Room for Improvement
“Still, there remains a disconnect between corporations’ self-interests around diversity and outcomes,” said Ms. von Seldeneck. “There’s a financial incentive to boost diversity, and a willingness to invest in it, but there remains room for all of us, both in the search industry and in the C-suites of our clients, to do better — a lot better.”
To Expand Diverse Candidates, Companies Must Rethink Risk
By cultivating the most promising mid-level diversity executives already within a company, organizations can expand the number of diversity prospects for senior roles. But according to Egon Zehnder, companies can incur risk to their business by trying to avoid it.
To get there requires a bit of introspection, which may also mean that companies will need to be honest about cutting some fat. Ms. von Seldeneck and Mr. Jones cite Alexandra Kalev, a professor of sociology at Tel Aviv University, and her colleague Frank Dobbin of Harvard University, who have spent years analyzing what works and what doesn’t in the world of corporate diversity.
“They’ve tracked decades’ worth of progress at more than 800 large companies and interviewed employees ranging from HR to heads of executive boards,” said Ms. von Seldeneck. “In an influential 2016 article in Harvard Business Review titled ‘Why Diversity Programs Fail,’ they posited that some of the most ubiquitous interventions often deliver surprisingly lackluster results.”
Firms have long relied on diversity training to reduce bias on the job, hiring tests and performance ratings to limit it in recruitment and promotions, and grievance systems to give employees a way to challenge managers, wrote Kalev and Dobbin. “Despite a few new bells and whistles, courtesy of Big Data, companies are basically doubling down on the same approaches they’ve used since the 1960s—which often make things worse, not better,” said the Harvard Business Review authors.
Bias training programs are popular today, but these oftentimes compulsory programs are viewed skeptically by most social scientists. “When we spoke with HR managers about diversity trainings, they overall agreed with us that they weren’t effective, because they know that people don’t want to go to them,” said one of the authors. “[Employees] think it’s like traffic school.”
“Here’s the surprising thing: Kalev’s numbers support an idea that voluntarily trainings actually have a better track record of success, largely because they cultivate an atmosphere of self-motivated improvement,” said Mr. Jones. “At firms with mandatory diversity trainings, the percentage of black men in managerial positions actually drops on average by more than 10 percent. Meanwhile, voluntary programs pushed the proportion of African-Americans, Hispanics, and Asians in positions of management — in each category — higher by roughly 10 percent.”
Another system designed to deter discrimination, which might be doing more harm than good, are grievance systems set up inside organizations to field complaints from employees. Every business needs to outline clear standards of professionalism and conduct, and to establish clear procedures for legitimate grievance. “But even if employees believe in the necessity of these procedures, the way they are sometimes actualized can lead to a workplace where diversity is perceived as being coercive rather than educational or grounding,” said Mr. Jones. “A culture of ‘do’s and don’ts’ tends to spread, instead of one that organically shows the benefits of diversity as its woven into the corporate culture.”
“Those benefits are increasingly apparent to researchers,” he said. “It is up to us, as search professionals, to help our clients see them, too.”
A Richer Conversation
Ms. von Seldeneck and Mr. Jones cited Richard Warr, a finance professor at North Carolina State University, who earlier this year published the findings of his research supporting this idea: “There’s less groupthink perhaps, and more diverse teams get more creative results — and faster,” said Dr. Warr.
The reason for the positive correlation, according to Dr. Warr, may not be so obvious: A diversity of genders, ethnicities and backgrounds tends to bring about a richer conversation, whether that conversation is about whether to undertake a multi-million-dollar acquisition, or where to have the company summer picnic.
“There’s a more fundamental reason why diverse teams do better,” said Dr. Warr, drawing upon social science studies he’s tracked closely. “When you walk into a room and there’s a bunch of middle-aged white guys who look and sound like me, then I’m going to assume they know the same as I know. I make the assumption that we are all on the same page, even though we may not be — so then you don’t offer up alternative suggestions, alternatives, theories.”
So if not the boilerplate strategies often used to educate both employees and the executives who lead their companies about the real, tangible benefits of diversity, then what is the answer? “According to research, approaches that are less coercive, such as the creation of diversity task forces, the hiring of diversity and inclusion managers and organizational ombudsmen, and the establishment of mentorship programs, often demonstrate exceedingly better results,” said Ms. von Seldeneck. “These interventions tend to focus on broad structures that impede organizational diversity, rather than trying to change the behavior of a few grousing bad apples.”
Ms. von Seldeneck and Mr. Jones tend to agree with Kelley Cornish, the U.S. head of diversity and inclusion at TD Bank, who believes that the companies that do diversity best are those that have it embedded it into their systems. “Their senior executive team or management group have accountability, so that on any given day, they know what their demographics look like, what their turnover looks like, and where the gaps are,” said Ms. Cornish.
From Zero to 100
Ms. Cornish would know: She’s the first executive to have such a title at TD. Prior to her arrival, the banking giant underwent a thorough diagnostic of how it was performing on diversity among its 26,000 employees at 1,300 locations up and down the East Coast. Ms. Cornish and others engaged with a variety of panels and research groups to generate nuanced feedback where the company was both doing well and falling short in regard to cultural competency.
Here’s the Single Biggest Challenge Facing Diversity Leaders
Those who step into a new job as chief diversity officer tend to carry a heavy load. Theirs is an increasingly vital role. The challenges they face are complex and the demands of the position are many, with pressure coming from all sides.
Ms. Cornish, who was brought on last year, has been tasked with implementing a plan of action — not just a one-time training, but a long-term vision. “It’s a monthly conversation,” she said. “We’ve really gone from zero to 100 in the past year getting the executives on board. For example, we’ve streamlined our D&I infrastructure and governance model to ensure greater accountability by our management committee for increasing representation in all sub-populations by 2020; this includes women, minorities, veterans, LGBTA, and individuals with diverse abilities. The board fully understands what this means for not only the future of TD — the workforce that’s coming in — but also the workforce that’s here right now.”
That plan will likely include a mix of interventions, including bias trainings, but the most important aspect, according to Ms. Cornish, is a constant stoking of the fire. Not everyone at the workplace has the vocabulary — or confidence — to speak up and engage on matters of diversity. “A one-day training won’t fix that,” said Ms. von Seldeneck. “Having omnipresent conversations occurring at every echelon of the organization is key. The only way to ensure that strides on diversity are more than ephemeral is to make sure that the priorities of fostering a multicultural workplace are baked into everything a firm does.”
As search executives — one a woman, one an African-American male — Ms. von Seldeneck and Mr. Jones know the value of diversity because they live it, both in their firm and with the clients they serve. “One of the rewarding things we see in the search industry today is this growing awareness of the bottom-line benefits of a diverse workforce, starting at the top,” said Mr. Jones. “As an industry, we in search must remain on the front lines, constantly asking ourselves how we can do our work better and smarter as it pertains to diversity, as we educate our clients and reinforce their values and commitment to leadership for the 21st century.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media