Implementing DEI: A Strategic Necessity for Executive Leaders
August 2, 2024 – As the Chinese proverb goes, the journey of a thousand miles begins with a single step. For many organizations today, busy dealing with economic uncertainty, inflation, and countless other constant challenges, achieving diversity, equity, and inclusion (DEI) can feel like a thousand-mile journey, according to a recent study from global leadership advisory and executive search firm Sheffield Haworth. The firm explains that most are unsure where they are along that journey or even how many steps they have taken.
Sheffield Haworth’s report aims to recap the trends driving DEI and remind business leaders of the clear benefits. It then offers a framework for C-suite and other senior business leaders to establish where their organizations are in their DEI journeys and help them to work out which specific steps to take next.
DEI refers to workplace policies and procedures that promote the representation, fair treatment, and full participation of all people in an organization, particularly those from traditionally underrepresented groups. Some organizations use all three terms, while others, prefer diversity and inclusion (D&I). DEI and D&I aim to create environments where everyone feels valued and has equal access to opportunities, the Sheffield Haworth report explains.
“Diversity involves increasing an organization’s heterogeneity in terms of race, ethnicity, gender, sexuality, disability, social class, cognitive divergence, experience, and worldview. Inclusion ensures everyone feels they have a voice and can participate fully at work,” the report says. “Equity involves allocating support, resources, and opportunities considering individuals’ different circumstances to help achieve more equal outcomes.”
Championing DEI in the finance sector presents unique challenges due to its rich history and entrenched traditions, according to the Sheffield Haworth report. The firm notes that the finance world has long been dominated by men, leading to fewer women in leadership roles, limited mentorship opportunities for emerging female professionals, and a culture that may inadvertently favor one gender over others.
Sheffield Haworth lays out the biases in key decisions:
Hiring: Despite growing awareness of DEI, unconscious biases can still influence recruitment, leading to preferences for candidates from certain educational institutions or backgrounds or those who fit a particular ‘mold’ seen as suitable for finance roles.
Promotions: Promotion criteria, often subjective, can be influenced by biases. Employees from underrepresented groups might find it challenging to break the proverbial glass ceiling due to these deep-seated biases.
Investment Decisions: Biases can also affect investment decisions. Venture capital, for instance, has been criticized for not funding enough startups led by women or people of color, potentially missing out on innovative ideas and lucrative opportunities.
“Navigating these challenges requires concerted efforts to address historical imbalances and biases, ensuring a more inclusive and equitable finance sector,” the study said. “By actively promoting DEI, organizations can unlock a wealth of talent and perspectives, driving innovation and success in the industry.”
Why is DEI a Business Imperative?
Research suggests that the more diverse and inclusive a company is, the better it can perform. According to McKinsey, racially diverse companies are 35 percent more likely to outperform their less diverse competitors, while companies with strong women representation are 25 percent more likely to outperform. At the same time, employees want to work for more diverse companies. According to Glassdoor, two-thirds of job candidates seek out companies with more diverse workforces.
The Keys to Making Corporate Progress in DEI
DEI has become a cornerstone of the business world over the past decade. The concept of ‘diversity’ has expanded to DEI, or ‘diversity, equity, and inclusion’ in recent years. Each of these three words has come to represent a different element of the conversation. Francesca d’Arcangeli and Tom Connolly of Kingsley Gate recently sat down with Hunt Scanlon Media to discuss how to implement successful DEI initiatives.
Perhaps more profoundly, the U.K.’s financial regulators have highlighted greater diversity as a key contributor towards greater financial market stability, integrity, and growth, according to the Sheffield Haworth report. “For both the U.K.’s Financial Conduct Authority and Prudential Regulatory Authority, financial firms have an obligation to better reflect the diversity of their customers, the study points out. “They have drafted a number of stringent proposals that will see financial firms in the U.K. obligated to establish evidence-based D&I strategies or face significant potential fines. Although these rules will not directly impact other sectors, they are likely to become best practices over time, which those in other verticals will feel pressured to adopt. Improving DEI offers operational benefits and is a legal requirement for many. It also helps foster a fairer society and ensures equal opportunities for all.”
Key Challenges of Achieving DEI
Despite the clear benefits of DEI, it is far from becoming reality in most countries. In the U.K., only four FTSE 100 CEOs are women, while only 13 percent of FTSE 100 senior managers in 2023 were ethnically diverse. In the U.S. meanwhile, 2023 saw a “record” number of Black CEOs of Fortune 500 companies – a somewhat disappointing eight out of 500 (1.6 percent).
Related: Achieving Diversity in Private Equity
One of the biggest reasons for this is that companies simply aren’t prioritizing DEI enough. Forty-one percent of managers report being “too busy” to implement DEI initiatives. Add to this a widespread lack of evidence-based and measurable DEI policies, and cultural resistance from many within organizations themselves, and there are multiple barriers towards progress, the Sheffield Haworth report explains,
Understanding Where Your Organization is Now
The Sheffield Haworth stresses that these challenges are why it’s so important to understand where your organization is now on the DEI competence model. Only then can you get a clear idea of what has worked, what isn’t working, and what steps to take next. Here are Sheffield Haworth’s four levels of where your organizations stands
Level One: In the DEI competence model is Compliance; your organization is reacting to existing laws and regulations as they evolve. At this level, your workforce is largely homogenous and your legal, HR or specific DEI team are entirely responsible for driving change..
Level Two: Performance. Your organization is increasing the representation of specific demographic groups. In this case the HR or DEI team are still mainly responsible for driving change, but your organization is likely to have a business case for DEI and increasing diversity, though diverse hires must adapt to your existing culture and many of them may end up leaving.
Level Three: Where your organization’s leaders drive change by looking to address systemic cultural barriers. Typical characteristics of this level include having a cohesive strategy for achieving greater DEI, including dealing with cultural resistance. You will also likely have good training and communications around the topic.
Level Four: The ultimate goal: Integrated. This is where all employees at every level of your organization buy into the goal of greater DEI and seek to help achieve it. Characteristics of this level include having a demographically and cognitively-diverse workforce, a genuinely inclusive culture and motivated workforce, and outcomes including greater productivity and innovation.
Achieving Strategic and Talent Alignment
Now you have a better understanding of where your organization sits in the competence model, it’s time to look at how best to solve the challenges you’re facing, the Sheffield Haworth report explains. “If you haven’t yet aligned your DEI strategy with your overall business strategy, you will struggle to succeed,” it said. “A robust DEI strategy with measurable success criteria requires a structured approach with clear milestones and outcomes tied to specific business outcomes. You must start by engaging senior leaders and identifying sponsors with real influence who can drive change across the business.”
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“Consider tying DEI targets to remuneration for managers, implementing organization-wide programs, and measuring the ongoing impact on productivity, innovation, and revenue growth,” Sheffield Haworth says. “Then comes the last steps on the journey: identifying, recruiting and effectively onboarding and nurturing diverse talent. There are many smaller steps needed to achieve this, but they can include refining your employee value proposition, expanding your existing talent pools, reviewing job specs to increase the inclusiveness of the language used, ensuring diverse interview panels, getting independent reviews of your processes, and more.”
Sheffield Haworth also notes that there’s a lot to consider for busy executives when advancing DEI. The biggest benefits of increasing DEI are by now well known. “If organizations are failing to make further significant strides with their DEI, it’s not usually due to a lack of will but rather a combination of common barriers,” the report said. “However, no problem can be solved without first ensuring a correct diagnosis, which is why that’s the essential first step for any organization serious about driving DEI.”
The Sheffield Haworth report closes by saying to first, work out where your organization is now and then look at what your key barriers or challenges are. “Look to reinvigorate senior-level support for change, identify key DEI champions to help spread the word across the business, and look again at how you identify, recruit, onboard, and continuously support diverse talent,” the report says. “There are more steps to go before we reach our DEI destination, but with the will to carry on even when it gets tough, we will significantly improve the odds of success.”
Related: The Importance of Setting Proper Diversity Targets
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor – Hunt Scanlon Media
