What It Takes to Lead on DEI in 2023

January 4, 2023 – Global leaders now overwhelmingly consider diversity, equity, and inclusion (DEI) a strategic business imperative as employees increasingly place value on equality advances in their work environment. A new report released by Heidrick & Struggles finds that 93 percent of leaders view DEI as more important now than three years ago.

The report, Employees at the Center: What It Takes to Lead on DEI Now, reveals findings from 420 executives across eight countries. Fifty-eight percent of leaders said their companies currently engage in practices—such as clearly defining diversity, equity, and inclusion, and link them to strategy and business outcomes — considered to be “leading edge” three years ago. Up from 20 percent in the initial 2019 study, the nearly 30 percentage point increase suggests a new bar for organizations. In addition, 52 percent of leaders said their diversity efforts contribute to their business success to a large extent, up from 22 percent three years ago.

“These findings should give all of us a moment of pause to reflect on the momentum gained in corporate DEI efforts,” said Jonathan McBride, global managing partner of Heidrick’s diversity, equity, and inclusion practice. “The practices that made a company a leader three years ago, are now considered table stakes. Nearly every executive surveyed acknowledged a rise in importance of DEI, which underscores the pace of change and highlights the risk of falling behind.”

The report also found that executives are doing more to try to succeed in their DEI efforts: In a survey Heidrick conducted three years ago, the firm identified a group of companies on the cutting edge of success—only 20 percent of all respondents. Those companies got there, the study said, by taking a mix of actions that are now table stakes, activities 58 percent of this year’s respondents report taking.

The change in importance is intuitive. The latest Heidrick report said the effects of COVID-19 on ways of working, the murder of George Floyd that amplified global calls for racial and social justice around the world, inflation and general economic anxiety, a global rise in nationalism, and increasing political polarization and extremism that extend to all facets of life, including the workplace, all played a role. And those factors are part of a broader shift in the role of corporations in society; trust in government as an institution to address not only DEI but also climate change, geopolitical instability, and other global challenges is at historic lows and dropping, while trust in—and expectations for—business to do so is growing.

“But the pace of change is striking, and it is underscored by the finding that more than half of executives now see DEI as contributing to a large extent to their business success, up from 22 percent three years ago,” the Heidrick report said. “For too long, in most companies, DEI efforts were marginalized, of interest only to a few HR executives. In the past decade, the evidence connecting diversity to improvement on crucial business outcomes—including resiliency, innovation, talent attraction and retention, and, of course, financial results—has become impossible to ignore, though the links are still being debated inside many organizations.”

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Heidrick notes that the most fundamental insight they took from the survey was that the connection between DEI and business success is basic: Every corporate leader wants to improve employee engagement, attraction, and retention, and these are the ways in which survey respondents most often saw their DEI efforts contributing to business success.

“Care for employees has become a core responsibility of senior leaders, starting with COVID-19’s effects on the workplace and rippling far beyond,” the report said. “The greater expectations for corporations to meet broad social needs, combined with many employees’ growing preference to work for a company with values that match their own as well as a greater ability and willingness to switch jobs, have all led to a new and comprehensive focus on employees from senior leaders, rather than considering employees as just subjects of one-off initiatives.”

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Leading companies are beginning to understand and visibly act on this. A recent survey by Just Capital, for example, showed that 31 percent of surveyed Americans said that large corporations valued employees the most among all stakeholders, up from nine percent six years ago. “And to us it is clear that companies that don’t improve their transparency with and about employees will incur greater and greater risk and competitive disadvantage,” the Heidrick report said. “In the context of ongoing talent shortages and the likelihood of slower economic times, that’s a risk most corporate leaders can’t afford. But identifying and taking effective actions is hard. One reason is fatigue: It’s been a long two years for everyone, and DEI efforts are among those where progress can be hard to see and resistance is more common, leaving leaders overwhelmed.^”

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Other reasons are that companies are in very different stages of progress on DEI, and Heidrick found that each organization has a unique culture. “So, although there are common tactics to make progress on DEI, those tactics need to be adapted to each organization—and, most important, visibly committed to by leaders and woven through the company’s processes, operations, and incentives,” the report said. “The leading companies we identified in this year’s survey are, the data shows, more often taking those steps, though in our experience, no company is all the way there. Furthermore, change is continuing at speed.”

Looking Ahead: Next Steps

As a leader, what practical actions might you take to advance DEI efforts in your company? Here  are seven actions that Heidrick & Struggles recommends:

1. Clearly define diversity, equity, and inclusion and make sure your organization understands what you mean when you use those terms.

2. Put employees at the center of your effort and keep them there. Use what you learned by engaging directly with employees in the summer of 2020. Keep those channels open to all employee groups, not just a few.

3. As hybrid work takes hold and more employees are back in the office, embrace the full range of engagement approaches available, from digital town halls to brown-bag lunches. Don’t assume they need to hear less from you just because they are sitting in their cubicles.

4. At many companies, close to 40 percent of employees have joined since January 2020 and hybrid work has raised a range of inclusion questions. Ensure your company has a clear sense of the cultural and inclusion experience of new hires vs. longer serving employees. Consider how everyone can move forward together into a new culture.

5. Take a systematic, enterprise-wide approach to DEI. This means leveraging existing systems for driving change or creating new ones, measuring your progress, and communicating your results to employees.

6. Get your board engaged and talking to stakeholders, including employees, about DEI.

7. Finally, Heidrick says to ask yourself and your team a few questions:

Have you defined “diversity,” “equity,” and “inclusion” for your organization? Have you measured how well understood they are across your organization?

Are your employees the primary constituency for your DEI strategy? Are you as sophisticated in how you talk to them about it as you would be to any customer?

Are you taking a systematic approach to this work that looks like other major initiatives you have undertaken to change behavior or thinking at scale (such as safety, lean, or agile)? If not, why?

Are you leveraging your board as effectively as you could?

Final Thoughts

“As workplace dynamics shift reflecting talent wars to a hybrid work environment, getting DEI right is more important – and more complicated – than ever,” said Mr. McBride. “Across industries and geographies, CEOs are acknowledging that complexity. They’re committing to DEI because, for employees, it encourages different ways of thinking and promotes career development and, externally, better reflects a company’s customers and constituencies.”

Related: Hiring Top Talent in Unprecedented Times

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media