Without Inclusion, Diversity is Unsustainable

On March 5, 2018, Google searches for “Inclusion” spiked to 3 times the national average since 2010.  Frances McDormand’s speech at the Academy Awards advocating for labor contracts requiring more inclusive employment in the movie industry caused the increased interest.  She closed her best actress acceptance speech with, “I have two words to leave with you tonight, ladies and gentlemen: inclusion rider.”  Ironically, it took a Hollywood personality to draw that much attention to inclusion and only briefly.   

Modern businesses have increasingly activated Diversity Equity and Inclusion (DEI) programs to deal with the historical lack of ethnic and gender equity in their workforces.  Diversity is the presence of differences within an organization.  Equity is ensuring that processes, programs, and pay are impartial, fair, and provided fairly.  Inclusion is the active process of incorporating people into the organization and giving them a sense of belonging.  Considerable attention, analysis, and reporting have occurred surrounding DEI and diversity and equity, but relatively little reporting around inclusion. That’s unfortunate because inclusion drives long-term diversity and equity. Hopefully, this paper, advocating for inclusion as key business practices, will instigate more action, interest, and reporting on that topic.

The business case for diversity equity and inclusion (DEI) has been well researched.  Credit Suisse’s landmark study in 2012 showed that it would, on average, have been better to have invested in corporations with women on their management boards than in those without women. Specifically, they found a share price performance 27% better over the six years studied for large-cap and 17% better performance for small-cap companies. They also found that companies with one or more women on the board delivered 4% higher average returns on equity, 33% higher price-to-book value multiples, and 4% better average net income growth over the six years studied.

 In 2015, McKinsey published an influential study entitled “Why diversity matters,”  the findings of which show a strong correlation between DEI and financial performance. This study showed that companies with greater ethnic and racial diversity and inclusion among staff performed 35% better than companies whose staff demographics matched the national average. Furthermore, companies with greater gender diversity and inclusion performed 15% better than companies with less gender diversity.

McKinsey’s 2018 follow-up study, “Delivering through Diversity,”  examined many companies’ approaches to diversity and inclusion, exploring reasons that DEI was increasingly relevant in business.  They found that ethnically and racially diverse companies had 43% higher profits.

Achieving diversity via hiring has proven a useful but operationally myopic point of view.  Business organizations emphasized hiring to achieve diversity goals while often neglecting the more dynamic and demanding activities of inclusion – engagement, development, promotion, culture, etc.  As a result, many organizations found themselves underachieving diversity goals in high-ranking roles, losing employees, and consequently forced into more hiring to shore up diversity numbers.

 Our main point is that businesses should continually and aggressively seek to maximize inclusion at all times, broadly and at all levels of the organization.  The action of hiring is but one of the initial steps of inclusion.  By focusing on inclusion from the start and throughout employees’ careers much of the problems of exclusion will be sorted out.  Let us share some of the exclusion and inclusion research.

OF COLOR

McKinsey  reported in “Delivering through Diversity” the percentage of diverse staff decreases at each level up the corporate ladder; at the top, whites still represented 85% of executive. In addition, a lack of racial diversity is particularly significant at the executive level: though 10%% of the U.S. university graduates  are Black, only 4% of executives are Black.

Despite significant DEI efforts, compensation inequity remains, especially for African Americans.  The compensation firm PayScale reported that while black or African American men may climb the corporate ladder, they still make less than equally qualified white men. They are the only racial/ethnic group that does not achieve pay parity with white men at some level.  On average, black men earn 87 cents for every dollar a white man earns. Hispanic workers had the next largest gap, making 91 cents for every dollar earned by white men. On the other side of the earnings spectrum, Asian men typically earned $1.15 for every dollar earned by a white male worker.

In-depth workforce studies by Mercer  show that these raw pay differences published by PayScale result primarily from inadequate inclusion resulting in low representation at higher organization levels and serious impediments to career advancement for people of color.  Pay discrepancies are most frequently due to the failure of inclusion programs to unblock, support, and lift those of color in organizations than they are about pay per se.

People of color have been excluded for years and suffered mightily from the pandemic with disproportionately high deaths, low vaccinations, inadequate healthcare, high unemployment, and for many, inadequate educational opportunities.  In May 2020, black unemployment reached its peak of 16.7%.  That same month Job openings for diversity and inclusion did surge after the nationwide protests that followed the death of George Floyd on May 25, 2020.  That same month unemployment rates began falling.  The black unemployment rate dropped steadily from its peak of 16.7%, reaching 9.2% this January. 

During the first half of 2021, employment improvement measures have remained static.  As the economy and businesses opened up, exclusion continued as the black unemployment rate in May remained at 9.1% while the overall rate continued falling to 5.1%⁷.

When it comes to implementing DEI, increased diversity and equity serve as goals, while multiple proactive inclusion-oriented programs serve as the means to achieve them.  Once people are recruited, how do the businesses and the employees engage, develop, position, reward, care for, mentor, and help the individual succeed?  Does the person report to a manager with a track record of high performance?  Will the employee be part of a team or project that gives exposure to successful promotion opportunities?  What learning opportunities are available?   What supportive individuals might the employee encounter? How to link the individual to key business positions to best extract their business and personal value?  These are but some elements of an inclusion-oriented program. 

For a brief discussion of inclusion programs supporting equity goals, see “Career Equity is essential to eliminate the Gender Pay Gap” in Prometheus Endeavors conversations with Haig R. Nalbantian.  For a more in-depth treatment, see “Addressing diversity, equity, and inclusion in the workplace.”

GENDER

Dramatic progress in moving toward gender equality was made between 1970 and 2018. However in recent decades, change has slowed and, on some indicators, stalled entirely. A report from the National Women’s Law Center, shows women in the U.S. who work full-time, year-round are typically paid only 82 cents for every dollar paid to their male counterparts. This gap in earnings translates into $10,157 less per year in median earnings, leaving women and their families shortchanged.  Worse off are Black women, who earned 63 cents, while Latinas earned 55 cents and Native American women earned 60 cents. Going forward, a woman starting her career today loses an average of $406,280 to the wage gap in their lifetime.

On the company side, the business case for gender diversity had become even stronger.  In 2020 McKinsey reported in Diversity wins: How inclusion mattersthat gender diversity and inclusion was even more relevant in company performance, with gender-diverse companies performing 25% better than the national average and companies with more than 30 percent women executives were more likely to outperform companies with less.  Yet, despite significant DEI efforts and extensive efforts to hire a diverse workforce, executive teams remain white enclaves. For example, McKinsey found female representation on executive teams at only 20%, and more than a third of companies studied had no women at all on their executive teams.

McKinsey also conducted their first analysis of  core components of inclusion such as openness, equality of opportun, and belonging and found exceptional poor results reaching as high as 80% negative on equality of opportunity and 56% negative on openness, bias, and discrimination.  Their findings highlighted the criticality of inclusion and the need for far bolder action to create a long-lasting inclusive culture and promote inclusive behavior. 

We learned from Haig Nalbantian that purposeful and evidence-based inclusion and equality of opportunity  are primary avenues to long term workforce achievement including, including pay.  He has also shown through in-depth studies, analytical and behavioral models, and years of experience in workforce science that those who enact  inclusion initiatives that address systemic root causes of low representation and career inequities will not only see their racial, ethnic, and gender diversity improve but will foster a stronger company that creates a sense of belonging for everyone.  In the end, inclusion, broadly defined to encompass full equity in pay and career advancement, is the central pillar of an effective DEI strategy.

Another experienced influencer in the DEI field, Paolo Gaudiano, at Aleria, has articulated the criticality and power of inclusion coupled with a systematic business-led approach to inclusion and diversity (I&D) as the critical drivers of successful long-term sustained programs.  His simulation models based on in-depth studies in many organizations illuminate the value of inclusion over the long term¹⁴.

 Leading organizations are beginning to focus on inclusion as key to long-term diversity and equity. Indeed, some organizations have changed their program name from D&I or DEI to I&D, emphasizing the “I” However, the take-up lags and progress remain slow. Hopefully, this paper will instigate more action, interest, and reporting on inclusion.

LESSONS LEARNED

• Over the years, exclusion, intentional and unintentional, has oppressed the disadvantaged races and genders in society and business. 
• Attention to the issue by business leaders combined with bold diversity, equity, and inclusion programs has reduced the disadvantaged.
• There is significant business value in those improvements.
• Executive commitment and purposeful inclusion are the primary drivers of long-term improvement.
• Recently, attention to diversity and inclusion has heightened, but progress has slowed.
• Renewed executive commitment and bold, purposeful inclusion-focused DEI programs are needed.

CONCLUDING QUESTION

What actions should you take to make inclusion key in your organization?