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Improving DE&I for Small Business: Why Diversity Matters – The Business Case

Written by Heather Bussing

February 23, 2021

Improving DE&I for Small Business: Why Diversity Matters – The Business Case Hero

Having a diverse workforce and diverse leadership is good business. Several studies have found a correlation between diversity and the bottom line.

Over the past few years, McKinsey has made headlines with their reports, Why Diversity Matters, Delivering through Diversity, and Diversity Wins, in which they explore the business case for a more diverse workforce. In their research, McKinsey found a correlation between diverse leadership teams and financial performance.

In 2018, McKinsey found:

  • Companies in the top 25% for gender diversity were 21% more likely to have higher profitability and 27% more likely to create better value.
  • Having women in revenue generating roles rather than staff roles on executive teams resulted in the highest performance.
  • Organizations with ethnic and cultural diversity on executive teams did even better and were 33% more likely to have industry leading profitability.

Conversely, the executive teams with the least diversity were 29% less likely to achieve above-average profitability.

When looking at these numbers, it's important to understand that correlation is not the same as causation and you can't just hire a more diverse executive team and instantly increase the bottom line.

First, a statistic that says if the team has gender and cultural diversity, it is 33% more likely to have above average profitability also means that it is 67% likely to have average or below average profitability.

Second, and most importantly, going from homogenous to diverse leadership takes preparation, change management, and real work to develop trust and solid working relationships.

For example, a company hires a Black Woman with great credentials and experience to head their diversity initiatives. But she is one of very few Black employees and the only Black person and woman on the leadership team. When she tries to explain some of the problems and obstacles, she is met with frustration because the rest of the leadership team doesn't understand and doesn't think they have a problem—after all, they just hired a Black woman. If she makes it past the initial pushback, then she will face, "that's not how we've always done it, why should we spend money on this, and we're concerned about the changing the culture too much because it will disrupt productivity." When she tries to explain this perspective is part of the problem, she is seen as difficult to work with and eventually leaves.

There is good research and evidence that having a more diverse company is beneficial. But it requires more than just hiring a few people in each of the protected classes and carrying on as usual.

What works is adopting an attitude of learning, openness, and willingness to consider and implement the ideas of others.

Robin Ely of Harvard Business School and David Thomas of Morehouse College and Harvard Business School have been researching diversity at work since the mid 1990's. Their research consistently shows that the key to maximizing the benefits of a diverse workforce involves recruiting a more diverse workforce, ensuring their participation and success at the organization, and tapping into their experience and knowledge.

In Getting Serious About Diversity: Enough Already with the Business Case, Ely and Thomas explain that in order to develop the benefits of diversity, the organization has to change its culture and look at how authority and resources are distributed.

"Being genuinely valued and respected involves more than just feeling included. It involves having the power to help set the agenda, influence what—and how—work is done, have one's needs and interests taken into account, and have one's contributions recognized and rewarded with further opportunities to contribute and advance."

The work to get there involves trust, vulnerability, and assessing bias and obstacles so the organization can address discrimination and subordination, embracing a wide range of styles and voices, and making cultural differences an asset and resource for learning rather than a barrier.

When companies can do this, they demonstrate that different points of view are appreciated and valued. This in turn promotes new ideas and ways of working that really do make the company more successful and profitable. But it takes commitment to change.

Click here to read the next blog in the series.

Click here to read the previous blog in the series

Resources

Why Diversity Matters, McKinsey 2015

Delivering through Diversity, McKinsey 2018

Diversity Wins, McKinsey 2020

Getting Serious About Diversity: Enough Already with the Business Case , Ely and Thomas, Harvard Business Review, Nov.-Dec. 2020

about the author
Heather Bussing is a California employment lawyer and analyst in the HRTech industry. She writes regularly at HRExaminer.com and loves helping organizations prevent problems and build more human friendly workplaces. She also loves photography and posts a landscape every morning on twitter @heatherbussing.
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