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The social case for diversity can stand alone

24 May 2018 by Jimmy Nicholls

The social case for diversity can stand alone - Read more

Businesses can pursue diversity as a societal good, even against a varied business case

The chief irony of the debate on diversity in the workplace, from the shop floor to the boardroom, is just how clouded by groupthink the whole exercise is, at least when it comes to public statements made by business people.

It is now expected that businesses at least pay lip service to the importance of having workforces that are more diverse – whether it be more female staff or more staff from ethnic minority backgrounds. Some go as far as saying it is necessary for a firm’s survival.

Even diversity laggards say the business case has been firmly established, with many citing research from the likes of McKinsey & Company. Back in 2015, the management consultancy produced ‘Diversity Matters’, linking financial performance and diverse leadership.

In fact this research only shows that firms with diverse leadership tend to make more money – it gives no indication of the cause and effect. Indeed, a scan of the available studies beyond McKinsey’s, much of it academic rather than the product of management consultants with diversity programmes to sell, lends credence to more complex conclusions.

Some studies suggest that diversity can both hurt and help business, sometimes simultaneously. A meta-analysis, or study of studies, from the Academy of International Business in 2009, found that ‘cultural diversity leads to process losses through task conflict and decreased social integration, but to process gains through increased creativity and satisfaction.’

The researchers added: ‘Whether the process losses associated with cultural diversity can be minimised and the process gains be realised will ultimately depend on the team’s ability to manage the process in an effective manner, as well as on the context within which the team operates.’

Other research suggests little impact, including for gender diversity on boards. Katherine Klein, a management professor at the University of Pennsylvania, said in a blog post last year: ‘Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse.’

Although she said other research had not established a strong link between diversity and team performance, there were other possible explanations for the flouting of conventional wisdom that teams with wider demographics make better decisions.

‘If male and female board members are fairly similar in their values, experience, and knowledge, the addition of women to an all-male board may not increase the board’s cognitive variety as one might expect at first blush,’ Klein said.

“Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse.”

The debate was noted by Gillian Harford, head of diversity and inclusion at Allied Irish Bank, in her recent appearance at the ICSA Ireland Conference 2018 in Dublin. Unlike other diversity champions, Harford admitted that it is unclear what the exact relationship between diversity and company performance is.

Yet ultimately Harford does not think it is important if diversity feeds success or success diversity. ‘For me, successful organisations and genuine diversity need to live together in perfect harmony,’ she told the conference.

Diverse organisations certainly can be successful, as indeed can their homogenous peers. But I would take Harford’s logic in a different direction, and argue that the last few years have seen an unhappy union between the social case for gender diversity and the business case for it.

In our recent interview with Philippa Foster Back, director at the Institute of Business Ethics, she said: ‘You cannot do business in isolation. A successful business will be all the more successful for taking into account its role in society and its relationships with all stakeholders.’

In this vein, businesses are facing pressure from many quarters to stop seeing themselves only as money-makers. For example, Legal & General Investment Management indicated in its recent annual report that it would vote against boards with unsatisfactory diversity initiatives.

Unlike Foster Back, I do not think that businesses that pursue social goals to protect the environment, improve workers’ lives or promote board diversity will necessarily make the most money. Some people build fortunes with scant consideration for the wellbeing of others, and remain within the law.

But this need not be a problem. After all, in our personal lives few of us pursue money while disregarding everything else. Why should businesses and their owners be any different? In other words, it is perfectly cogent to argue that board diversity is socially good, irrespective of whether it makes money.

Making a business case for diversity was clearly an important strategy for campaigners, appealing to the wallets of businessmen rather than their consciences. And it has convinced many.

The academic evidence gives some support to the intuition that mixed groups are likely to be more creative in solving problems and developing innovative products and services than homogenous ones. There will always be reasons to bring new perspectives into any organisation to spur change.

However, acknowledging that some of the academic research points the other way – diversity sometimes has little effect, or can even raise difficulties – need not endanger campaigners’ goals. Now many are in favour of diversity in principle, the case does not rest on the bottom line.

Jimmy Nicholls is deputy editor of Governance and Compliance

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