Business leaders today face decisions of increasing complexity. They have to take into account far more than economics, in particular the increasing influence of matters under debate in the broader society.
Let’s imagine that you’re the CEO of a medium-sized, for-profit retailing organization. You have been asked to approve changes to the company’s orientation program that probably would not have crossed your desk several years ago.
Your human resources group has proposed changes to the two-day orientation that all new employees must attend that would give greater emphasis to values in the company’s credo supporting diversity, equity, and inclusion (DEI). Evidence cited in support of the changes included:
- Eighty-one percent of employees would consider leaving their current organization over a lack of commitment to DEI.
- Organizations overtly practicing policies designed to increase inclusion and diversity, if not always equity, are more creative and productive than those that ignore such policies.
- Companies in the top quartile of gender and ethnic/racial diversity are 25 percent and 36 percent, respectively, more likely to outperform average profitability than those in the bottom quartile.
- A 2016 study of 21,980 firms in 91 countries found that companies with mixed gender boards outperformed those with all-male boards.
Of course, you are aware of controversies surrounding DEI. They overlap with others related to ESG—environmental, social, and governance issues at the heart of so-called “stakeholder capitalism.” Corporations that become too visible in support of stakeholder capitalism run the risk of losing public investors, such as pension funds in states in which ESG runs afoul of current political thinking. Within the S and G of ESG, there are similar controversies around DEI. For example, marketing to or recruiting from a particular group—for example, members and allies of the LGBTQ community—might offend other people or cause others to feel threatened.
“The issue at one time may have seemed small, but you’ve seen your counterparts in other organizations brought to task over DEI issues.”
Some observers regard these issues as “paper tigers.” Threats to disinvest from ESG proponents have been followed up with action in only a few cases. How willing, really, are investors to give up investment profits to make a social statement? Nike’s decision to feature in its ads Colin Kaepernick, an American footballer whose patriotism has been questioned, ultimately resulted in what was described by one observer as a “bold success.” On the other hand, brands like Target and Bud Light have suffered at least some short-term losses from alienated consumers disagreeing with marketing that celebrated diversity.
As you look over the proposal from human resources, you note that the revised program will be required of all new employees. It seems reasonable. It probably wouldn’t have even come across your desk several years ago. But you are also aware of a law being litigated in your company’s home state legislature, citing Title VII of the Civil Rights Act, that would prohibit the practice of requiring employee attendance at meetings stressing DEI. The law resulted from complaints by employees of another company being required to attend such a program.
You are aware of the evidence to date suggesting that DEI is good business. But regardless of research findings, in what manner and how publicly as CEO do you proclaim the organization’s belief in diversity, equity, and inclusion? The issue at one time may have seemed small, but you’ve seen your counterparts in other organizations brought to task over DEI issues.
Do you approve making the proposed orientation program mandatory for new employees? Or, alternatively, would you alter the material to avoid the potential for offending new recruits?
As a CEO ultimately responsible for decisions on issues involving DEI, you have to take into consideration the effects on, among others, your organization’s employees, customers, investors, and the broader community. Which constituency do you favor most?
Who gets the loudest voice in DEI decisions? What do you think?
Share your thoughts in the comments below.
- Kelsey Butler, “Now in the Dock: Corporate Diversity,” BloombergBusinessWeek, June 28, 2023.
- Sundaitu Dixon-Fyle, Dame Vivian Hunt, and Sara Prince, “Diversity wins; How inclusion matters,” McKinsey & Co., May 19, 2020.
- Preeta Ghoshal, “5 Reasons Why a Diverse Workforce Drives High Performance,” fdmgroup.com/blog/diversity-for-business performance, October 31, 2022.
Your feedback to last month’s column
As Leaders, Why Do We Continue to Reward A, While Hoping for B?
Several respondents advanced diagnoses and prescriptions in addressing the central question of last month’s column.
Short-term performance was identified as one of the culprits behind the phenomenon. As Fonzie Gonz put it, “… C-Level leadership compensation is tied almost exclusively to short-term, A-type performance.” Others broadened their diagnoses. For example, Cristina Nava commented, “While the expectation of the world is peaceful cooperation, the first thing young adults see and experience from their society is a battlefield full of greed.”
What’s to be done about it? Frances Pratt suggested, “It is far too simplistic to change the reward and expect different results. We need to deeply embed the culture that drives the results we desire. This isn’t pretty work. It’s a daily concentration on what is right over what is expedient.” Also stressing the time and effort required, David Wittenberg added, “… corporate leaders …. must prioritize it. Their strategic plans, their policies, and their corporate structures must incorporate and reward efforts to achieve (the hoped-for result).”