The Business Case for Diversity & Inclusion: Why Diversity is Good for Business Eric Peterson Manager, Diversity & Inclusion Society for Human Resource Management

The Evolution of the Field Over the last twenty years, the field has evolved considerably … Compliance Case “Diversity is something we’re forced to do … by law.” Business Case “Diversity is the smart thing to do … for our business.” Diversity management in the United States continues to evolve as a field and as a concept. Twenty years ago, only a handful of companies recognized diversity as a priority, and even among those pioneers in the field, it had little impact beyond increasing representation among women and minorities. Today, diversity is no longer limited to an affirmative action program, a training intervention, or something “nice to do.” Managing diversity today is considered a necessity by forward-thinking companies that want to empower employees, expand their market share and sustain their business. That is indeed progress. That said, are we where we should be in terms of professional rigor in commonly understood standards of language, skills, practice and competencies? The respondents in our research survey and others don’t think so. In fact, little progress has been made on a commonly accepted definition of “diversity” to provide a basic road map for practitioners. Values Case “Diversity is the right thing to do … for our people.”

The Compliance Case for Diversity Diversity in the US began as a legal mandate, and that tradition continues … 1960 1970 1980 1990 2000 1 2,3 4 5 6 7 8 8 1 1961: Creation of the Equal Employment Opportunity Commission (EEOC) 2 1964: Passage of the Civil Rights Act (incl. Title VII) 3 1965: Creation of the Office of Federal Contract Compliance So: where are we, and how did we get here? We cannot deny that there has been steady progress over the last 40 years as the word “diversity” and diversity management have evolved. From a matter of equality and fairness with the passage of Title VII of the Civil Rights Act in 1964 to the creation of the OFCCP a year later to the massive increase of women in the workplace throughout the 1970s and 1980s and the Americans with Disabilities Act in 1990, there has been a legal mandate for diversity. [ENABLE SLIDE ANIMATION] Title VII legislation of the 1964 Civil Rights Act made it illegal for companies with 15 or more employees to discriminate in hiring. The legislation also prohibited discrimination in the termination, promotion, compensation, or job training based on race, color, religion, sex or national origin. Over the last 25 years, there have been many other significant advances in the diversity field, including: Affirmative action plans. Diversity Advisory Committees. Employee Affinity Groups (aka network groups). Diversity Training. Offices of Diversity and Inclusion. Chief Diversity Officers. Mentoring programs. Diversity Recruiting. Supplier Diversity. We’ll see some examples of these programs in a moment. 4 1967: Passage of the Age Discrimination in Employment Act 5 1973: Passage of the Rehabilitation Act of 1973 6 1983: Expansion of Title VII of the Civil Rights Act of 1964 7 1990: Passage of the Americans with Disabilities Act 8 1996, 2007: Failed attempts to pass the Employment Non-Discrimination Act

The Values Case “vs.” The Business Case There are many reasons why an organization might/should focus on Diversity. Usually, these fall under two broad themes: the Values Case and the Business Case. Values Case Business Case “It’s the right thing to do, and will make our people happier.” “It’s a smart thing to do for business , and will improve our bottom line.” Businesses and other organizations focus on diversity for a wide and varied number of reasons. But usually, it comes down to two. There’s a values case for diversity, which basically says that DIVERSITY IS THE RIGHT THING TO DO. It makes employees and business leaders happy, knowing that their organization does business in a way that aligns to their personal values. There’s also a business case, which states that DIVERSITY IS A SMART BUSINESS DECISION. Simply put, businesses that pay attention to diversity and inclusion do better work and make more money. Something that a lot of diversity champions struggle with is learning to lean on the business case. Many feel as though they are somehow minimizing their values by focusing on ways to make more money, which somehow seems counter to the values case. It’s important to remember that the values case and the business case for diversity advocate for the same things, and using both ensures that everyone gets on board. Both the Values Case and the Business Case are important and necessary; they do not contradict each other, but rather complement each other. An organization’s return on investment is reduced when commitment and productivity are lost because employees feel disregarded, time is wasted with conflicts and misunderstandings and money is spent on legal fees and settlements. When an environment makes employees feel valued, included, and utilized, it yields greater commitment and motivation and fewer resources spent on training, turnover, and grievances.

Why is a Business Case Important? After all, why isn’t “doing the right thing” enough? Strategic Diversity Management Plans depend on the commitment of many people in the organization, not the least of which are your CEO or equivalent, and Senior Leadership Team. These leaders are naturally focused on the financial health and well-being of the organization. A strong business case for diversity will clearly show that creating a diverse and inclusive workplace will benefit everyone in the organization, by making the organization stronger, more resilient, and more competitive. This focus on the financial will seem to some to be the opposite of humanistic, but keep in mind that business leaders are responsible for what will happen to their employees if the business cannot compete in the marketplace. Oftentimes, a false perception that any initiatives that invest in people will naturally take away from the business prevents Diversity & Inclusion from gaining full leadership support. It is important to remember that this perception is a myth. In today’s rapidly changing marketplace, organizations that do not invest in people are not likely to survive. Oftentimes, when communicating a diversity plan, HR and diversity practitioners will tend to speak in “HR language,” which is often not nearly as compelling to CEOs and C-Suite leaders as the “business language” that they are used to.

The Business Case for Diversity When managed well, diversity is one of the most important assets an organization has in order to achieve and maintain a competitive advantage. Effective diversity management = competitive advantage Ask? How has diversity evolved over the past 40 years?

Workplace Diversity Defined Visible Diversity Traits Skin color Age Body Type/Size Gender Behaviors Physical Abilities/Qualities Religion Sexual Orientation Ethnicity Level in Organization Military Experience Personality Work Background Culture Values Geographic Location Beliefs Thinking Styles Marital Status Invisible Diversity Traits As illustrated in this iceberg, diversity is depicted as the differences above the waterline. These are more observable, more apparent to the eye. Those below the waterline are less visible. Those on the line can be obvious or not as obvious based on the situation. For example, someone with an obvious physical disability would fall above the waterline but someone with a mental disability may not be as obvious, thus they would fall beneath the line. Another example would be for someone who is not openly gay or lesbian, they would fall below but if someone brings their partner to a company event, it becomes obvious and thus fall above the waterline. In the U.S. diversity efforts have focused mainly most those characteristics that are visible diversity traits (e.g., race, gender, physical ability, age, and ethnicity, and physical attributes) Today, however, diversity encompasses a much broader definition such as invisible diversity traits (i.e., education, religion, functional expertise, military status, language….) A quick disclaimer about this depiction: There are many, many more characteristics that could be included, but in the interest of time and the size limits of the graphic I could not get them all on here. So please know that this is not the totality of diverse categories. The point is that diversity exists and some traits are visible, others are invisible. Some are protected by laws, others are not. Which of these areas are protected by law? In which of the areas on the iceberg do most lawsuits and complaints originate? Above the waterline because they are more obvious and carry many negative stereotypes. This demonstrates the point that stereotypes are common place and perpetuated. BUT, all of us should be respected and feel included regardless of what our diversity is. Until we take the time to get to know people through meaningful interaction, we may miss opportunities to truly understand, connect with them and to come to appreciate their diversity. Functional Specialty Smoker/Non smoker Education Communication Style Parental Status Native born/non native Socio-economic Status

Two Definitions of “Inclusion” Inclusion is the achievement of a work environment in which all individuals are treated fairly and respectfully; have equal access to opportunities and resources; and can contribute fully toward an organization’s success. Today, building an inclusive culture where all talent is valued and fully utilized is taking diversity efforts to a more strategic approach. It’s about engaging all employees---including white males. Traditional diversity didn’t start out including them; in fact, it made them out to be the bad guys. And we’ve seen much resistance because they’ve been excluded from traditional diversity work. Inclusion is about how everyone can contribute to the workplace regardless of and sometimes because of their differences. Building inclusive cultures means building knowledge and helping people understand conceptually what the value of diversity is (THE HEAD); it means building buy-in, commitment, and getting people engaged in the work (THE HEART); and it means building the competency, abilities, and skills necessary to achieve results (THE HANDS). Inclusion is the capacity to leverage difference.

Key Challenges a More Diverse Workforce Brings Potential for Conflict Accommodations Communication & Language Issues More Training Expectations (salaries, benefits) Generational Differences The core of the business case for Diversity & Inclusion is made up of the LONG-TERM rewards and benefits that a diverse workforce provides (in concert with an inclusive work culture). However, these long-term benefits will typically be realized only after experiencing some SHORT-TERM bumps in the road. Committing to Diversity & Inclusion in any organization is always the result of LONG-TERM thinking in spite of SHORT-TERM conflicts or challenges. Increased Turnover

Opportunities a more Diverse Workplace Brings Greater capacity for Risk Cultural Competence Increased Language Skills Technological Competence (Long-term benefits discussed here) Fresh, new ideas Global Focus

The Business Case for Diversity (cont’d) Diversity & Inclusion helps the business’s bottom line in the following ways: Greater adaptability and flexibility in a rapidly changing marketplace Attracting and retaining the best talent Reducing costs associated with turnover, absenteeism and low productivity Return on investment from various initiatives, policies and practices Gaining and keeping greater/new market share (locally and globally) with an expanded diverse customer base Increased sales and profits Mitigate and minimize legal risks (Introduce the items on the list; do not define each one explicitly, since you’ll have ample opportunity to discuss them in the slides that follow.) These seven points represent a full and robust Business Case for Diversity. When creating your Business Case, you should know your organization well enough to know which items on this list are the most pressing for your senior leadership. Obviously, you cannot accomplish them all at once, but should prioritize those that best meet your organization’s business objectives. At the same time, some attention should be paid to all seven. For instance, even an organization that has never before been sued for discrimination or unfair practices needs to think about the legal risks that exist if issues of diversity & inclusion are ignored. Source: Lockwood, N., June 2005, “Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage”, Research Quarterly. Society for Human Resource Management: www.shrm.org/hrresources

1. Greater flexibility and adaptability Flexibility & Adaptability Customer Service For the first time, we have the largest number of all four generations in the workplace than we’ve ever had. Women and minorities represent 70% of new labor force entrants. The Hispanic population has nearly doubled since 1990 (the largest growing segment of our population). We are experiencing growth in number of employees whom English is a second language … and an increase in religious diversity. If your employees cannot treat each other well, why would you think they treat their customers any better? The Changing Workforce

2. Attracting & Retaining the Best Talent Which do you believe? Talent exists independently of variables such as race, gender, sexual orientation, ability, religion, marital/parental status, or socio-economic background, or Talent is tied to variables such as race, gender, sexual orientation, ability, religion, marital/parental status, or socio-economic background. If #1, how much talent does your organization currently have access to? We are facing a global shortage of talent – are you prepared? In a lot of organizations, “Diversity” is being tied to “Talent Management.” This is an area where the values case and the business case for diversity merge for a moment. On this slide are two conflicting statements; neither of them can be proven, but which do you believe is true? (read statements) If the first statement is true, then how does that square with the fact that management and leadership positions are still overwhelmingly filled with people who are white, male, straight, able-bodied, etc.? How likely is it that those who are significantly different in these ways have the necessary talent for these positions, but doubt that they will be given the opportunity to prove this? This dynamic impacts the type of employee you attract, but also the type of employee you retain. Comprising 40% of the U.S. workforce, there are approximately 77 million Baby Boomers Every day 10,000 Baby Boomers turn 55 years old 1 in 6 workers are over 55 in 2008 With Baby Boomer retirements, loss of executives and experienced workers Impact to pension plans and retiree health costs Employees are stretched with care of children/parents For every 2 experienced workers leaving, 1 inexperienced worker replaces them

2. Attracting & Retaining the Best Talent (cont’d) Finding talent is seen as the most important management challenge facing business executives in the next 5 years Greater competitive intensity 22% Increasing number of markets served 11% Increasing size of company 19% Finding talent 31% McKinsey and Company recently asked senior executives to name the most important challenge they will face in the next five years, and “finding talent” topped the list. Increasing diversity & inclusion in your organization is synonymous with finding talent. A diverse and inclusive organization is an “employer of choice,” meaning that people from all backgrounds will want to work for your organization. When applicants are fighting to get in the door, an organization is in the enviable position to choose the very best and the brightest in the candidate pool to hire. If large segments of the population do not want to work for your organization, your competitors will be more than happy to take these talented individuals off of your hands. In fact, all of the items displayed on this chart are directly related to diversity and inclusion. As we will discuss, diversity helps an organization better serve diverse markets. As an organization grows, talent from all backgrounds is necessary if quality is to be either increased or maintained. Finally, your competitors are paying attention to diversity & inclusion, even if you are not. Source: McKinsey & Company

2. Attracting & Retaining the Best Talent (cont’d) Building leadership capability starts with creating a culture that makes employees want to stay Ensuring that all employees have full and equal access to opportunities Implementing leading-edge talent management programs such as: Mentoring Cross-functional development assignments Job rotations Special assignments Career pathing Skills inventories Succession planning (55% of employers are already doing succession planning) Part of the search for talent includes identifying people with a special talent for leading teams, departments, and organizations. While it is possible to bring in external candidates to fill leadership positions, it is necessary to “grow” at least some of your leaders within your organization for the sake of the organization’s “long-term memory.” Therefore, it’s important that your organization is a place where 1) people want to stay, and 2) people can succeed and grow. The leaders with the most potential to do great things in your organization do not always fit the profile of your organization’s traditional employee. And yet, it can be difficult for a non-traditional employee to present him/herself as a good “fit” for a senior role in the organization. Some ways to identity leaders with potential from all backgrounds are listed here …

3. Turnover, Absenteeism, Low Productivity In diverse & inclusive work environments, employees are: More likely to stay with that company More likely to recommend their company to others Less likely to have experienced discrimination Less likely to have missed days at work More engaged in their work Simply put, organizations with high turnover, high absenteeism, and low productivity are losing money and getting nothing in return. If you aren’t sure how much it costs your organization to replace a single employee, find out: you’ll likely be shocked by the total figure (factoring in sourcing, recruiting, hiring, onboarding, training, and a productivity gap while the new employee becomes acclimated to the organization.) If your CEO doesn’t know this figure, educate him or her. Once you do, any initiative that is likely to increase retention and decrease turnover should receive enthusiastic support. Your CEO would likely also be shocked to learn the money being lost because of absenteeism and low productivity in an organization with fair or low morale. While these trends can be difficult to measure, you can calculate how much money is lost every time an employee takes a sick day – then introduce the simple but startling truth that not all employees on a sick day are actually sick. Source: Gallup Organization, “Civil Rights in the Workplace Survey,” 2005

3. Turnover, Absenteeism, Low Productivity (cont’d) Each year, more than 2 million people voluntarily leave organizations due to perceived unfairness (cumulative comments/jokes, unfair policies, perceived invisibility) This trend costs U.S. corporation $64 billion each year This figure is nearly equivalent to the combined revenues of Google, Goldman Sachs, Starbucks, and Amazon.com, and does not include costs associated with litigation or loss of reputation The Level Playing Field Institute is a non-profit organization based in San Francisco, dedicated to ensuring fair and inclusive environments for all people to work and learn. In 2007, the Institute sponsored the “Corporate Leavers” survey, which tracked the numbers and associated costs of people leaving workplaces simply because they were treated unfairly. Unfairness was defined as behaviors or situations that did not meet the legal definitions of workplace discrimination, but were nonetheless demeaning and damaging to individuals. Jokes at the expense of an individual or group, unfair (but legal) policies, or the perception of invisibility are examples of unfairness in the workplace. The survey found that over 2 million people voluntarily leave organizations each year due to unfairness, and this trend costs U.S. corporations $64 billion annually. This figure is equal to the combined revenues of Google, Goldman Sachs, Starbucks, and Amazon.com. Obviously, non-action in terms of diversity and inclusion can cost you money. On the flip side, putting resources behind diversity and inclusion can offer a substantial return on investment (transition to next slide) … Source: Level Playing Field Institute, “The Corporate Leavers Survey,” 2007, LPFI.org

= 4. Return on Investment HR Outcomes Business Outcomes As HR practitioners, we tend to speak in terms of HR outcomes. Examples: Hire the best and most qualified talent—a more diverse workforce; greater representation Increased retention of our minority employees Greater pay equity, fairness for employees Movement on employee engagement/attitude survey results External recognition & awards/lists A more inclusive work environment Number of employees trained On the other hand, executives speak in terms of business outcomes. For example: Increased Revenues; Profitability Increased Market Share; Market Expansion Innovative/Quality Solutions/Product Development Stock Price Performance Return on Investment Customer/Member Satisfaction & Retention Results Competitive Index Productivity Process/Product Improvements Take a look at the list presented on this slide. All of these things look great, right? Talented people, Fairness, Inclusion, External recognition for your efforts … Who could argue with these lofty goals? In truth, these goals are likely to result in the support of your senior leadership, provided that the organization is already doing fairly well and has the desire to improve upon their existing success. But you don’t just want Sr. leaders to support the HR/Diversity efforts, you want them to be committed and engaged. However, typically, most companies’ key business objectives are about profitability, growth, and reputation, and we don’t tend to speak in those terms that CEOs/business leaders will react to (show slide 8) HR Outcomes Business Outcomes

5. Greater/New Market Share Buying Power by Race Billions Think about it: If your organization receives many internal harassment complaints, can you be confident that complaints not also coming from customers? If your sales team are constantly telling jokes that belittle gays and lesbians, are they likely to be effective and respectful when dealing with openly gay customers? If your employees are uncomfortable conversing with colleagues with disabilities, how are they likely to treat clients with disabilities? As the marketplace diversifies, it is important for businesses to reach out to diverse communities in the marketplace. Quite frankly, these markets control a lot of buying power – this money can either benefit you, or your competitors. In addition to figures depicted here, it is estimated that people with disabilities currently spend $220 billion per year, gays and lesbians currently average $641 billion, older generations (boomers and above) account for half of all discretionary income in the U.S. and that women will control $1Trillion by 2010, If you want access to these markets – and who doesn’t? – you’re going to have to learn how to work effectively across difference. In this way, the skills that your employees learn when transitioning into a more diverse and inclusive workplace are immediately transferable to their customers. Source: Jeffrey M. Humphreys, The Multicultural Economy 2007, www.selig.uga.edu

6. Increased Sales and Profits Over a 10-year period, the index of publicly traded companies in DiversityInc’s Top 50 Companies for Diversity list outperformed the: NASDAQ by 28% Standard & Poor’s 500 by 25% Dow Jones Industrial Average by 22% HR & Diversity practitioners are quick to point out that diversity will increase the bottom line. Then, they usually want to talk about how much their diversity initiatives are going to cost the organization! But the return on investment is very real. Consider that over a ten-year period, those companies chosen by DiversityInc magazine as the Top 50 companies for Diversity outperformed NASDAQ, Standard & Poor’s 500, and the Dow Jones Industrial Average by double-digit percentages. How does your organization compare to these averages? Are you ahead by double digits? If not, this is a compelling argument to present to those who are most likely to get excited by big returns. Source: – DeGroat, TJ, No Way to Measure Diversity's Value? Mainstream Article Ignores the Hard Facts, DiversityInc.com http://www.diversityinc.com/public/19452.cfm

7. Mitigate and Minimize Legal Risk 2.3 Billion? Over the past 10 years, major race and gender discrimination lawsuits cost U.S. corporations $2.3 billion in settlements alone. In FY 2007, there were 17,734 disability discrimination charge filings. In the same year, there were 2,880 religion-based discrimination charge filings These statistics were taken from the EEOC’s website. Race & Gender This figure does not including attorney fees, decreased market capitalization and other costs. Race-based discrimination charge filings* were up 12% in FY 2007 to their highest level since FY 1994 Sex/Gender-based discrimination charge filings were up 7% in FY 2007 to their highest level since FY 2002 Disability This figure represents a 14% jump from the prior year and is at its highest level since FY 1998 Religion This figure represented a 13% jump from the prior year The number of religion-based filings has never been higher, and has doubled since FY 1992 Source: U.S. Equal Employment Opportunity Commission; http://www.eeoc.gov/ *A “charge filing” is any complaint brought forward; not all charge filings result in settlements to be paid by employers.

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