Doing diversity: the question isn't why to do it--but how. Here are a few savvy strategies that really work.

To chief executives who "get it," corporate diversity is a no-brainer: Create an organization that respects and welcomes all employees regardless of gender, race, ethnic background and sexual orientation and you win top talent from every group. What's more, you assemble a work force of happy, loyal employees whose diverse perspectives combine to spark innovation and who can market to the spectrum of customer niches from which they hail.

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To those who don't get it, the diversity mantra sounds like an ill-conceived liberal notion that hamstrings companies with artificial hiring quotas and costly, touchy-feely programs.

Then there's the group in the middle--the CEOs who kind-of-mostly get it, but are not yet sure how to draw the direct line from diversity to profits. The CEOs in this group have heard the startling projections: According to the most recent U.S. Bureau of Labor Statistics, by 2008, women and minorities are expected to make up 70 percent of the new entrants to the work force. If realized, that seismic shift promises to forever change the complexion of U.S. companies, large and small, spawning a host of new challenges for CEOs--and not just those heading up business-to-consumer companies either. Business-to-business companies are already finding homogenous teams are at a disadvantage when they face more diverse groups at the negotiating table or when they pursue government contracts. And then there's the global issue; as more companies spread out across culturally disparate continents, seamless operations depend on the ability to recognize, appreciate and even celebrate difference.

So how do you "do diversity" without either blowing the budget on wasteful programs that don't show sufficient return, or alternatively implementing one-off solutions that make nary a dent in the company's culture? How, for that matter, do you even know what you need?

Fortunately, the leaders in diversity, most often in "consumer-facing" industries such as hospitality and consumer products, have paved some of the way with their own trial and error, and have managed to trace some of their initiatives directly back to profits. These best practices involve serious CEO commitment, clearly outlined policies, measurable goals and a compensation system that includes incentives for meeting those goals. As with any other companywide initiative, diversity efforts won't survive a halfhearted attempt.

Finding Out Where You Stand

One of the biggest roadblocks to implementing successful diversity initiatives is a lack of information about where the company is and where it needs to go. Many CEOs aren't aware that they're specifically failing to promote minorities or women, or that they have a serious discrimination problem brewing, until they're served a subpoena. "They don't know what they don't know," says Mauricio Velasquez, president of the Diversity Training Group, based in Herndon, Va., whose clients include Corning, Merrill Lynch and Sony Pictures. Often, he adds, they don't want to know. "Denial is usually the first reaction of the executive suite," says Velasquez.

That attitude may carry down deeper into the organization, particularly when a work force is homogenous--i.e., white male. "People who have advantage don't like to lose advantage," says Erroll Davis Jr., CEO of energy holding company Alliant Energy, based in Madison, Wis. Davis, himself African-American, says his favorite question from an employee illustrates the point: "He said, 'Why are we hiring all these females and minorities? Why don't we just hire the best people like we always have?'" People have a tendency to "gravitate towards comfort," Davis adds, and that means towards people more like themselves. As a result, they're a lot less likely to be diversity whistle-blowers.

Given that hurdle, CEOs who want to get serious have begun asking diversity experts for organized assessments, also called audits or diagnoses, of their companies, complete with focus groups and employee surveys, as well as retention data analysis to find out who's staying, who's going and why. Some best practice companies have built internal advisory boards to do ongoing discovery. Hyatt Hotels' diversity council, made up of 24 employees and managers from different parts of the company, meets three times a year to go over how the company is recognizing and advancing minorities. "They set goals and the results then have to be measured," says Hyatt's president Ed Rabin. The internal council has been so useful, the company has plans to create an external council, made up of national minority organization representatives, as well as meeting planners and convention bureau reps.

Outsider reviews can take time, but they can be useful in goal-setting. Dan Carp, CEO of Eastman Kodak, decided, along with his chief diversity officer, to set up an external diversity panel in 2001 to do a two-year assessment of the Rochester company. "The first year was a deep dive on what we were doing, so they could hold up a mirror and say, 'Dan, here's what's really going on,'" explains Carp. The second year was focused on future directives. Among the recommendations the panel submitted to Kodak's board at the end of 2003 was a goal of matching the multicultural makeup of the company's work force to that of the available labor pool by the end of 2006. "That will be the hardest one to pull off," admits Carp, noting that Kodak has made several acquisitions over the past two years. "Most if not all of them are behind us on the diversity journey, so we've got some catching up to do."

Set Goals You Can Measure

But while it make take them time, Kodak will likely achieve more on diversity just by setting the goal, because it puts the company on the radar screen of talented would-be employees and signals to minority workers that they're welcome in the management ranks. Exactly how to set goals becomes tricky, because to some CEOs, putting a specific number on hiring smacks of a quota system, which can undermine minority candidates and make them feel like token hires. "Legally, you're damned if you do and damned if you don't with regard to setting [recruiting] goals," says Wayne Leonard, CEO of Entergy, a New Orleans-based company, whose customer base includes high populations of minorities. But while Leonard eschews fixed numbers for minority hires, he does insist that every candidate search include one diversity candidate in the pool. "And it has to be a qualified candidate," he adds. "The excuse that there just isn't one doesn't work--you keep hunting 'til you find one."

Recruiting and retention aren't the only measurable goals. "You want to look at it from a comprehensive standpoint, not just a standpoint of representation," says Mary Frances Winters, president of The Winters Group, who has helped clients such as Harrah's Entertainment, Sodexho and Starbuck's to achieve inclusive cultures. Some companies measure how well particular business groups are penetrating minority markets (see chart, right), or winning government contracts that require a percentage of subcontractors be minority-owned companies. "It might even be about engagement, or how satisfied employees are in the 360-degree surveys you do," she says.

In fact, the employee experience is turning out to be a significant gauge. The Spartacus Analytics Group recently developed the Diversity Earnings per Share, or dEPS, Index, measuring the impact of DRIs, or diversity-related acts of incivility, on performance and a company's profit equation. While companies typically tackle bias incidents in the work place as a way to mitigate the risk of lawsuits, "we also started seeing huge impacts around measurable business areas," says Spartacus Analytics CEO Craig B. Clayton Sr., also director of the University of Houston's International Institute for Diversity & Cross-Cultural Management. "It related to things like willingness to make improvements in work processes, it had an impact on safety incidents, an impact on creativity and innovation."

Analyzing results of what you've already done is another way to gather data. At the Haskell Company, "each project is its own little laboratory," says Steve Halverson, president and CEO of the design and construction company based in Jacksonville, Fla. After large projects have been completed, the company reviews the lessons of what worked, what didn't and what the makeup of the team was. On one successful 2004 project, Halverson says, the majority of the project team was women. "So we asked the question, Was there a casual link between the fact that the staff was overwhelmingly women in a business that is not oriented that way? That becomes a piece of evidence for the case, and a fairly compelling one."

Increasing supplier diversity is another measurable goal set by companies like Marriott International, American Express, Cendant and Coca-Cola, to name a few. Turner Corp., a construction management firm based in Dallas, tracks, by business units, the amount of work it does with minority- and women-owned businesses. Last year, those suppliers did $1 billion worth of business with Turner, says CEO Tom Leppert. Turner also increased minority and women recruits from 30 percent of new hires in 1999 to the mid-50-percent mark, which Leppert attributes to accelerated recruiting programs and much resources spent on diversity training. "In our business, the only measure is having the very best people and getting the best people is a challenge," he says. "We need to make sure that wherever those people are, that we have an environment they're going to succeed in."

A key part of measuring, of course, is holding leaders accountable for those results, just as they're held accountable for making their quarterly or annual numbers. At Hyatt, which now has 52 percent women in management, fully 15 percent of bonus potential is dependent on diversity goals, Rabin says. And at Wyndham, commitment to specific programs of the company, including diversity, is 10 percent of incentive compensation down the line. But Wyndham CEO Fred Kleisner says his company goes one better. If a manager does make his or her financial goals, but scores low on diversity goals, "we'll assume you probably cheated making those financial numbers, and we'll make it detrimental," Kleisner told a group of more than 250 human resources professionals on a conference call held by Diversity Best Practices.

That may sound harsh, but the importance of accountability became clear enough in March, when Novartis Pharmaceuticals was slapped with a $100 million sex discrimination suit. Only the year before, the drug giant had won a spot on Working Mother's list of "Best Companies for Working Mothers." But the 12 female plaintiffs, all working for different managers in different parts of the country, claimed the company's diversity policies were not translating to lower management. "Most CEOs will agree that middle management is where your strategy can come off the tracks, or your buy-in can get clogged up," says Carp.

To head that off, Kodak instituted not only a top-down approach, but a bottom-up program as well. That includes training for all employees on the business case for diversity and the company's expectations, plus a training program called "So You Want to be a Leader" for people who aspire to be first-line supervisors. That program is used by women and people of color at a much higher rate than the rest of the Kodak population, he says. "So if you're in the middle zone and you try to ignore this, you feel like you're getting pinched on both sides."

At other companies, if you're at the top and you don't get diversity, you stand to lose a lot more than your bonus. "At my level, in the office of the CEO, you're either on board or you're not," says Entergy's Leonard. "The people who aren't buying into it, you just have to change them out. Taking $100,000 away from them isn't going to fix the problem or make life better. There just isn't a place for you here."

Out of HR and Into the C-Suite

Given the increasing demands on the CEO's time, many are realizing they need someone in charge of the company's diversity initiatives, someone who can interact easily with the CFO about bottom line impact or the CMO about multicultural marketing. That's why diversity is being taken out of human resources, where it got its start, and being moved into its own office in the executive suite. The chief diversity officer position is becoming more common among the largest U.S. companies, according to Diversity Best Practices, which did a report on the growth of the position (see sidebar, page 47). "They're being paid major moneys and have responsibilities for the total work force," says Edie Fraser, president and founder of Diversity Best Practices, which sponsors research and gathers diversity officers and CEOs to learn about best practices in diversity and inclusion. Fraser notes that Wal-Mart, besieged by gender bias suits and bad press, has brought in a chief diversity officer to try to turn things around. "Lee Scott is a changed man," she says.

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Elevating the diversity officer position and taking it out of HR not only makes its gravity clear to the organization, but it becomes easier for diversity to be implemented across the company, says Carp. "You have to have someone who can talk directly to the senior management team about how they're doing," says Carp, who meets with his CDO Essie Calhoun once weekly or biweekly. "And without someone looking broadly across the company, I don't think you have that integration of thought to find out what's going well and what's not." Nor could you, as Kodak is now doing, take the diversity efforts global in a meaningful way, he adds.

Calhoun is also the liaison to Kodak's eight employee networks, including the Network North Star for African-Americans, or the Lambda Network, for gay, lesbian, bisexual and transgendered employees. Affinity groups, though not entirely new, have recently appeared on the CEO radar screen as a potential sales tool. IBM, for example, has channeled the energy of its affinity groups toward selling into women- and minority-owned businesses. "That's the other best practice measure," says Winters, "utilizing internal resources, especially affinity groups, as business strategists for diversity." Albertson's, the Boise-based supermarket chain, has 33 affinity groups and CEO Larry Johnston meets with each of them personally every year. "They help us determine what we do in neighborhood markets," he says.

To be sure, all this costs money. A diversity office usually requires a staff and a decent budget. Hyatt's vice president of diversity, for example, has a $400,000 annual budget, travel aside. Rabin says that's just a piece of Hyatt's multimillion-dollar commitment to diversity. "And that's even in bad times. It's the one area we have consistently underwritten," he says.

Indeed, the CEO's steadfast commitment, particularly through tough times, is the one thing that will keep a diversity program on track. "Because you can put all the processes in place with diversity panels and diversity officers, all kinds of things that will fail," says Leonard, "until you make a real commitment that this is going to become part of your cultural norm." Which means today's diversity debate is much like the "quality" movement a couple of decades ago: It's not something that can be added afterward. It has to be built in from the beginning.

Minority Buying Power Expected to Soar

                     In $ Billions
                     2004     2009

Native American      $47.7     $65.6
Asian               $363.2    $528
Gay & Lesbian       $581      $745
Hispanic            $686.3    $992.3
Black               $723.1    $964.6
Total             $2,401.3  $3,295.7

Sources: Selig Center for Economic Growth and Packaged Facts (a division
of MarketResearch.com)

Note: Table made from bar graph.

RELATED ARTICLE: Profile of a Diversity Officer

SOME CEOS are making diversity leadership a standalone function or position, either within HR or in a special office. These diversity stewards--whose titles run the gamut from vice president of diversity up to chief diversity officer--are getting bigger budgets and staffs. The following stats are based on a Diversity Best Practices survey of 170 of the 500 largest U.S. companies:

Average salary: $225,000 per annum

Diversity-based incentives: Anywhere from 2 to 50 percent, with most in the 10-percent range

Average budget, 2004: $2.3 million

Average expected budget, 2006: $2.8 million

Title: Chief diversity officer at 40 companies, and senior vice president or above at 59 companies

Staff: An average of 8.2 internal staff, with about 30 percent of companies allocating 21 people or more. Some have diversity offices with up to 50 support staff.

Average tenure: 10 years at the company; four years in the position

Measurement: 92 percent of the CEOs surveyed personally review diversity metrics and results.

Source: "Diversity Officer Special Report," Diversity Best Practices, 2004