Driving diversity; CEOs get it: diverse work forces make for better companies. The question is, how do you get there?

For years, CEOs have paid only lip service to diversity. In the 1980s, when the term began popping up in boardrooms of progressive companies, multicultural programs were viewed primarily as feel-good initiatives--important, but hardly imperative. Yet profound demographic changes in the United States and an increasingly global marketplace are driving recognition that diversity is more than simply the right thing to do. Diversity programs represent a way for companies to fuel growth by tapping into fast-growing multicultural markets.

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By 2005, the U.S. Census Bureau projects one in three Americans will be either African American, Hispanic American or Asian Pacific American. Together, these three groups are increasing seven times faster than the population as a whole. This shifting population mix, along with the demands of growing international markets, have CEOs across industries wrestling with diversity as never before.

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"For us, diversity is really a marketplace necessity," Thomas O'Neill, chief executive of New York City-based Parsons Brinckerhoff, told CEOs gathered for a recent roundtable discussion on diversity best practices held in partnership with Pitney Bowes. "Whenever you make a sales pitch to a government agency, you interview with a panel that includes women and people of color. So if we go in there with all Caucasian males, our chances to win a job go way down, whereas if we go in with a group who look like the people on the other side of the table, our chances go up. That's just a marketplace reality."

Clearly, a company's work force--including senior management--must represent all of its customers to win their loyalty. And yet, despite the business case for diversity and increasing emphasis on multicultural initiatives, true diversity continues to elude many corporations. Resistance to change and misconceptions are among the factors impeding the process, reported Phillip Cox, chairman of Cincinnati Bell. "This is very threatening and difficult for our employee base, of which out of 3,000 people we have about 700 people of color," he said. "These are not racist people, but we are all prisoners of the familiar. And that means we don't get up in the morning and say, 'I think I'll go out and make myself as uncomfortable as I can by dealing with someone who is very different from me.'"

Even CEOs at companies with diverse work forces and long-established diversity initiatives continue to struggle to extend multiculturalism to the upper echelons. At North Shore-Long Island Jewish Health System, where 7,800 of 8,000 nurses are women, the executive ranks are another story. "When you go down into most large organizations, you have a very diverse work force," noted Michael Dowling, CEO of the Great Neck, N.Y.-based hospital company. "The problem is getting diversity in terms of race and gender up to the very top of the organization."

It's also knowing how to get the most value from the diversity created, said Michael Critelli, chairman and CEO of Pitney Bowes. "When we talk about diversity, it isn't just about equal opportunity, it isn't just about bringing in the best talent in a broad diverse marketplace, but it's what you do when you get there. Do you get the full benefit of people's diverse life experiences? And do you get the creative tension associated with that?"

What's more, for today's CEOs these challenges come on the heels of a difficult economic period. Metal Management, which survived a bankruptcy reorganization in 1999, is in the early phase of its efforts to promote diversity through internal promotions and external recruitment. "First we had to fix the organization. Now we're focused on the culture," explained Michael Tryon, president and COO of the Chicago company, where a significant African-American and Latin-American presence among the company's labor force is not reflected in upper management. "We need to go out and get more thinking-outside-of-the-box talent within the company. We don't have enough women and minorities at the supervisor, managerial and executive levels. Culturally, we're going to have to turbocharge where we are today."

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Diversity is an even more intense challenge for non-U.S. companies, said Robert Westerhof, CEO of North American operations for Philips Electronics, which began setting standards for the number of women in top jobs a few years ago. "Diversity is one of the things that we're not good at in Europe, because with our history of knowing so many things about other parts of the world, we thought it was not needed," he said. "So American-based companies put more effort into diversity than European-based companies."

Paths to Progress

While the mission is clear--to foster an inclusive culture that strengthens relationships with employees, suppliers, customers and communities--methods of achieving that elusive goal continue to spark debate. For example, although many companies report success with diversity programs within HR that encompass employee affinity networks, mentoring programs and diversity training, several CEOs argued that bringing diversity out of HR as a standalone function is an essential step in building momentum.

Dan Carp, CEO of Eastman Kodak in Rochester, N.Y., credited establishing a separate global diversity function for communicating the company's commitment to diversity and assessing progress. "Putting it in HR doesn't give it enough visibility and importance in the company," he reported. "So we have a diversity office that works closely with, but is not part of, HR. Our chief diversity officer sits down with all of our key operating managers to go through their diversity plans for the year and give them her perspective of how they did during the previous year. This is a face-to-face conversation, and they know that feedback will come to me and bonuses will be based on that. It's not tangled up in HR."

Similarly, Dowling created the position of chief learning officer, charged with overseeing diversity as well as the broader challenge of promoting continuous learning within the company. "HR tends to be a [support function] rather than a strategic partner in the organization," he explained. "The goal here is to make this not a project, but an integral part of the way we operate on a day-to-day basis, part of the ongoing organizational DNA of the place. So you've got to get HR to continually promote not only employee development but diversity. I did that by putting HR under the chief learning officer."

But even as CEOs of large firms establish and widely promote separate and formal diversity programs, some of their peers advocate a more informal approach. "You don't need an official program to create diversity," contended John Shalam, chairman and CEO of Hauppauge, N.Y.-based Audiovox, who said multiculturalism is baked into his company culture due, in part, to its origins. "I immigrated to this country from Egypt and the president of my largest subsidiary was born and raised in Cyprus. We strongly believe in opportunity, and our influence on the company has been pronounced." As a result of extensive dealings in Asia, he added, the company also employs Japanese, Korean and Chinese staff members.

At Audiovox, said Shalam, diversity happens naturally, fostered in part by employee development programs. "We have a lot of production workers who are of Spanish descent and we do things like run classes in English as a second language, print materials bilingually and try to get them more involved in the company," he said. "We promote diversity more on an evolutionary basis than through a formal effort."

Similarly, Sunil Kumar, CEO of International Specialty Products in Wayne, N.J., takes a "live it and do it" approach to gender diversity. "If we were a much larger company, I'm sure we would need a formal program," he noted. "But as a small, private company we just tell all of our managers that one, we expect superior returns, and two, we expect everybody to be truly color blind. And overall, our ethnic and gender representation is very good."

While Danbury, Conn.-based Ethan Allen also lacks a formal diversity effort, gender diversity in upper management has been a natural outcropping of a companywide leadership development effort. "Fifteen years back, we had no women in senior or even middle management. Today, 70 percent of our senior and middle managers are women," said CEO Farooq Kathwari. "If you start with the principle that justice and equality are important, then you treat people fairly and whoever is the right person gets the job. But you also have to create an environment where you help people grow."

But for many companies, formal diversity programs that encompass performance incentives and other goal and measurement mechanisms are key elements of building a culture that embraces diversity. "The No. 1 device is making it a core part of people's performance objectives," asserted Critelli, of Pitney Bowes, which uses a balanced scorecard process to evaluate business units and staff functions on achieving diversity goals. "We have core objectives every single year that our board holds us accountable for; roughly 15 percent of our incentive compensation is based on leadership, talent development and diversity. It all starts with the basic principle that what gets measured, gets done."

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Taking It From the Top

Pitney Bowes extends that diversity protocol to its senior team and managers, where 30 to 35 percent of the top 25 executives are women and 12 to 15 percent are minorities. The company sees diversity among its leadership team and corporate board, which includes women and people of color, presenting a crucial role model for the organization to follow.

At Cushman and Wakefield, diversity efforts languished until the company's CEO got personally involved. In fact, sheer frustration spurred progress, recounted CEO Arthur Mirante, who described adding diversity to the real estate company's value statement only to have nothing happen. "I became really frustrated and launched into action," he said. The effort began with mandates that he personally delivered to his direct reports. "In New York City, for example, our problem was not having African Americans on our management team, so I said, 'Within the next 18 months your No. 2 report will be an African American.'"

HR questioned these directives, but Mirante was unfazed. "I was told it was illegal and other things I couldn't believe, which just resonated to me that I really need to be forceful," he said. "We've made dramatic changes the last three, four years, which feels good--and, frankly, we're also winning more business because of it. But we still have a way to go."

For Deloitte Touche Tohmatsu, the view that multiculturalism offers a strategic advantage also led the way for diversity among the company's executive and management teams and its board of directors, reported William Parrett, global chief executive of the accounting firm. Further evidence of the company's commitment is a decision-making process that gives one vote to each of the company's global operations, regardless of their relative size. "The U.S., for example, represents 35 percent of our revenue, but does not have 35 percent of the vote," he explained. "The purpose of that is to build a multicultural organization over the long term."

Like many large companies, Deloitte also requires minority and gender representation on teams and insists that a diverse slate of candidates be considered for top spots. "Unless you influence the leadership appointment process, we find that white males will, generally speaking, pick a white male, or a U.S. partner looking for an appointment in the U.S. will generally pick another U.S. partner," Parrett says. "Every time we create a team, we step back and evaluate that team based on its diversity. It could be diversity from color, from sex, from background, but it's rare that we form a team that is not diverse."

Harold Yoh, CEO of Day & Zimmermann Group, described a similar recruitment initiative practiced by his global diversified managed services company. "From a hiring perspective, we tell our people you have to interview at least one diverse candidate for every outside job," he said. "We're not saying we want to have quotas, but we do want our people to go out and to find diverse talent. We believe that if we have a more diverse team, we'll have richer solutions for our clients."

That's proved the case for The MONY Group, where recruiting diverse employees led to changes in both the company's marketing efforts and product offerings. "The Hispanic market is the largest-growing market for our products in the United States, yet none of the people we were having distribute our products in those markets were Hispanic," recounts Michael Roth, CEO of the New York insurance firm, who launched a diversity recruiting effort. "Once we started hiring and recruiting people from those ethnic markets, we found that our products did not relate to these people at all. So we had them put together projects to change our products and market efforts so that we can actually access the markets."

While initiatives with respect to recruitment and promotion of minorities are a common element of many formal diversity programs, Cox urged caution in adopting measures that might be perceived as quotas and could spark employee backlash. "I am bothered when someone says we lost a woman, we have to make sure we find another woman to maintain our gender diversity," he said. "When you say diversity to some people that means favoritism; it means everything but what we intend it to mean. So we don't use the word diversity."

Instead, to win employee support across the company, he urges emphasizing the business case for diversity. "We talk about the development of people to try to get them to full capacity, and then we can talk about who some of those people may be," he explained. "This is an issue that we solve by showing people that this will improve all of us, make us a stronger company--not by directing it at any group as if we're trying to push that group up the ladder."

But companies further along the diversity learning curve find that open communication on diversity efforts can foster broad-based employee buy-in. "There's nothing wrong with intervening to create an upward draft for groups that are underrepresented, and we're not embarrassed about doing it," said Eastman Kodak's Carp. "We have no problem standing up in front of the organization and saying, 'Look, we've got overrepresentation of white males in leadership and supervisor roles. If we're going to be a diverse company, we're going to have to intervene and create upward draft because we won't get there without diversity.'"

At Pitney Bowes, senior managers discuss diversity issues and answer employee questions at quarterly Town Hall-style meetings. "One of the things that makes diversity work is to give everyone the opportunity to question and to make suggestions and comments to senior management in an open forum," Critelli noted.

Ultimately, efforts to educate about the benefits can help diversity evolve from programs and initiatives to become an intrinsic part of a company's corporate culture, added Carp. "Diversity is a journey," he pointed out. "If you put in place a process with goals and objectives and then elements to broadly energize people around the diversity issue, you start to change people's minds because they see the business value of it."

RELATED ARTICLE: Who's Who 

* Daniel A. Carp is chairman and CEO of Eastman Kodak, a $13 billion manufacturer of digital and film imaging products, based in Rochester, N.Y.

* Phillip R. Cox is chairman of Cincinnati Bell, a $2 billion telecom services provider.

* Michael J. Critelli is CEO of Pitney Bowes, a $4.5 billion provider of integrated mail and document management services based in Stamford, Conn.

* Michael J. Dowling is president and CEO of North Shore-Long Island Jewish Health System, a $3 billion health care provider in Great Neck, N.Y.

* Katherine Harless is president of Verizon Information Services, a $4 billion publisher of print and electronic delivery information, and a unit of Verizon Communications, in Irving, Tex.

* William J. Holstein is editor-in-chief of Chief Executive.

* Farooq Kathwari is chairman, president and CEO of Ethan Allen Interiors, a $900 million home furnishings company in Danbury, Conn.

* Edward M. Kopko is CEO of Butler International, a $263 million strategic outsourcing firm in Montvale, N.J., and chairman and CEO of Chief Executive Group.

* Sunil Kumar is president and CEO of International Specialty Products, a $750 million manufacturer of specialty chemicals based in Wayne, N.J.

* Arthur J. Mirante is president and CEO of Cushman and Wakefield, a $750 million global real estate services provider in New York.

* Thomas J. O'Neill is president and CEO of Parsons Brinckerhoff, a $1 billion engineering company based in New York.

* William G. Parrett is global chief executive of Deloitte Touche Tohmatsu, a $15 billion accounting firm in New York.

* Daniel Robinson is president and CEO of Placid Refining Co., a $700 million supplier of jet fuel to the U.S. military, in Dallas.

* Michael Roth is chairman and CEO of The MONY Group, a New York City-based financial services holding company with $60 billion in assets under management.

* John J. Shalam is chairman, president and CEO of Audiovox, a $1.3 billion electronic equipment maker in Hauppauge, N.Y.

* William Shaw is chairman and president of Volt Information Sciences, a $1.6 billion personnel and staffing firm in New York.

* Ted Teng is president and COO of Wyndham International, a $1.3 billion hotel company based in Dallas.

* Michael W. Tryon is president and COO of Metal Management, a $770 million metal recycling firm in Chicago.

* Rob Westerhof is CEO of $10 billion Philips Electronics North America, based in New York.

* Harold L. Yoh is CEO of Day & Zimmermann, a $1.3 billion diversified managed services company in Philadelphia.

RELATED ARTICLE: Diversity at Kodak

CEO Dan Carp is "dead serious" about it.

In 2003, Washington, D.C-.based Diversity Best Practices and the Business Women's Network named Daniel Carp one of 10 CEOs who demonstrated outstanding leadership in the area of workplace diversity. In the following excerpt, Carp talks about developing Kodak's diversity program.

How do you move beyond mechanisms to actually creating an inclusive culture?

You use both the carrot and the stick. First, the carrot is to just keep showing how diverse teams do better than nondiverse teams. Our Kodak operating system, which is based on teams coming together to solve complex problems, has demonstrated that diverse teams do a better job than more homogeneous teams. We trumpet that.

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Second, the stick. I am personally dead serious about diversity. I believe it is a key element of the success of our company, and I have managers around me who also carry that commitment. We have a global diversity leadership team of senior executives who meet regularly to talk about where to push the strategy of the company on diversity. We have no-tolerance policies around discrimination and harassment that we follow through on.

How do you measure the return on diversity efforts?

There are concrete examples of benefits. We see much more creative problem solving when we have a diverse team looking at a problem. We've been able to get new ideas from suppliers by broadening our minority supplier base. And this is the U.S., where there is always the risk of litigation. So there is a business piece.

But trying to build a commitment to diversity solely on quantifiable dollars and cents diminishes the importance of the endeavor. We tend to want to quantify the cost savings or [increased revenues], but the higher level piece is a top line benefit. This country was built on diverse groups coming together. We are one of the most diverse populations in the world--and we happen to also be one of the most creative in terms of an economy that keeps reinventing itself. If you step back and say a company's job is to constantly reinvent itself and bring new products and services that add value, you have to reach the conclusion that you can drive a better top line by making sure all people and all ideas are valued.

RELATED ARTICLE: A Different Tack

Cincinnati Bell's Phillip Cox says true diversity is about finding similarities.

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At Cincinnati Bell, "diversity" is a dirty word, says Phillip Cox, chairman of the telecom company, who sees employee programs targeted to minority groups as creating anxiety rather than inclusion. Excerpts of Cox's conversation with CEO follow.

You have said that you took the chairman role due to embarrassment over diversity. What did you mean?

We had a flawed process related to how we selected people at the top. I should have said something about it and I did not, so I took the job to exonerate myself and ensure that didn't happen again. But when I use the word "embarrass," I am embarrassed for Corporate America that we look the way we do and have not done a good job related to presenting opportunities for people. Everybody should be extraordinary to succeed, but nobody should have to be extraordinary to have the opportunity to succeed. We in business have not done a good job there.

What misconceptions do you think exist about handling diversity issues?

Leadership has the misconception that they know how to do it. There are people posing solutions who haven't really defined the problem. People feel uncomfortable around people who are different from them. So the key to success is functioning in the midst of this discomfort. I think we are dictating how we think it ought to be when our perspective is not that of the people we are trying to serve.

At Cincinnati Bell, you avoid using the word "diversity" and initiatives such as employee affinity groups. Why?

These programs spend too much time trying to change hearts and minds of people, which is too difficult to do and which is not the issue. We need to be in the business of creating fairness, a level playing field. Sitting in a room talking about our differences is a waste of time. We need to talk about our similarities, of which there are so many more, and on how we as people can move ahead--with an eye on the fact that because some of us have different backgrounds, the manner in which we move ahead and what must be done for us may need to be more versatile.

What's wrong with talking about differences if it leads to a better understanding of unconscious prejudices?

It isn't a bad thing. But it isn't something people embrace and look forward to. The way to bring people together is by talking about what we have in common, not by looking as though we are favoring one group.

What is the right approach?

My philosophy is to get [diversity] at the top of the organization so that, without saying so in words, the message is clear on what that organization values. Employees see people who look like them who lead, own and are in positions of authority.

Employee development is a good approach. Everybody needs to understand the criteria it takes to get to a certain position and be held accountable for the actions they are willing to take to get there. You have to tell people who have been underrepresented, "Due to history and culture, this may be more difficult for you. Here are the things we would like to do to level that. What are you prepared to do?"

Are diversity efforts a business necessity, the right thing to do, or both?

If it was about doing the right thing, we would have done it long ago. And while the fact that it is a nice thing to do is important, it's inappropriate for that to be your No. 1 reason for doing this. It has to be because with diversity of ideas, thought, backgrounds and opinions we can come up with solutions that others might not have thought of and be able to grow our businesses.

I have learned firsthand that it is not just a matter of how people think of you, but what you start to think about yourself subliminally over a long period in an environment that hamstrings you from thinking you can ascend to a certain position. The job of the CEO is to develop heroes at every level, yet some of the things that have transpired have allowed us to bury potential heroes at every level. We live in a tough global environment where we can no longer afford that kind of waste.

RELATED ARTICLE: Making the Grade

Ted Teng helped Wyndham raise its diversity score.

When the NAACP gave hotel chain Wyndham International a "D-" on its 2000 diversity report card, Ted Teng, the company's president and COO, took its poor showing as a wake-up call. "A lot of companies go into denial, saying, 'That's not us,' and countering with all the good things they are doing," says Teng. "But for us the first step was declaring a breakdown--acknowledging that we might not like it, but it reflected who we were at that point."

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Teng and Wyndham's CEO Fred Kleisner moved quickly to address the diversity issues, appointing a vice president of diversity and creating an external diversity board, a steering committee and a field input group. Taking diversity out of HR and making it a standalone department was an early--and crucial--move. "We realized that we needed to broaden our perspective of what diversity is about," Teng says. "It's about employees, but it's also about customers, vendors, investors and our board of directors. It's a function in all aspects of our business."

Input from the diversity professionals serving on Wyndham's external advisory board enabled the company to move quickly along the diversity learning curve, he adds. "There were lots of things that we didn't know we knew," notes Teng. "Questions from these people who had been working and leading in the area of diversity got us going."

Over the next few years, Wyndham developed an intensive diversity training course designed to help employees recognize and cope with prejudice and launched a diversity recruiting web site and brochure, plus a supplier diversity program. By 2003, a "B-" and a No. 3 ranking in its industry on its NAACP report card reflected the results.

Teng is quick to note that the company continues to struggle to educate employees and incorporate inclusivity. During a recent diversity education session, for example, an employee expressed concern that the company's core customers might be offended by its pursuit of the gay and lesbian market. "It's a question about the business welfare, but it assumes core customers would be offended, which reflects how limited we are to our own perceptions," notes Teng. "My response was that I'm sure in the 1960s anyone who welcomed people of color into their business took that risk.

"But I like to feel that we as a country are much more open and welcoming to other races, religions and sexual orientations than people who are biased and prejudiced would lead the world to believe. And I would rather lose the customers who would be offended than not take a stance for inclusiveness."

RELATED ARTICLE: Verizon's Multicultural Moves

To deliver the right product, you need the right people on the team.

At Verizon, 30 percent of the company's markets are multicultural. Further, two-thirds of the U.S.'s growing Hispanic population is concentrated in four of the company's largest markets--New York, Florida, Texas and California. Recognition of that fact prompted a company-wide multicultural initiative, as Katherine Harless, president of Verizon Information Services (VIS), explains.

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In 2001, Verizon Communications launched a leadership and career advancement program for groups of 100 high-potential people. It began with separate two-and-a-half-day sessions for Hispanic, Asian and African-American employee groups at the corporate level. Next they came to business units like mine and asked us to nominate people to participate. Then each unit started to hold its own sessions.

After our first few sessions, we started getting feedback that these employees didn't want to be separated into groups. They were saying, "If this is about developing leadership skills, why is it only Hispanic?" And we decided they were right. The marketplace and the workplace are multicultural, so we should do multicultural programs as well. These sessions are very open, candid discussions about [subconscious racial] perceptions and cultures that everybody learns from.

It's been a very solid program for us. Since its inception, the percentage of Hispanic employees, who were the first to participate, in top management has increased by 28 percent. We've also seen many business benefits. For example, at VIS we had attempted to do a Hispanic phone book several times and it was never successful--nor were any of our competitors who tried to break into that market. Three years ago, we thought we could just take the English version and translate it into Spanish. But putting together a cross-functional team helped us create a bilingual product in 2000 that truly appealed to the Hispanic market. Published in Del Rio, Tex., it featured a popular Hispanic game called La Loteria. We now have 58 such directories in Arizona, California, Colorado, Texas, Florida, New York, Massachusetts and New Jersey and have captured 30 percent of the Hispanic directory market.

We're very committed to our diversity effort. We battle daily for customers, and we think that the initiatives we do within diversity make us a better company in terms of our ability to meet market needs.