The business case for diversity: Financial Executives Research Foundation (FERF) finds a four-pronged approach is driving diversity initiatives across Corporate America.

The business case for diversity in the workplace--of race, gender, age, ethnicity and more--has been examined and debated over the years. Despite its promotion by governments and social engineers, the benefits aren't always readily apparent or directly measurable.

[ILLUSTRATION OMITTED]

Based on interviews with executives at public and private companies and others in the human resources field, Financial Executives Research Foundation (FERF) found the business case for diversity consists of diversity's contribution to one or more of four factors.

The four are: increasing revenue or gross margin; enhancing compliance or reducing litigation risk; enhancing corporate goodwill (to become the "employer of choice);" and as part of tone at the top, when corporate leadership believes diversity is "the right thing to do."

Executives were also found to take a holistic approach to diversity, making it part of their extended role in leading professional and community organizations.

One such executive is Mary Jo Green, senior vice president and treasurer for Sony Corp. of America. When Green began her term as chairman of Financial Executives International (FEI), she identified "enhancing diversity" as one of the organization's priorities for fiscal year 2004-2005. Under her leadership, FEI is working toward this goal on a variety of fronts.

Green explains the rationale behind the diversity initiative, saying that every organization must welcome diversity in order to be successful. "The business world today is made up of a diverse population, and by having a diverse membership, we bring additional viewpoints and talents to the organization, which are more reflective of the world in which we operate," she comments.

As treasurer of a U.S. company--which is a subsidiary of a Japanese company that operates globally and is led by a Welsh-born CEO who maintains U.S. and British citizenship--Green's views about the importance of diversity resonate as being representative of best practices in today's global business environment.

But this concept, better rooted at some companies than others, is still an ongoing process.

"Executives are not always so sure there is a concrete, absolute case for diversity, if they are looking for a quid pro quo from a narrow standpoint," says Johnny Taylor, chairman of the Society for Human Resources Management (SHRM) and president of McGuireWoods HR Strategies LLC, the human resources consulting subsidiary of law firm McGuire Woods LLP.

Taylor says in some cases it is easier than others to see why diversity makes good business sense--to tap into certain markets and generate the broadest range of ideas. However, even in the absence of an obvious case, there are other reasons to launch a diversity program.

[ILLUSTRATION OMITTED]

The four factors highlighted in this article largely reflect Taylor's observations at the helm of SHRM, as well as his experience as an attorney in a variety of corporate settings, including senior legal and HR positions at Blockbuster Entertainment Group/Viacom, Alamo Rent-A-Car Inc. and Paramount Parks Inc. Taylor's firm was recently named by Multicultural Lawyer magazine as one of the Top 100 Law Firms for Diversity, and he notes that the legal profession promotes diversity in part to mirror its clients' initiatives.

Increasing Revenue/Gross Margin

One of the first things a company will try to do in making a business case for any initiative is to assess the impact on the bottom line. A study in 2001 by Roy Adler, Women in the Executive Suite Correlate to High Profits, published by the Glass Ceiling Research Center, found that the 25 Fortune 500 firms with the best record of promoting women to high positions are between 18 and 69 percent more profitable than the median Fortune 500 firms in their industries.

Another 2004 study, published by Catalyst, The Bottom Line: Connecting Corporate Performance and Gender Diversity, found that the group of companies with the highest representation of women on their top management teams experienced better financial performance than the group of companies with the lowest women's representation--including a 35 percent higher return on equity (ROE).

Such statistics will not necessarily convince a company that diversity will boost profits, but there are other compelling reasons to engage in diversity initiatives. SHRM's Taylor notes, "Bottom line, there are times when you design a diversity initiative to implement and supplement your compliance function. It may be purely from an Equal Employment Office (EEO) perspective, such as to reduce the amount of EEO activity in a particular area, or to reduce exposure to the risk of potential litigation." However, he cautions, diversity initiatives must also be thoughtfully planned, so as not to backfire.

Corporate Goodwill: Becoming the Employer of Choice

Lehman Brothers entered into diversity initiatives mainly for talent, says Suzanne Richards, its senior vice president, Diversity. She notes that as a financial services company, Lehman is a firm without a product in terms of the classic consumer definition of the word. "What we have is the quality of our ideas and service, which reflects the quality of our people."

To bring the broadest possible benefit to its clients, Richards says, the firm needs the broadest ideas from a diverse and talented pool. "It's hard to place a price on talent," she adds; but making the workplace more inviting can be one way to help attract and retain talent, to become the "employer of choice." She notes demographics show the world is becoming more diverse, and "we want to make sure we have the best of the best."

Private companies, such as Cargill Inc.--an international provider of food, agricultural and risk management products and services--also see value in diversity initiatives. Cargill's program started "gelling" around 1997 when the leadership team developed a "Statement on Diversity," explains Jody Horner, vice president of Corporate Diversity, and Karen Sachs, a consultant on Cargill's diversity team.

At the time, says Sachs, "we were undergoing organizational changes, and decided diversity would be a key component to fuel growth. The program took on a global nature, setting the stage for how we look at it today: to be very inclusive, and recognize differences exist in people." Cargill's diversity initiatives dovetail with its four key measures for company performance: how engaged its employees are, how satisfied its customers are, how much it has enriched the communities it works in and profitable growth. Horner says, "The link to the business case is the key to ultimate success."

Best Practices

Richards says Lehman conducted a base-case employee satisfaction survey last summer, and has five employee networks in New York--one for women, Hispanics and Asians, as well as employees of African descent and a gay and lesbian network. It also has a women's network in London and three new networks in Tokyo. Each network has a mission statement and subcommittees devoted to employee development (including mentoring), commercialization (reaching out to potential clients) and philanthropy, which is viewed as a way to connect with employees and the community.

Cargill has "employee councils," which Horner describes as being "the eyes and ears at the local level on the ground [since] meaningful actions occur with the input of those closest." For example, its meat-business diversity team has led wide-ranging programs from recruiting to mentoring, offering English as a second language and Spanish for others who work with employees whose first language is Spanish.

[ILLUSTRATION OMITTED]

On the training front, Richards has found great success using an interactive theatre approach, which has trained 5,000 Lehman employees so far in Tokyo, London and New York, and will be rolled out to other locations. She says the two-hour interactive program "sensitizes employees to the need for an inclusive environment to consider all opinions and the broadest possible thoughts and perspectives."

Cargill also extends its "Valuing Differences" programs through its training programs. "We have tried to integrate diversity training into other training programs, so that if you are going to general leadership training, there is a diversity component all the way from first-level supervisors to senior management," says Horner.

Avoiding the Pitfalls

The other side of best practices is avoiding potential pitfalls. SHRM's Taylor cautions that diversity initiatives are not one-year initiatives and that you will not see immediate results. "Companies that expect otherwise are destined to create more dissatisfaction than satisfaction," he warns. The key, however, he says, is to appreciate diversity as a long-term strategic initiative.

Cargill's Horner echoes the sentiment. "Cargill and other companies have learned that diversity is a complex topic, with no easy answers and a variety of expectations."

Taylor emphasizes the importance of planning, with special advice about mentoring programs. "The worst thing to happen is to have a half-hearted, not well-thought-out diversity strategy," he says, adding that it's almost worse to have a poorly conceived and implemented strategy than none at all.

He sounds a particularly cautionary note about mentoring programs, where well-intentioned programs run the risk of becoming disastrous. "It's like assuming that everyone who has a Ph.D in math would be a good college professor."

"Something that is intuitively right to say to a person you are mentoring, could become your first lawsuit," warns Taylor. He cites instances where mentors gave advice on dressing for success, or the impact of having children on one's career; such advice has then been attached as evidence in EEO lawsuits. Thus, he advises: "A successful mentoring program is an essential part of a workplace diversity initiative.

"But diversity initiatives aren't always easy--no more than resolving Y2K issues was easy or inexpensive," says Taylor. "If companies look at this as a business strategy, and give it the right planning and support, they will reap the benefit."

Tone at the Top: 'The Right Thing To Do'

Sometimes, executives support diversity programs if for no other reason than that they believe it is the right thing to do. Leslie Jenness, founder of the Scottsdale National Gender Institute--which provides diversity training and support--notes that in working with companies over the past 10 years, the most successful ones were those in which "management was committed to the initiatives, open to finding out from all employees and managers what the major concerns are, and wanted to make the work environment more conducive to each person being able to do their work well and enjoy being there."

[ILLUSTRATION OMITTED]

Conversely, she adds, "don't say you are going to do something and neglect to follow through, or all you create is distrust."

Lehman's Richards says that support of the diversity initiative is "absolutely unquestioned; it's around us all the time, driven by our president and chief operating officer Joe Gregory." Cargill's Horner notes that CEO Warren Staley actively supports the program, and she reports to both Staley and to Senior Vice President for Human Resources Nancy Siska.

Perhaps James A. Bell, president and CEO and CFO of The Boeing Co., sums it up best: "At Boeing, diversity isn't an afterthought or corollary of our business strategy. Diversity is, in fact, one of our critical business strategies." (See sidebar, "Boeing CEO on Diversity.")

RELATED ARTICLE: Boeing CEO on Diversity

One corporate leader who reinforces diversity in his tone at the top is James A. Bell, president & CEO and CFO of The Boeing Co. In a speech to employees at Boeing's Global Diversity Summit, Bell outlined what diversity means to him and why he is convinced diversity is integral to the company's competitive advantage and critical to its business success.

Hired by Boeing over 30 years ago as a result of Boeing's then-operating affirmative action program, Bell observed, "Clearly, the company's ability to address diversity at some level played a significant role in me standing before you today as the CFO of a Fortune 30 corporation." He added, "Boeing's understanding of diversity is focused on getting the right person in the job based on that person's ability to meet the requirements regardless of ethnic background or gender, as well as increasing diversity on the world headquarters staff and in senior positions."

[ILLUSTRATION OMITTED]

Bell said the first time his finance team was asked to develop a diversity strategy, it was awkward and people seemed uncomfortable talking about it openly. He thought this was because people are generally uncomfortable with change. "People have legitimate questions about how diversity will be implemented and what the impact will be on them," said Bell, adding that people sometimes worried if it was safe to ask pointed questions, have candid dialogue and not be labeled as someone who opposes affirmative action. He contends that the only way to address that is to confront it head-on. "First, you have to acknowledge the reality ... then you can have meaningful dialogue."

Boeing's diversity initiatives go beyond its internal workforce. The Boeing Prime Opportunities Fund, a $1 billion pension investment program, targets emerging pension fund managers and provides minority-, women- and small, independently-owned investment firms greater opportunity to compete for assets in Boeing's pension fund, which, at over $50 billion, is one of the nation's largest.

In support of Boeing's supplier-diversity initiatives, Bell cited statistics that, although minorities represent 28 percent of the U.S. population, only 15 percent of businesses are minority-owned, and only 4 percent of corporate purchases are spent on minority firms. In 2003, he said, Boeing spent about $30 billion with all suppliers; of that amount, $4 billion went to small businesses and $1.4 billion was spent with women- and minority-owned firms.

At the Global Diversity Summit, Bell spoke of Boeing's reputation as being a caring, involved and committed corporate citizen, and commented that to maintain and strengthen it requires everyone's effort. Personally, he leverages his role by serving on boards with diverse reach. These include the Chicago Urban League, the Joffrey Ballet and the New Leaders for New Schools (NLNS) National Board, an organization that develops principals to provide upgraded learning experiences in inner-city schools. He also encourages his direct reports to become actively involved in entities that reflect the diverse heritage of Chicago (where Boeing is headquartered).

Looking forward, Bell cautioned, "When high-potential young people from diverse backgrounds look at Boeing's organization chart--or [those of] any of a thousand large publicly traded companies--more often than not, they're seeing a picture that doesn't appropriately reflect their experience." He argued that that reality simply must change in order for Boeing to maintain its market leadership and continue to drive technology innovation. "Even big institutions are capable of great change when people put their minds to it," said Bell, adding that Boeing's transformation has been as much about diversifying its portfolio as changing its corporate culture.

RELATED ARTICLE: Building the Business Case for Diversity: Four Prongs

1. Increase revenue/gross margin.

Generate more sales with a workforce that mirrors, and is sensitive to, your customer/client base.

Increase access to minority suppliers who provide better cost-benefit equation.

2. Enhance compliance and limit risk exposure.

Comply with Equal Employment Opportunity Commission (EEOC) regulations and prevent/reduce occurrences of EEO lawsuits.

3. Enhance corporate goodwill.

Become the "employer/provider of choice;" increase ability to recruit/retain the best talent; and increase desire of members of the community to buy products from you.

4. Ethics/tone at the top.

Leadership believes "it's the right thing to do."

Edith G. Orenstein is Manager of Research for Financial Executives Research Foundation (FERF) and can be reached at [e-mail]. (Additional information on diversity programs can be found in the Resources column in this issue, page 62).