Unlocking the power of diversity in business

Our recent report from the Good Jobs Project identified investors as an important external influence on business behaviour. However, translating this insight into actionable recommendations for investors proved challenging.

Too many people that we engaged with voiced scepticism about the empirical evidence supporting the causation between diversity and enhanced business performance. Critiques centred on the perceived lack of robustness and reproducibility of the studies, which often narrowly focused on gender and race.

In light of this, instead of making recommendations to investors, we redirected our efforts towards those capable of influencing the investment community. Encouraging them to double-down on their efforts to research and present more robust evidence that hopefully shows that all kinds of diversity, not just gender and race, is good for business. 

But what if we were wrong.

Perhaps there are other ways to begin to leverage the influence of capital. Let’s explore.

The problem with studies

If you just read the headlines, you would think that there are many studies that prove the benefits of more diversity within business. A closer look reveals the lack of consensus mentioned above. The majority of investors remain unconvinced about the value of increased diversity, despite its importance in ESG ratings.

A recent report by the world’s largest asset manager, BlackRock, titled “Lifting financial performance by investing in women” (BlackRock, 2023), is the latest mainstream report that shows that more gender diversity is a good thing. However, it, along with many others before, reports falter under scrutiny. For example, academic and economist Alex Edmans questions the choice of financial performance measure, omitting controls and seemingly being selective of the variable that best illustrates the point (Edmans, 2023). Edmans is waving a flag, cautioning us about confirmation bias because the findings appeal to us. He is not saying that we shouldn’t focus on diversity just because peer reviewed academic studies are lacking, but rather we should absolutely focus on diversity, but not based solely on evidence that appeals to the narrative we want to hear.

So where does that leave us? We need to keep striving for a stronger, more robust evidence base - and, crucially, while that evidence base is still emerging and solidifying itself, businesses should recognise there are a swarm of other reasons why the time to act is now. 

But what about the business case?

The absence of irrefutable evidence should not dissuade the pursuit of diversity and inclusion. Beyond financial gain, myriad reasons advocate for diversity as an agenda worth influencing.

The term “business case” does not have to be about making more money. A business case is merely the reasoning for initiating a project or task and providing a value proposition to persuade decision-makers. 

While doing “what's right” is a valid motive, we think there are other, more persuasive justifications that support the case for diversity beyond profit. The insights below are drawn from our own research and conversations with employers such as Greggs, Cook and Timpson, whose efforts on diverse recruitment have proved highly successful - and started with a purpose beyond profit.

7 Reasons why pursuing diversity can be good for business:

1. Lack of evidence that it is bad for business: Just as there is a lack of evidence of better financial performance, there is equally a lack of evidence of poorer financial performance. So, if all else is equal with regards to financial performance, then why not aim for more diversity!

2. Social benefits: Diversifying the workforce means recruiting beyond the normal profile, and under the lens of the Good Jobs Project, this specifically includes people that are commonly held back from accessing jobs. This can contribute to societal well-being and reduce taxpayer burdens.

3. Benefits to other KPIs: Embracing diversity and inclusion can have positive impacts on staff turnover, increase loyalty and can open up new market opportunities.

4. More attractive employer: Visible diversity within can create a virtuous spiral. Where a previously unattractive workplace is transformed into a place where people from different backgrounds feel comfortable and want to work.

5. Preventing loss of earnings: Let’s not forget that leaving open roles unfilled will continue to cost the business in terms of not being able to operate at its maximum capacity. This emphasises the imperative to fill roles regardless of individual characteristics.

6. Moral and ethical considerations: Addressing historical barriers to job access for under-represented groups is seen by some as a business imperative. This is a chronic issue that creates inequality and disadvantage. Some employers make it their mission to help level the playing field by actively recruiting under-represented groups.

7. Inequality as a systemic risk: Social and inequality-related risks can pose a material risk to enterprises and a systemic risk to the entire financial system (UNDP et al, 2023). If profit is not a reason to diversify, then risk management could be.

In conclusion

There are a few key takeaways.

1. We should focus on equality of opportunity: Creating a level playing field for people to access roles is essential. If more long term unemployed are being encouraged to re-enter the workforce we need to make our jobs attractive to all people. This can take hard work and focus and should be undertaken without “othering” people. It's important that people are recruited in spite of their diversity, not because of it. As the saying goes "talent is equally distributed; opportunity is not".

2. Diversity is a proxy for diversity of thought: What is the point of diversity anyway? Many of the arguments for why diversity is a good thing is that it is diversity thought that can bring resilience, creativity and other positive aspects. There has been more focus on gender and race diversity than other forms, so we argue for a broader definition of diversity and consider social mobility too.

   “I do not think a business can say it is a diverse employer if it is not recruiting people from disadvantaged backgrounds” - James Timpson

3. We should go beyond diversity and dig into inclusion too: It isn’t the act of recruitment that creates diversity of thought, it is being able to foster an environment where people feel valued and encouraged to bring their perspectives to the fore.

We invite your thoughts on our journey toward a more inclusive and diverse business landscape.