Why DEI is Only Part of the Pie
With some companies and firms announcing their commitment to diversity, equity, and inclusion (DEI), regulatory organizations are now mandating DEI obligations and requiring proof the companies they oversee are following through. That’s a good start, but it isn’t the whole solution.
After all, companies can hire based on DEI, but if the company’s culture isn’t inclusive, diverse employees might not be considered for promotions or raises. They won’t be engaged in meaningful projects or given responsibilities. Their contributions will be devalued, and they won’t feel as though they belong. Their hiring becomes performative, not meaningful.
Having diverse employees is a start, but there are other necessary measures that must be considered when examining a company’s overall commitment to DEI. These include the company culture, employee collaboration, engagement, retention, experience, and well-being. Failure to analyze these critical variables leaves DEI as nothing more than a check-the-box issue for many organizations.
Until DEI is taken more seriously through data-driven analysis of all employee engagement, interaction, and inclusion, meaningful change cannot occur. Diverse employees will be hired but will still face challenges, feeling left out and undervalued as nothing more than a parameter that must be met, a box that must be checked. Moreover, these organizations fail to capitalize on the full potential employees have to offer when their creativity and intellect are hindered.
Regulatory Agencies and Companies: Steps Taken
In December 2020, Nasdaq filed a proposal with the US Securities and Exchange Commission (SEC) to adopt new rules that would require companies listed on Nasdaq’s US exchange to disclose diversity statistics regarding their board of directors. Most companies listed on Nasdaq would have to either have at least two diverse directors—one who self-identifies as female and one who self-identifies as an underrepresented minority or LGBTQIA+–or explain why they don’t have two such board members.
There is flexibility for foreign companies and smaller companies. Additionally, although reporting is due within one year of the SEC’s approval of the proposal, companies have varied timelines to fill the diverse directors’ role (Source: https://www.nasdaq.com/press-release/nasdaq-to-advance-diversity-through-new-proposed-listing-requirements-2020-12-01)
Meanwhile, the SEC announced new requirements for public companies to disclose the number of employees and a description of human capital resources, if material to the business or a segment of the business, and any human capital measures or objectives, if material.
In a report on early filers, PWC noted that 46% disclosed DEI information (including gender, sexual orientation, ethnicity, veteran status, culture, strategy, age, and religion), though many did not include any measures or objectives related to the management level. (Source: https://www.pwc.com/us/en/cfodirect/publications/in-the-loop/sec-new-human-capital-disclosure-rules.html?ts=1614364869452)
The SEC did not include a definition of “human capital” in its rules, nor did it include a list of required measures to disclose, reasoning that the disclosures would be specific to each company’s business or industry and that the disclosures would evolve based on changes to the company.
The steps taken by NASDAQ and the SEC are important, says Dan Udoutch, CEO, President, and co-founder of Rsquared.ai, and could lead to bigger changes.
“The SEC and NASDAQ should be applauded for these steps,” Udoutch says. “I’m hopeful for continuing to require deeper and more meaningful metrics and standards.”
Companies also issuing DEI rules
It’s not just Nasdaq and the SEC that are issuing guidelines for DEI. In January 2021, the Coca-Cola Company announced its diversity standards. Under those standards, at least 30% of the lawyers working on its cases must be diverse, and, of those, at least half must be Black. Additionally, any law firm working with the company must provide quarterly reports regarding the diversity of teams working on Coca-Cola matters and explain how those lawyers receive origination credit. (Source: https://www.law.com/corpcounsel/2021/02/09/the-coca-cola-effect-new-diversity-guidelines-intrigue-in-house-leaders/?slreturn=20210216192827)
Likewise, Goldman Sachs announced in 2019 that it was advancing diversity and inclusion, working toward increased representation of diverse employees. It has since announced that it aims to achieve greater representation in its vice president population by 2025. (Source: https://www.goldmansachs.com/media-relations/press-releases/archived/2019/announcement-18-march-2019.html and https://www.goldmansachs.com/media-relations/press-releases/current/update-on-inclusion-and-diversity.html)
At least some law firms are also taking a look at their diversity, equity, and inclusivity. More than 100 major law firms have signed on to participate in the Mansfield Rule, a way of grounding law firm leadership diversity in behavioral science research. The Mansfield Rule measures whether law firms have considered at least 30 percent of women, lawyers of color, LGBTQ+, and people with disabilities for leadership roles, promotions, pitch opportunities, and senior lateral positions. (Source: https://www.diversitylab.com/mansfield-rule-4-0/)
In other words, the Mansfield Rule is concerned with broadening the candidate pool for leadership positions in law firms.
Law firms that signed onto the Mansfield Rule reported a wide variety of outcomes:
Role of human capital
Although it would be ideal if companies hired diverse employees because it’s the right thing to do, many companies still won’t make a change unless there’s a financial reason to do so.
McKinsey’s 2020 report, “Diversity Wins: How Inclusion Matters,” found that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the fourth quartile. The percentage of outperforming companies grew with more than 30 women executives.
Meanwhile, companies in the top quartile for ethnic and cultural diversity outperformed those in the fourth quartile in profitability by 36%. (Source: https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters)
“We know DEI matters from a moral and ethical standpoint,” Susan Freeman, Chief Executive Officer for Conscious Inclusion Company, says. “It’s become increasingly clear that DEI makes sense from a business standpoint as well. Research shows that companies that embrace diversity are more likely to have financial returns above their national industry medians. Companies that don’t are statistically less likely to achieve above-average returns. Diversity, Equity, and Inclusion serve as a competitive differentiator that shifts market share toward more diverse companies. In turn, these companies bring a competitive advantage, attracting and retaining such diverse talent and allowing them to thrive.”
While hiring based on diversity is a first step and a way to ensure diverse employees have access to jobs, it isn’t the end of the story. It’s vital that companies measure how employees are treated once they’re hired. Are they given opportunities to work on highly valued projects? Are they given a chance to share their ideas or opinions in the same way as other employees? Do they have the same opportunities for mentorship and growth?
Likewise, investors should have insight and transparency into an organization’s “people health” when they make investing decisions. When DEI is simply a compliance issue—where employees are hired so companies can say they have met regulatory requirements—it can easily lead to disengaged employees and a toxic work environment, both of which put a business at risk of poor outcomes.
As McKinsey notes, “Hiring diverse talent isn’t enough—it’s the workplace experience that shapes whether people remain and thrive.” (Source: https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters)
How can we measure engagement?
Too often, measurements of diversity and inclusivity in the workplace are superficial. For example, a company can simply state that 30% of its workforce is diverse based on people self-identifying in certain marginalized groups. But that doesn’t give a complete picture.
It doesn’t tell what positions these employees have—are they mainly entry-level, for example. It doesn’t show how engaged people are in their role or how colleagues treat them. It doesn’t show how inclusive a company is—only that it’s willing to hire diverse workers. Diverse and inclusive are not the same things.
To measure inclusivity, in-depth data must be collected and analyzed. Not just self-reported information as is often found in employee surveys or workshops, but hard data collected from company reports, interactions, messages, and emails.
By examining interactions, analysts can explore sentiment, responsiveness, and collaboration to get a complete picture of a company’s culture and its true perspective on diversity. From there, the company can make data-informed decisions about its workforce and its culture.
Among the questions that can be asked about individuals:
Additionally, analysts can find hidden high performers—those workers who contribute at a high level but whose efforts often go unnoticed by management.
Data analytics make the process more transparent, which increases the likelihood of equity and fairness—whether a company’s promotions, pay, or hiring criteria are being evaluated. Companies can work towards taking bias out of those processes when they have hard data that shows bias is occurring and how it occurs, even when it is unconscious.
Compare measures over time
Simply taking a measurement once gives you information about your organization’s situation at that specific time. Setting goals, collecting data consistently, and examining the change over time tells you what direction your company is moving, whether your initiatives are working, and offers information to revise your strategies.
“Many organizations have good intentions regarding DEI programs,” Freeman says. “However, the extremely difficult task of measuring and addressing inclusive behaviors has been a significant barrier. Only by applying AI/NLP can the qualitative content of communications be truly understood. Diving more deeply can answer such questions as, ‘Which managers are the most inclusive?’ or ‘Where are toxic communications impacting productivity and driving away disillusioned employees?’ Measuring these elements provides unbiased data insights to drive DEI initiatives. With proper analysis and comparison with demographics, the data collected through AI/NLP can be used to measure inclusivity and document incremental progress in achieving behavioral change. This has never before been done.”
The bottom line is that all employees need to be engaged and collaborated with and need to feel they belong. Although it would be great if companies engaged in meaningful DEI because it’s the right thing to do, the truth is that doing so also often leads to better business results.
If your organization seeks evidence-based initiatives that increase Diversity, Equity & Inclusion in the workplace, contact Susan Freeman, CEO & Founder of Conscious Inclusion Company at susan@ConsciousInclusionCompany.com.
About the author
Susan Freeman, B.A., M.A., Ph.D. Scholar, Chief Executive Officer & Founder. Susan is a leader in the fight for equity in the workplace. She draws on her experiences as a CEO, academic, trainer, author, sales executive, and business owner. Susan’s passion for equity in business drives her fight for the underrepresented to get a seat at the table, and once there, to be heard and respected.
Susan oversees all J.E.D.I. (justice, equity, diversity, and inclusion) partnerships and governance and creates, leads, manages, and implements J.E.D.I. strategies for clients. She works with clients on systemic changes at the 4P-level (policies, practices, pay, and pipeline), creating a roadmap for change. Everything she does starts with metrics of where the client is and then benchmarking progress.
Susan is a Ph.D. scholar in the University of California, Merced School of Engineering in Management of Complex Systems. She graduated with honors with a Master of Arts degree in Communication with a focus on Communication Theory. She wrote her still-relevant thesis: “A Study of The Importance of Client-Centric Communication in Business Development Within a Law Firm Setting: Transitioning from a Practice of Law to a Business of Law.” Susan also graduated with a Bachelor of Arts degree in Political Science and another in Journalism with a minor in Marketing. In addition, Susan studied negotiations with G. Richard Shell, Chair of the Wharton School’s Legal Studies and Business Ethics Department. She also completed Cornell University’s certificate program, Institute for Women’s Entrepreneurship program and Stanford University’s Executive certificate program, Leverage Diversity, and Inclusion for Organizational Excellence.
Susan is currently studying how arrangements of people, organizations, information, technology, and the natural world give rise to complex adaptive phenomena that pose difficult challenges to society, identifying and executing management strategies that seek balance and alignment among social justice, environmental resources, and economic welfare — i.e., toward the long-term sustainability of people, planet, and profit (PPP). Her focus is studying evidence-based strategies for recruiting and retaining demographically diverse talent in organizations. Susan is certified in inclusive teaching practices in STEM and certified in the social and behavioral responsible conduct of research.
Susan often Publishes at Legal Business World and American Lawyer Media. Susan is based in Southern California with offices in Riverside, California, the Central Valley, California, and Honolulu, Hawaii.