Benefits of Diversity

10.2 Benefits of Diversity

What is the business case for diversity? Having and managing a diverse workforce effectively has the potential to bring about several benefits to organizations.

1.Higher Creativity in Decision Making

An important potential benefit of having a diverse workforce is the ability to make higher quality decisions. In a diverse work team, people will have different opinions and perspectives. In these teams, individuals are more likely to consider more alternatives and think outside the box when making decisions. Research also shows that diverse teams tend to make higher quality decisions (McLeod, Lobel, & Cox, 1996).

There’s a fascinating correlation between being exposed to other cultures and creativity. So, what is it about multicultural experiences that enhances creativity?

Forbes reports that diverse teams are more creative because a person’s individual creativity is enhanced by their ability to integrate different points of view—something that many of us learn when interacting with people from different backgrounds. In fact, multicultural experiences have been found to improve awareness of the underlying connections between different ideas, as well as enhance idea flexibility.

Therefore, having a diverse workforce may have a direct impact on a company’s bottom line by increasing creativity and innovation in decision making.

2.Better Understanding and Service of Customers

A company with a diverse workforce may create products or services that appeal to a broader customer base. For example, PepsiCo Inc. planned and executed a successful diversification effort in the recent past. The company was able to increase the percentage of women and ethnic minorities in many levels of the company, including management. The company points out that in 2004, about 1% of the company’s 8% revenue growth came from products that were inspired by the diversity efforts, such as guacamole- flavored Doritos chips and wasabi-flavored snacks. Similarly, through Jazz Aviation’s formal “Jazz Lends a Hand” community program, employees can apply for a paid day off to volunteer with a charity of their choosing. Jazz Aviation offers scholarships to students enrolled in Aircraft Maintenance Engineer (AME) programs at local community colleges and provides mentoring to apprentice AMEs. In addition, the company maintains a tool purchase program, an interest-free payment program to help AMEs spread the cost of tools over an extended period. “For Jazz, diversity is not a program, it is core to the makeup of our people and business. To be a leader in our industry and to have a competitive advantage, Jazz celebrates differences and values the uniqueness that everyone has to offer” (Chorus Aviation Inc., 2019).

A company with a diverse workforce may understand the needs of groups of customers better, and customers may feel more at ease when they are dealing with a company that understands their needs.

3.More Satisfied Workforce

When employees feel that they are fairly treated, they tend to be more satisfied. On the other hand, when employees perceive that they are being discriminated against, they tend to be less attached to the company, less satisfied with their jobs, and experience more stress at work (Sanchez & Brock, 1996). Organizations where employees are satisfied often have lower turnover. Organisational diversity initiatives must fit in with company culture.

Mastercard consistently makes it into the Top 10 of DiversityInc’s 50 Best Companies for Diversity list. They believe that “diversity is what drives better insights, better decisions, and better products. It is the backbone of innovation”. A particularly unique project that Mastercard has executed over the past few years involves getting older employees in the company more active when it comes to social media. To address generational barriers, “YoPros” BRG (the Young Professionals Business Resource Group) offers a one-on-one ‘Social Media Reverse Mentoring’ program to older employees who want to become familiarised with the platforms.

At Coca-Cola, diversity is seen “as more than just policies and practices. It is an integral part of who we are as a company, how we operate and how we see our future.” With its new paid family leave policy for all parents and caregivers, Coca-Cola is committing to the health and well-being of all employees and their families. Many LGBT people build their families through adoption, and additional time at home helping a baby or child transition into a new family environment is important. Likewise, for single parents who are LGBT, this extended paid leave allows more time to secure their child’s well-being, including finding reliable childcare.

4.Market Reputation

Companies that do a better job of managing a diverse workforce are often rewarded in the stock market, indicating that investors use this information to judge how well a company is being managed.

Although gender, generations and sexual orientation are all part of the diversity hiring strategy at Sodexo, (a French food services and facilities management company that operates in 55 countries) they state that “gender balance is our business”, and their mission is to make it everyone else’s business too. 55% of all staff members in Sodexo are women – that’s up from just 17% in 2009. 58% of the members on the board of directors are female and the company runs 14 Gender Balance Networks worldwide. What they have found is that when there is an optimal gender balance within an organisation, employee engagement increases by 4 percentage points, gross profit increases by 23% and brand image strengthens by 5 percentage points.

The Candian Women’s Foundation states that women make up just over half of the Canadian population, yet continue to be underrepresented in political and professional leadership positions. Barriers to leadership multiply for women who face intersecting forms of discrimination, such as racism, colonialism, ableism, (discrimination in favor of able-bodied people) and homophobia (the fear, hatred, discomfort with, or mistrust of people who are lesbian, gay, or bisexual). This has a significant impact on organisations that have biased preferences and could lead to poor reputation and business results.

Ekta Mendhi is Vice President- Technology, Infrastructure and Innovation at CIBC in Canada. She had served as the co-chair of Women in Capital Markets’, Women in Leadership Network, and co-founded the Canadian Gender and Good Governance Alliance. They found through their research that creating a more diverse board of directors can enhance decision-making process and augment an organization’s performance and market reputation (Mendhi & Dart, 2018).

New industries such as the Canadian Cannabis industry is not exempt from these diversity considerations. A report by Marijuana Business Daily reports that “Cannabis companies in Canada with “monoculture and mono-gender” boardroom compositions could face a competitive disadvantage and will ultimately take a hit to their bottom lines” (Lamers, 2019).

5.Lower Litigation Expenses

Companies doing a particularly bad job in diversity management face costly litigations. When an employee or a group of employees feel that the company is violating equity laws, they may file a complaint.

Shareholders interested in corporate diversity and inclusion practices and workplace culture are turning more toward litigation as a tool to hold companies accountable.

A shareholder suit against Tesla Inc. in June 2022 is an example of this emerging tactic. The suit accuses the electric-vehicle maker’s officers and directors of allowing a “toxic workplace culture” to fester at the company, exposing Tesla to potential liability.

The case stems from allegations of racial discrimination and harassment at Tesla’s factory near San Francisco.

Both executives and investors watch these cases closely and do what they can to avoid being next, said John Streur, chief executive officer of Calvert Research and Management.

“So, when you see media attention, when you see inquiries, when you see reports, and when you see all this happening—it does stimulate change,” Streur said. “And no executive wants to be in that position.”

Google Inc. parent company Alphabet Inc. settled a similar suit related to sexual misconduct in 2020 for a $310 million commitment to diversity and equity initiatives.

L Brands Inc., which once owned Victoria’s Secret, last year agreed to spend $90 million to change its corporate practices as part of a settlement of shareholder lawsuits alleging a toxic culture of sexual harassment and misogyny.

Microsoft Corp. told its shareholders in April 2016 that it would work on closing its gender pay gap, which was $0.02 on the dollar at the time. (This means if the male employee earned $100,00 in salary , the woman earned $2000 less , only $98,000) .By 2017, the company reported achieving equal pay for men and women.

The Ministry of Labour (MOL) in Canada acts as a mediator between the company and the person in cases where litigation is claimed due to unfair or unequal hiring practices, and the company may choose to settle the case outside the court. If no settlement is reached, the MOL may sue the company on behalf of the complainant or may provide the injured party with a right-to-sue letter. Regardless of the outcome, these lawsuits are expensive and include attorney fees as well as the cost of the settlement or judgment, which may reach millions of dollars. The resulting poor publicity also has a cost to the company. The Canadian Employment Equity Act has a mandate to “encourage the establishment of working conditions that are free of barriers, corrects the conditions of disadvantages in employment and promotes the principle that employment equity requires special measures and the accommodation of differences for the four designated groups in Canada” (Employment and Social Development Canada, 2018).

The Employment Equity Act identifies and defines the designated groups as:

• Women
• Aboriginal peoples – Indian, Inuit or Métis;
• Persons with disabilities; and
• Members of visible minorities

If you’re interested in reading about more legal cases related to diversity and discrimination, The Ontario Human Rights Legal Support Centre has a description of recent cases related to diversity and discrimination where you can see the latest outcomes of those cases: http://www.hrlsc.on.ca/en/human-rights-stories/winning-human-rights-hearing/more-cases. In summary, effective management of diversity can lead to big cost savings by decreasing the probability of facing costly and embarrassing lawsuits.

6.Higher Company Performance

If a company isn’t viewed as being inclusive, some customers (including both in the B2B and B2C marketplaces) may shy away from giving you their business.

This is especially true with Millennial (anyone born from 1981 to 1996) and Gen Z (anyone born from 1997 to 2012) customers. These two generations are incredibly socially conscious. As a result, they may prefer inclusive companies when considering purchases in both their personal and professional lives. If you aren’t seen as supporting diversity, you may miss out on opportunities to increase sales, foster strong customer relationships, and ultimately enhance your profitability.

As a result of all these potential benefits, companies that manage diversity more effectively tend to outperform others. Research shows that there is a positive relationship between racial diversity of the company and company performance (Richard, 2000). Companies ranked in the Diversity 50 list created by DiversityInc magazine performed better than their counterparts (Slater, Weigand, & Zwirlein, 2008).