New research shows that companies actively pursuing diversity and inclusion can enjoy significantly higher revenues than those that do not, but first they must understand the distinction between equality and true equity
While most businesses now recognise the correlation between having a diverse workforce and financial performance, finding solid data on the link has been harder to come by.
However, new research by Henley Business School shows exactly that: that businesses which treat their employees equally reap financial benefits. More specifically, it found that organisations which implement practical equity measures, particularly with regards to race, reported up to 58% higher income than organisations which do not.
The report, The Equity Effect, surveyed more than 500 business leaders and 1,000 employees of all ages, genders and ethnicities, across all industries. It also analysed business performance and diversity data from the top 100 companies listed on the FTSE 350.
What it discovered was a British workforce riven with discrepancies between the lived experiences of white employees and those of their minority ethnic counterparts.
Racial inequity still rife in UK workforce
The study found that employees of colour reported higher levels of verbal abuse (33% versus 31%), discrimination in work allocation (41% versus 25%) and sexual harassment (14% versus 11%). When it came to reporting this and accessing support, the fear of being judged held all employees back, but this was considerably higher among ethnic minorities (44% versus 34%). These workers were also far more likely to say that both conscious and unconscious bias were barriers to support.
When asked what was stopping businesses from achieving racial equity, the most common answer among white employees was their fear of unintentionally causing offense or discomfort when attempting to tackle the issue. For ethnic minorities, however, 34% believed it was a lack of understanding of the root causes of racism, be that company policies, practices or culture, that was getting in the way.
Perhaps most significantly, the findings show that a crucial first step - acknowledging that inequity exists in the first place - is still being missed. Although 59% of business leaders reported having a “zero-tolerance” policy towards racism, only 18% of employees claim their leaders have openly acknowledged existing inequities. More importantly, business leaders rated achieving racial equity as the least important challenge to overcome in the next 12 months.
What this research shows, however, is that those businesses that do not make achieving equity a priority may well be missing a trick. From the FTSE 350 data, Henley’s researchers found that organisations which had clear, targeted racial equity measures in place enjoyed average revenues £2.1bn larger than companies without. Their market capitalisation was £4.3bn higher. What’s more, they enjoyed superior levels of creativity, loyalty, and employee engagement.
Equity vs equality: what’s the real difference?
What these successful businesses had in common was an approach to diversity and inclusion (D&I) which embraced equity, not equality. Any business looking to drive D&I forward needs to get to grips with the distinction.
“Equality is about access to opportunity. Making sure people know what is available and giving them access to that” explains Sandra Kerr, race director at Business in the Community. “Equity means recognising that, because of different starting points, some people might need additional support. That might be additional experiences, maybe extra training, so that somebody can come up to that same level and starting point.”
Equity, then, is about levelling the playing field, not merely welcoming everyone onto the pitch. Kerr, who received an OBE for services to Black and minority ethnic people in 2012, points to the example of the privilege walk. This social experiment, designed to give people a clearer understanding of their own privilege, requires a group of people to stand on a starting line. For every advantage - English being your first language, going to university, not coming from a single-parent family - participants take a step forward. It becomes apparent very quickly that merely providing everyone with the same opportunities is not enough.
That being said, businesses need to start somewhere and, as Steve Ingham, CEO of recruitment company PageGroup, puts it: “I don’t think equality is a bad place to start.”
Appointed CEO in 2006, Ingham has made D&I a priority, for example by creating a shadow board to ensure greater diversity at the very top of the organisation. After a skiing accident in 2019 left him permanently in a wheelchair, he has become an advocate for people with disabilities and has led PageGroup to win a number of prestigious awards, including The Times Top 50 Employers for Women 2020 and the World’s Most Socially Engaged Staffing Agency on LinkedIn.
“If the starting point is to say: there are all these different categories of people and we should represent society by having a similar number of each within the business, then that’s fine,” Ingham continues. “The problem is that, if you don’t treat people with equity, unfortunately some are going to feel more motivated, more loyal, more comfortable than others. And that means some are going to feel more uncomfortable.”
The impact on the bottom line
These feelings of discomfort, disengagement and frustration, are one of the core reasons why racial equity measures can make such a difference.“Racism is really tiring” says Dr Naeema Pasha, director of careers and professional development at Henley Business School, and leader of the study. “Any form of discrimination is wearing and you lose productivity.”
“We know when employees feel supported and embraced by equitable and inclusive workplaces, they’re going to feel more able to work to their potential,” Pasha continues. “Working to potential will influence productivity and that productivity, positivity, engagement will lead to better business outcomes.”
By tackling the policies, practices, attitudes and cultural messages that foster racial discrimination, organisations can effectively eliminate an energy drain, freeing up boundless creativity and invention. This is what can really have an impact on the bottom line.
Sat Sanghera, CEO of contact centre specialist IP Integration and participant in the Henley study, agrees. “If you have a diverse workforce in terms of skills and backgrounds, and have a safe culture where people can turn up, be themselves and express themselves, it bodes well for the thing that really pushes businesses forward, and that’s innovation. Different experiences and mindsets are what innovation is built on.”
Creating environments where great ideas can take hold
The understanding that differences in perspective generate better ideas is not new. Kerr points to the oft-quoted McKinsey study from 2018, which linked diversity with revenue, and to research by the Royal Society (whose Diversity Committee she sits on) that demonstrates how diverse groups make better decisions.
“It is about different perspectives and lived experiences,” she says. “It forces individuals to slow down, to be more forensic, to test. And it works if people have a voice and are able to challenge, rather than being dismissed because they seem to be talking in some language that people don’t understand.”
But spaces must be created where raising challenges and objections feel possible, and this requires leaders to personalise how they communicate with employees. “Sometimes, certain groups are more reserved, quieter, and don’t want to speak up,” Ingham notes. “It’s important as a leader to say, ‘what’s your view?’ and actually make sure that everybody’s got the same voice, irrespective of who they are.”
“For me, the litmus test for having created that safe, equitable environment is when you have people who are a bit more passive, more timid and they find the confidence to speak out in meetings,” says Sanghera. “They’ll come up with some of the best ideas because they feel safe to do so, or they put their hands up for an opportunity that they don’t yet have the skills for, because they know that no one is going to laugh or judge.”
Crucially, business leaders must move the conversation away from diversity, equity and inclusion initiatives simply being a ‘good thing to do’. “If businesses want to survive as global organisations, if they want to progress, then this isn’t something that they do because it’s the decent thing,” says Pasha. “We all want to do good things, decent things, but this is really about a 58% increase in revenue that can come by recruiting and nurturing the skills that different people can bring.”
It is no longer enough to have a diverse workforce. It is not even enough to offer additional opportunities and support to that workforce. Companies who want to remain competitive have to start actively breaking down barriers to equity and offering tailored support to those that need it. Those that do not are set to lose out.