Diversity's business case doesn't add up

Workforce, April, 2003 by Fay Hansen

Employers spend billions on diversity programs--a new "strategic imperative"--and support an entire industry devoted to diversity management, but there's little evidence of improved business performance, financial results, or accountability.

Step right up, ladies and gentlemen, for the latest in diversity goods. How about a game of Diversity Bingo, or perhaps a camp shirt with a diversity logo? Consider buying a box of diversity lapel pins as a reminder to employees to spend time "honoring differences" or experiencing an "inclusion breakthrough." Be prepared to break out a Diversity Tool Kit--"a complete training-program-in-a-box"--or perhaps a corporate fable such as A Peacock in the Land of Penguins, or a copy of the video From Sex to Religion... and Everything in Between.

The multibillion-dollar diversity industry is thriving in corporate America. But before you spend another dime on your diversity program, carefully consider this conclusion reached by Thomas A. Kochan, one of the most respected human resources management scholars in the country: "The diversity industry is built on sand," he declares. "The business case rhetoric for diversity is simply naive and overdone. There are no strong positive or negative effects of gender or racial diversity on business performance."

Kochan, a professor of management at MIT's Sloan School of Management, bases his conclusions on a recently completed five-year study of the impact of diversity on business results. The investigation involved a detailed examination of large firms with well-deserved reputations for their long-standing commitment to building a diverse workforce and managing diversity effectively. It built on a growing body of research that raises painful questions for companies that pour money into diversity programs, and for the diversity industry that supplies them with a dazzling array of diversity products.

At a time when charges of racial harassment are way up, and racial discrimination class-action lawsuits are enjoying a renaissance, diversity programs are flourishing. Organizations appoint diversity officers. They hire diversity consultants, coaches, and trainers. They adopt diversity scorecards, benchmarks, and best practices, and send executives to diversity conferences and leadership academies. But despite the astonishing number of products and services--ranging from the worthy to the banal--one item is in very short supply: hard metrics for measuring performance results or the return on diversity spending.

For years, the industry has claimed that diversity programs yield higher performance and greater productivity, but the evidence offered is largely anecdotal or based on limited data collected through questionable methods. The link to the bottom line, an entrenched part of diversity rhetoric, remains largely undocumented. Of the 20 large corporations with well-established diversity programs that Kochan initially contacted for his study, none had ever conducted a systematic examination of the effects of their diversity efforts on bottom-line performance measures.

"Some companies have completed limited studies at a divisional level, but there are no formal reports with valid and scientifically determined numbers," says Michael C. Hyter, president and CEO of J. Howard & Associates, a large diversity consultancy in Boston. "Organizations like having the flexibility of not being put in a box about whether this does or doesn't work. Too often, they are given a lot of credit for their efforts anyway."

If there is little evidence on performance results, there's even less indication of effectiveness in the aggregate compliance data. Although most diversity programs trace their roots to compliance efforts and, in some cases, the struggle against racism, the number of job-discrimination charges filed with the Equal Employment Opportunity Commission, including race-based charges, hit a seven-year high in 2002. The recent increase in charges can be linked to the recession--work-related lawsuits typically rise during economic downturns--but there was no evidence of improved compliance before the recession hit. Many companies that are routinely praised for their diversity programs--including Coca-Cola and Ford Motor Company--still find themselves in court fighting epic racial-discrimination lawsuits. WalMart, ranked number one on Fortune's prestigious "America's Most Admired Companies" list for 2003, is facing the largest sex-discrimination lawsuit in U.S. history, with as many as 500,000 plaintiffs. Charges of ra cial harassment filed with the EEOC have increased fivefold in the past decade.

The diversity industry and its corporate clients continue to promote diversity programs as a "strategic imperative" that boosts performance by unleashing the creative power of diverse groups. As Xerox Corporation chairman and CEO Anne M. Mulcahy observes, "Somehow, diversity breeds creativity." Unfortunately, the "creativity" that some Xerox employees demonstrated was clearly not what Mulcahy had intended. They fashioned a workplace display of African-American dolls with nooses around their necks, igniting a lawsuit against the company in 2002. EEOC charges against the company in the same year included racial discrimination in promotions and compensation and systematic retaliation.