Updated: Aug 16, 2020
True or false? Diversity, equity and inclusion (DEI) negatively impact corporate profits.
According to this Forbes article, Wall Street investors think that companies that focus on DEI do it at the expense of revenue. That's false.
DEI efforts and corporate profits are NOT mutually exclusive. DEI comprises gender, race, sexual orientation and people with disabilities, among other things. Let's take a look at a couple of examples of how diversity, equity and inclusion impact the bottom line.
A Public Company that Needs More People with Disabilities in Senior Roles:
In 2018, Starbucks announced that it would discontinue using plastic straws. This announcement kicked off a protest from disability groups, because straws made from metal or compostable materials are not safe for people with certain disabilities. Starbucks compromised by providing plastic straws for anyone who asks for them.
As any PR person can tell you, bad publicity costs you customers in the impacted population (in this case, people with disabilities), as well as customers who empathize with the disenfranchised population. Similarly, procurement executives know that economies of scale can't happen when you buy in smaller quantities. So, the bad publicity plus the need to continue to purchase plastic straws in smaller quantities negatively impacted revenues. With a company the size of Starbucks, it was not reflected in the stock price, but it still makes an impact. If Starbucks had more people with disabilities in senior roles, the company would have known that plastic straws are necessary and could have avoided the problem by using a more informed strategy.
A Private Business that Needs More People of Color in Senior Roles:
My sorority put out a strong statement in support of the Black Lives Matter movement in May 2020. However, the sorority apparently does not have a track record for punishing members who say and do racist things. Because the statement was antithetical to the way the organization handles racist incidents, it received harsh criticism from members of color, who went public with their experiences on Instagram.
There are seven women who serve as the officers of the international sorority. All seven are white and all were members of the sorority at schools located in the southern and midwestern regions of the United States. So, the international council is not racially or geographically diverse. It was an embarrassing misstep that cost the sorority alumnae donations and has the potential to hurt new member recruitment.
A Planet that Needs More Women and People of Color in Positions of Power:
In July 2020, I posted a meme on LinkedIn that showed the leaders of countries most negatively impacted by COVID-19 alongside the leaders of countries recognized for having managed the pandemic well. The countries whose economies are suffering most are all run by white men. The countries cited for managing the crisis well, flattening the curve and restarting their economies are run by women, which includes a woman of color. The picture below is worth 1,000 words.
There are so many examples of how diversity, equity and inclusion improve the bottom line, but for market watchers and soothsayers, let me provide you with an eye-opening stat. Millennials are 56% white and 44% other ethnicities, while Gen Z is 50% white and 50% other ethnicities. Moreover, Millennials are the largest generation in the workforce today and Gen Z is the largest generation in the U.S.
Investors who do not recognize the importance of DEI, and who do not invest in companies that are focused on it today, will lose a lot of money in the not-to-distant future.
(For more about these two generations, read my book, "Culture Shock.")