Policies promoting a diverse, equitable and inclusive (DEI) workplace have been far from the silver bullet hoped for by their most enthusiastic supporters, as systemic inequalities still hinder growth and development across the United States. Despite their shortcomings and less than ideal pace, however, DEI policies warrant a closer look from executives still weighing their options, especially as measures like these become more popular among younger and more progressive business owners and investors.
In addition to the obvious moral and social benefits of implementing and genuinely transforming company culture through thoughtful DEI blueprints, there’s a growing body of evidence that points to commercial advantages—particularly among small and medium businesses.
While managers and leaders are familiar with the value of upgrading their technology or evaluating and revamping their workflows, they’re unfortunately reluctant to introduce bold improvements to their company culture. But inaction has a cost. Executives considering or planning an exit in the next five to ten years are finding that their business becomes more attractive to new talent—and more valuable to potential buyers—after bettering their workplace culture. Implementing a DEI policy is the perfect place to start.
Attract Long-Lived, Growth-Friendly Talent
The best employees want to work with colleagues who are growth-minded and innovative. They want to hatch their best ideas for a company that values diversity, creates an inclusive work environment and promotes transparency and equity when hiring, offering promotions or putting forth rewards for a job well done.
A 2021 survey from job review website Glassdoor showed that 76% of employees and job seekers pointed to a diverse workforce, when asked to evaluate companies and job offers. Companies that reported above-average diversity on their management teams also reported innovation revenue at 45% of revenue—19 percentage points higher than that of companies with below-average leadership diversity, according to a BCG survey on diversity and leadership.
To successfully build a multifaceted, multi-talented roster of employees, hiring managers can start small and lean into their successes. Breaking down the idea of DEI into smaller pieces, including re-evaluating the biases that exist in typical hiring or job review questionnaires, can be a simple place to start. Sprinkling new thinking into common practices is the mental and cultural emollient needed to update and relieve yesterday’s business customs.
Homogeneity is Risky
If diverse leaders support diverse ideas that outperform the competition when enacted by a diverse workforce, sticking with homogeneous practices, colleagues and leadership can be incredibly risky and expensive.
While few employers operate on the scale of the U.S. military, six years of its “Don’t ask, don’t tell” anti-LGBTQ policy at the Department of Defense reportedly ended up costing taxpayers $193 million in lower productivity, additional recruiting expenses and loss of talent. For employers in the private sector, a 2020 McKinsey study found that the most diverse companies are more likely than ever to outperform less diverse peers on the bottom line.
Moreover, diverse teams can mitigate and counteract instances of “groupthink,” where risks or business threats are overlooked due to a homogenous approach to problem solving.
Hiring employees with diverse backgrounds and perspectives reduces company-wide mistakes and costly oversights by up to 30%, according to one study. Workplaces with strong DEI policies succeed, because they have a more robust collective intelligence and a variety of skill sets and social connections.
Change is Valuable
Small- and medium-sized enterprises account for around 90% of global businesses, and more than 50% of global employment. Introducing and encouraging DEI policies within this business segment will continue to play an important role for owners and help them position their firms for successful and rewarding exits and investments.
“Organizations that are most successful at fostering DEI focus on making systemic changes,” notes a report from the Society for Human Resource Management “That includes…operating DEI ‘as a business function, not a set of HR initiatives, with a well-defined strategy that is owned by everybody in the organization and supported by capable experts.’”
With investor interest in small- and medium-sized businesses at all time highs, prioritizing DEI initiatives can be the push that turns a proposal into a deal, according to a report from Middle Market Growth. Strategic investors want to see workplaces that reflect the society in which they operate and conduct business.
In order to make their companies attractive to the most well-positioned buyers and investors, business leaders would be well-advised to create a workplace that fosters diversity, equity and inclusion from top to bottom.
Lulu Xu Zappy is the Vice President and Financial Advisor at UBS Financial Services Inc.
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