Businesses are starting to value ROI over DEI

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A few days ago, over the Martin Luther King Jr. holiday weekend in the US, Big Four accounting firm PwC announced that it would be rescinding some of its diversity goals in the US. Race-based criteria will no longer be used to award spots in scholarships and internship programs.

Perhaps the announcement was oddly timed, but it reflected a broader U.S. trend. Since the Supreme Court ruled against affirmative action last June, many companies have reconsidered their DEI (diversity, equity, and inclusion) strategies.

Let’s be clear: no one doubts the fundamental benefits of a diverse workforce. There is a large amount of long-term research that shows that the higher this is, the more profitable the company is, especially in management. That’s natural. Organizations perform better in the marketplace when their staff reflects an increasingly diverse customer and supplier base. The problem is that DEI has often become too politicized and performative in recent years, especially in the United States.

Over the past decade, fueled by the rise of the Black Lives Matter movement and the 2020 killing of George Floyd by a Minneapolis police officer, companies have “jumped on the DEI bandwagon,” said Conference Board Commissioner Diana Scott. The Human Capital Center says:

Companies have spent hundreds of millions of dollars on extensive diversity initiatives, unconscious bias training, and PR campaigns related to identity politics. “But they didn’t think things through,” Scott says. “What does this really mean? What is the business case? Can it be quantified?”

Scott and other DEI experts say that not only are the same conservative activists who pushed for the so-called campus “woke” now filing lawsuits against corporate DEI programs, but also that “boards are “We want results from the program.” And in many cases, companies cannot quantify them. ”

This reflects what has become prevalent in many workplaces in recent years. That is, engagement, retention, promotional strategies, leadership pipeline, and importantly, how all of this relates to the company’s core business objectives. An email from HR about a happy hour celebrating a specific identity day isn’t enough.

Things are about to change. Not only has the legal landscape in the United States changed, but the direction of the cultural winds is also shifting. The firing of Claudine Gay, Harvard’s first black president, in early January was a significant moment amid concerns about anti-Semitism and plagiarism allegations on campus. Her support for DEI policies also fueled much of the criticism from the right.

Additionally, the volatility and uncertainty of the current economy has led business leaders to prioritize ROI (return on investment) over DEI. It’s predictable, and CEOs tend to focus on their core business plans when they sense a potential economic slowdown.

While this doesn’t mean companies are completely abandoning their diversity programs (a recent Conference Board survey found no respondents said they would scale back on DEI in 2024), it does mean companies are changing their approach. It’s obvious. Quotas, which have always been controversial and are now legally questionable, have been abolished. The board includes clear, ready-to-use metrics.

This may actually be good for adoption in the long run. As companies continue to fight inflation, one of their most important challenges is how to attract and retain top talent in an extremely tight labor market. As a result, they will be forced to move beyond mere performance activities and seriously explore ways to achieve diversity.

Scott remembers being shocked to discover that her old company systematically ranked female employees higher than men on performance and lower on potential. why? This is because male bosses tend to think that women of childbearing age or women with families may not want to be considered for certain jobs, such as customer-facing jobs that require a lot of travel. As a result, they could not ask if they wanted to apply for the job or think about how to recruit such a job to a broader group of employees. Let’s talk about cognitive biases.

Then there’s also the question of what diversity is or will become, especially in a country like the United States. By 2045, we could become a “majority minority.” Another issue is how global companies that operate in countries with different definitions of diversity should think about it. that. Should we use definitions that are politically popular in a particular place? It’s easy to see how slippery the conversation can become.

So, just as the Supreme Court’s rejection of affirmative action provided a sign of hope for universities to think more deeply and honestly about identity and inclusion, it may also be an opportunity for companies to do the same. I think there is.

They should focus on core truths. That is, smart companies are those that are most attractive to the greatest number of talented people, not by heralding virtue, but by creating real opportunities for the greatest number of people. Doing so is not only good for inclusion, but good for business.

rana.foroohar@ft.com