DEI – A Business Perspective

By Jeff Fierstein

Diversity, Equity, and Inclusion (DEI) has become a frequent topic of conversation, particularly in political and ideological contexts. However, the business impact of DEI often goes unexamined. Over the past few months, I have dedicated time to researching DEI, speaking with professionals whose organizations have implemented such programs, and evaluating the effects on business outcomes. Below are some key findings.

Negative Impacts on Business

• Polarization and Discomfort: A 2022 report by The Wall Street Journal revealed that when DEI training and policies are seen as mandatory, employee polarization increased by 16%, with 23% of employees reporting discomfort with mandated training.
• Reverse Discrimination: According to a 2019 survey by the American Psychological Association, 30% of respondents believed DEI initiatives led to reverse discrimination, and 20% felt that class-based hiring and promotion practices were unfair.
• Lack of Financial Performance Improvement: A 2018 study from Harvard Business Review found that 56% of business leaders reported DEI programs did not improve financial performance and often increased operational costs.
• Workplace Division: A 2021 survey by the Cato Institute indicated that 37% of Americans believed DEI programs could create division or resentment in the workplace.

Positive Impacts on Business

• Financial Gains through Diversity: Companies with high ethnic diversity were 36% more likely to have above-average profits, and gender-diverse companies saw a 25% greater likelihood of superior profits (McKinsey, 2020).
• Increased Efficiency: Diverse teams make decisions 19% faster, with better outcomes, according to Harvard Business Review (2018).
• Innovation and Revenue Growth: Research from the Boston Consulting Group (2018) showed that diverse management teams had 19% higher revenue due to innovation.
• Increased Returns with Female Leadership: A Credit Suisse study from 2016 found that companies with women on their boards saw a 9% higher return on equity.
• Profitability through Female Leadership: The Peterson Institute for International Economics (2016) showed that a 30% increase in women in leadership roles led to a 15% increase in profitability.
• Better Retention Rates: Companies that practiced inclusivity had a 30% higher employee retention rate, according to Great Places to Work (2020).

While these findings are promising, it’s important to recognize that many of these studies may have statistical reliability issues, as they were not always replicated or conducted under consistent methodologies. Additionally, many studies showing negative effects of DEI were influenced by employment practices that favored underrepresented classes. These studies should be understood within their specific contexts, which is beyond the scope of this blog.

 Understanding DEI: More Than Just Hiring Quotas

It is critical to understand that DEI programs go beyond hiring quotas. In fact, some organizations do not utilize overt class distinctions in their employment practices. DEI initiatives also focus on ensuring fair treatment, equal opportunities, and advancement based on qualifications. They aim to foster a workplace where all employees feel valued, respected, and can fully participate, irrespective of race, gender, or other demographic factors.

Negative studies about DEI are often skewed by a focus on hiring decisions based on underrepresented groups. However, DEI principles, when implemented effectively, do not necessarily require race- or gender-based employment decisions.

The Need for Further Research

More research is needed to definitively confirm the positive or negative impact of DEI programs on businesses. While some organizations have scaled back their DEI initiatives, many continue to support such programs, albeit with some adjusting their names and frameworks. Businesses are conducting internal assessments to determine the value of DEI policies, and will likely continue them if they find them to be financially beneficial or aligned with the organization’s culture, vision, or values.

Conclusion: Rethinking DEI Initiatives

Overall, the available evidence tends to highlight the benefits of DEI programs. The current challenge, however, is the growing politicization of DEI, which often leads to heated debates with little data to support or refute the claims. What businesses truly need is not a “DEI program” per se, but rather DEI-oriented initiatives that promote positive impacts on both business performance and employee well-being. Given today’s challenges in recruiting, hiring, and developing qualified candidates, it’s essential that organizations consider and implement strategies that promote inclusivity and diversity when possible.

In next week’s blog, we will explore an alternative approach to employment decisions—skills-based hiring, development, deployment, and promotion. This strategy offers opportunities to all employees, irrespective of race, gender, sexual orientation, nationality, and other characteristics. Be sure to check for the follow-up post on LinkedIn and our website blog next Tuesday.

We hope you found this blog insightful. If you’d like to know more about the research behind the content, type the word DEI along with your Comments in the section below and we will email you the references cited in this blog.