I was recently interviewed by Fortune on the debate around diversity, equity, and inclusion (DEI) programs. As the CEO of a nonprofit that represents shareholders, I approach the issue of human capital management from a financial and business perspective. After all, it is the fiduciary duty of investors and their representatives—among them asset and retirement fund managers—to reduce material risk and optimize long-term financial sustainability for all stakeholders.
In the interview, I stated that opponents of corporate diversity programs are forcing companies to “underperform.” I was pleased to see that over 1,000 comments were posted in places the interview appeared and that most proponents and detractors had more in common than they may realize. We all seem to agree that employees need to be hired and promoted based on “merit”—that people should be judged on their qualifications and work product, not gender, race, or ethnicity.
I also realized there’s a surprisingly simple way to bring people together on this divisive issue: using a common definition. I propose this one:
Diversity, equity, and inclusion (DEI) are organizational frameworks that seek to promote the fair treatment and full participation of all people based on merit.
Notice it doesn’t say that diversity is about creating “race quotas” or discriminating against white men (both are illegal). Diversity programs are meant to promote workers based on merit for “all people”—not just women, veterans, people with disabilities, and non-whites. Businesses need DEI to eliminate all-too common “glass ceilings” that override merit to block women and people of color from promotions that maximize business outcomes.
So how do we achieve meritocracy when the people making hiring and promotion decisions may have unconscious bias, as they are naturally more at ease and understand applicants who look like them, grew up in similar circumstances, and went to the same universities? How can viewpoints from different lived experiences help build high-performance teams to solve business problems? The answer is exposing bias with diversity training.
Nondiscrimination in corporations isn’t just an ethical or legal obligation, it’s good for business. At As You Sow, we analyzed 1.5 million data points measuring gender and race from 1,641 public companies over five years. We found an undeniable statistically significant correlation across sectors that teams with more diverse management outperformed teams with less diversity on eight financial metrics, including: enterprise value growth rate, free cash flow per share, return on invested capital (ROIC), and 10-year total revenue compound annual growth rate (CAGR). In short, if you look at the data, there is no doubt that greater diversity leads to financial outperformance.
A thoughtful commenter of my interview correctly stated, “DEI increased excellence. It was normalized discrimination that sacrifices excellence.” Another added, “Organizations have found that diverse workforces are far more innovative and productive because they benefit from a wider range of thought patterns and experiences.” Given that the data shows greater diversity leads to financial outperformance, why so much resistance?
Studies show members of majority groups may perceive actual meritocracy as “zero-sum,” assuming if someone else makes gains that they will necessarily incur losses. Another common response is to deny the existence of discrimination in the corporation, or for white men to distance themselves from it personally by arguing they are unbiased. A level playing field may feel like punishment, especially for those used to “failing up.”
Much of the misinformation about DEI comes from conservative politicians and biased social media agitators pandering to those objections. They play to insecurities of white males because they know riling up the base is good for voter turnout. However, opposition to diversity efforts goes beyond healthy debate. A recent presidential executive order banning DEI from federal activities shows opponents aim to eliminate diversity by mandate.
For every company that rolls back an aspect of DEI, there are a thousand more continuing diversity programs. Because as JPMorgan Chase CEO Jamie Dimon recently said in defiance of political pressure, DEI is “proper and legal.” Management teams from Costco to Apple have publicly defended diversity programs as essential to their business. Why else would high-profile business leaders take a public stand despite likely political blowback?
When shareholder resolutions meant to end DEI programs were voted on at annual shareholder meetings this year at Deere, Costco, and Apple, more than 98% of investors rejected proposals calling for management to end current diversity efforts. That’s because unlike politicians and online agitators, investors and their representatives have a legal duty to support programs that increase shareholder value.
I often get asked if DEI is on the way out. The acronym may change and there may be fewer references in public reports due to attacks on free speech, but diversity that creates a meritocratic culture and delivers positive business results will never be eliminated. If there’s one thing corporations can be counted on to do, it’s to maximize profits.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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