In Part 1, we reviewed data from the Department of Labor’s Enforcement Database, a wonderful resource that is responsible for more than a few online articles. Specifically, we noted that a few industries appear to be having issues keeping up with new emphases on enforcement and, frankly, may have a slight disregard for compliance in the same way most of us have a slight disregard for the speed limit—“If I don’t anyone was harmed, and I wasn’t caught, then what’s the big deal?”—as well as prioritizing other business activity over compliance, which can again be like speeding—“I probably won’t be pulled over or hit anyone, and I’ll save time.”
To be fair, and in general, most companies are likely fair in their hiring practices. That’s not to say they aren’t inadvertently discriminating from time to time. Due to this knowledge, and historically not being under the microscope, it’s tempting for high-level executives to move resources away from compliance and, much too frequently, away from HR in general. HR, after all, costs money and Well, today we’ll present research which proves that HR, and equal employment opportunity/diversity programs in particular, have a massive impact on a company’s revenues.
There is a growing body of research showing that diversity and fair practices directly affect sales revenues, customer base numbers, and market share. Although “diversity” is not the same as “affirmative action” , the latter helps create the former as well as enforce fair hiring and pay practices. And so “diversity”, illustrating a result of affirmative action practices, is a perfect barometer by which to measure the business case for affirmative action.
Cedric Herring of the University of Chicago looked at a couple years’ data from the National Organizations Survey, which samples for-profit businesses, to see if there was indeed a business case. (Herring, , American Sociological Revue, April 2009) He found that racial and gender diversity had a very specific numerical impact:
“Herring found that companies reporting the highest levels of racial diversity brought in nearly 15 times more sales revenue on average than those with the lowest levels of racial diversity. Gender diversity accounted for a difference of $599.1 million in average sales revenue: organizations with the lowest rates of gender diversity had average sales revenues of $45.2 million, compared with averages of $644.3 million for businesses with the most gender diversity.
For every percentage increase in the rate of racial or gender diversity up to the rate represented in the relevant population, there was an increase in sales revenues of approximately 9 and 3 percent, respectively. Herring found racial diversity to be a better determinant of sales revenue and customer numbers than company size, the company’s age and the number of employees at any given work location.”
–ScienceDaily (Mar. 31, 2009)
In a recent article, IndustryWeek’s Adrienne Selko makes the bold assertion in the byline “Organizations with inclusive cultures are 27% more profitable.” She brings up a study cited in “Business Case for Diversity with Inclusion,” which found inclusive cultures have:
- 39% higher customer satisfaction
- 22% greater productivity
- 27% higher profitability; and
- 22% lower turnover.
Source: Cumulative Gallup Workplace Studies
All of these numbers, in my mind, could become drivers for companies worried that enforcing affirmative action distracts from the “bottom line.” It, in fact, does the opposite, and helps set clear financial goals. If diversity goals are set with expectations of increasing revenue 9% for every 1% increase in diversity within the company, and since tracking and achieving these goals means outreach and documentation, then a company will not only increase profits, but also do right by the available labor pool and fulfilled its AAP requirements.
We’ll discuss planning, buy-in, implementation, recordkeeping, and other best practices over the next two pieces in this series. For now, I’ll conclude by adding that HR writers generally like to state that fines are increasing or perhaps that the business case is that diversity helps teams think creatively or whatever, but those statements leave out the most compelling part of the story. I’m not sure why Dr. Herring and others such as Dr. Harry Holzer do not have their data in more HR and business reviews instead of sociological, psychological, and economics publications, but they should be because their data shows that companies that follow affirmative action regulations make more money.
Be sure to watch out for Data Diving — Part 3, where we’ll discuss how to foster a change of attitude toward affirmative action to accomplish corporate goals and, of course, look at more data.