Peddling Diversity for #BLM - Bottom Line Matters
How Corporate made racial-injustice, a problem they could solve?
We all know what happened with George Floyd. It was a gruesome murder and a dark moment for humanity. We also know what happened after that. The riots, protests, Black Lives Matter revolution captured every mind and every news channel. There were some second order effects too. For example, book sales of African American authors went through the roof. But we wanted only those which romanticized the black pain. Anything else was not important for the time being.
What I want to talk about is not the protest or book sales, but an uninvited guest to the party - Corporations and Brands. Quickest to respond, their voices have been one of the loudest in the current climate. Insecure about sharing the spotlight, they have overstayed their welcome to this party and most importantly now profiting from it.
Black Lives Matter is not an economic problem. It is a systemic socio-political one. It is simple as that. The problem is not complicated to understand. Yet they joined the fight, gave their voice against the racial injustice and are now championing the solution as well.
Here is what Nike, one among MANY companies did to show solidarity against the situation:
Corporate activism did not stop with just social media branding efforts. Companies are in the arena now and they have skin in this game. They have started to hire Diversity managers, Diversity consultants, Chief Diversity officers at an unprecedented rate. Diversity & Inclusion related jobs have grown 430% since the protests broke out. It is not just words and empty commitments anymore. Diversity is now a top-of-the-mind problem for every CXO & thought-leader.
Goosebumps! But here is my question - Why are corporate in this game in the first place? From what seems to be a clear issue with society and policy, it feels odd that so many brands have ‘spoken’ their voice. Why is diversity based hiring the next big thing? Is this how humanity has to come together to solve this issue of racial injustice? The only solution championing to solve the problem of racial injustice seems to be giving economic opportunities to the disadvantaged so that we as a society can rise beyond our biases. And it sounds eerily similar to how we planned to combat poverty. However, the story only begins here.
Enter our friendly neighborhood consultants
In the race to end racial injustice, the consultants caught up quite soon (or were they already ahead? We will never know). Diversity is not just a solution for a social evil. Every consulting firm has ‘research’ to show that diversity is not a moral imperative alone but an innovation lever. It is a business strategy. The gold standard of consulting - McKinsey published a report claiming "Firms with diverse workforce have 25% more likelihood of financial out-performance in their report” and “Business case for diversity remains strong”.
Deloitte went even a step further, claiming inclusive leadership has a stellar effect on team-performance and quality of decisions. Diverse teams collaborate better. Reading these reports, it felt that diversity was an obvious solution that everyone missed for so long. Thank god for consulting companies who ensured diversity did not slip through the cracks and fade away into oblivion.
Companies do not have to be diverse any more because it is the right thing to do. It is because it gives them better returns. Denying this research is tantamount to saying diversity and inclusion is not important. Anyone who says this is going to be cancelled in the current political climate.
But I wanted to look closer at the problem. Things did not add up well. Why would cultural, language or racial diversity have such a strong effect on how businesses innovate and grow? Why is every company focused only on diversity based hiring?
When I went through those reports with a finer comb, the research underlying both McKinsey, Deloitte and other research firms turned out to be shaky at the best. For starters, most of their findings were based on metrics that were either unmeasurable such as team-collaboration or incomprehensible such as likelihood of outperformance.
Additionally, most of them had obscure footnotes loaded with jargons to even begin to understand how this particular research was conducted. None of these reports have a Research Methodology section when I looked for. More often it turns out the research is based on surveys - which was asking other people how diverse they think their company is and what they feel about diversity. These results were then crunched to develop a highly confident causal insight - Diversity leads to better business. A business case was made from what looks like a correlation about what people feel and perceive.
Consider the Deloitte report. They claim diversity results in 17% increase in Team Performance, 20% increase in Decision making quality. But what is 20% increase in decision making quality? How do you even measure something abstract like that and then put a 20% increase on top of it? If you read the footnote, comes the clincher - These are perceived performance outcomes. They are not real, scientifically measured outcomes but rather what everyone ‘feels’ about diversity.
The only research I found to be satisfactory was impact on gender diversity from Harvard Business School. To quote from that,
Some researchers argue that gender diversity leads to more innovative thinking and signals to investors that a company is competently run. Others say no. Conflicting research indicates that gender diversity can sometimes harm firm performance…we found that gender diversity relates to more productive companies, as measured by market value and revenue, only in contexts where gender diversity is viewed as “normatively” accepted. By normative acceptance, we mean a widespread cultural belief that gender diversity is important.
The results were ambiguous but it seems to be working in places where the companies really mean it when they talk about gender diversity. They had also quoted contradictory research to show that Nationality based diversity seemed to have no effect on the firm’s performance. Even if one looks from first principles, diversity can give multitude opinions and varying points of view. But for innovation and financial performance, a lot more important factors are critical such as adequate R&D funding, infrastructure, distribution capability, strong culture etc. Even funding PhDs in Black dominated colleges can do more for innovation and the #BLM cause than this. This is not to condone racial discrimination but rather establish that a social solution need not create satisfactory business outcomes.
I wanted to look at where Racism and Free-market meet. Mainly because no one was looking there and the diversity based hiring solution seemed superficial. That seems to be where we ought to have looked in the first place.
How does our corporations, brands contribute to the racial injustice in the first place?
Vogue ran a piece which mentioned 41% of Black-owned businesses shuttered during the pandemic, compared to only 11% of white-owned businesses. There are two main reasons - Location, as black-owned businesses tend be in economical poorer locations. Two, they are less likely to get loans to grow or sustain. Simple as that. Banks don’t want to give them more loans. However, JP Morgan hired their Chief Diversity officer recently and have sent internal memos to support the cause. What cause though?
Access to capital, lack of educational opportunities
Black owned startups receive less than 1% of total venture capital in USA. We still don’t have a bank that has launched any scalable schemes for the economically disadvantaged. No company has come forward to sponsor schools and colleges to enroll more black people. Yet here we are asking the board of directors to have more representation. Why? What good is a Chief Diversity Officer when the number of black MBA graduates are one-third the number of white graduates. Besides, a company needs smart, hard-working people. To have a diversity-goal is as biased as have a racial bias in first place. You are only appeasing the crowd on the other side without creating systemic change. Literally every race except white have higher drop-out rates than Whites. And this is on top of a lower enrollment rates of these races in colleges in the first place.
Source - image - National Center for Educational Statistics (NCES)
Employment Opportunities - The real deal
Blacks are over represented in front-line workers during the pandemic because of their economical status which was because, wait for it, here it comes, a staggering income-inequality. Black communities have had more COVID related cases and deaths than others in this pandemic. Coupled with their lack or poor health benefits from their jobs, thanks to gig-economy, and a paltry minimum wage ensures they will not be able to get the required help they need. Can we pay them more or protect them with better health insurance coverage? But let us hire a Chief Diversity Office first.
Environmental Racism
A 2018 study showed Blacks are exposed to 54% more particulate matter and soot than the average American. Racism has hit environment too which was due to factories, industries emitting such harmful pollutants in the air.
Source - image US Environmental Protection Agency (US EPA)
Stationary fuel combustion refers to industry boilers, furnaces etc. Over 60% on average across all categories of pollutants are emitted by yours truly. And black people are exposed to this 54% more than whites because they live in economically poor areas which was propagated by the income-inequality in the first place. But let us hire a Chief Diversity Officer first.
Most of these problems, as you would notice, blurs the lines of what we think racism to be. You have to understand that these problems are not disconnected. Despite everyone facing environment issues or wealth inequality, some face it a lot more and a lot harsher than others. And in this case, it happens to be the blacks. Fancy social media posts, empty commitments might appease for the time being. But nothing has been done to the cause at hand. Those who have created and propagated the problem in the first place are also the ones appearing to champion a solution through diversity based hiring. And the harsh truth is, they do not have your best interests in their heart.
The reality is hiring for diversity has little to no negative impact on bottom-line. The salaries are the same. They are just paying to different people. However, creating actual change to lift lives of black people - Community development, controlling emissions, increasing access to capital, imparting education and skills will change the status quo. It would require significant investments, additional government scrutiny of organizations and hence lower margins. Going towards equality means, some one will gain power. But more importantly, some one will lose power. Corporate, having become the self-appointed champion of diversity and inclusion, have also framed the solutions that creates no dent on their returns to shareholders. Consulting companies only echo this point to every one by saying “You can do business by doing good too”. No. It simply will not work that way. Let us not forget, cotton trade in America in 19th century, was funded by cheap labor which would not have been possible without slavery in the first place.
Lovely article. Happy to see voices adding to the questions about companies and their "efforts". No doubt, Friedman would come forth and say that the only social responsibility of a company is to increase its profits. In effect, shrug a shoulder and move on. More like this, please.
Hard hitting. I knew there was something fundamentally off about how corporates approach public issues, thank you for putting words to my thoughts! There is no such thing as win-win.