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Why Companies Went Down in the DiversityInc Top 50

Three factors cause companies to move up and down in The DiversityInc Top 50 Companies for Diversity: Our improving ability to ask probing questions, increased competition and the commitment of leadership at individual companies.

These case studies are all based on submissions to the 2011 DiversityInc Top 50 survey. They offer valuable lessons, but it’s important to remember that each company’s business goals (and, therefore, its related diversity-management efforts) are unique. The only way to accurately assess a company’s progress and recommend a course of action is to analyze its data points in comparison to other companies.

Companies That Fell

Company A: Consumer-Facing Company

Company A has had reasonable and consistent performance on the list for the past few years but was never a standout. This company has two related issues it needs to address if it wants to stem the decline and compete in an industry where its peers are rapidly accelerating their diversity-management efforts. The two issues are its CEO’s lack of personal involvement with diversity management and a failure to consistently communicate, internally and externally, that diversity is essential to the business.

Let’s first examine the CEO commitment issue. In our 11 years of assessing companies through the DiversityInc Top 50, we have never seen a company improve its diversity-management efforts and, subsequently, its human-capital results without visible CEO commitment. The CEO of this company has made some public statements that indicate a lack of cultural competence for at least one traditionally underrepresented group. What would have helped him and his senior executives understand the consumer ramifications of his action would be more diversity at his top level and more interaction with employee-resource groups. Unfortunately, both are lacking here.

The top level of this company, CEO and direct reports, is all white, and the next two levels down are almost all white. The CEO, therefore, is not being exposed to multicultural viewpoints from his senior managers. The lack of diversity at the top of the company is likely to have a cascading impact on recruitment, retention and talent development, DiversityInc Top 50 data analysis shows. That correlation holds true for this company, where new hires of Blacks and Latinos fell about 7 percent year to year, promotions into first management jobs for Blacks and Latinos fell 22 percent and for women fell 16 percent year to year, and management promotions fell about 14 percent for Blacks and Latinos year to year. What’s particularly significant about this company is that 20 percent of their senior managers come from outside the organization, yet they do not require diversity at all in their executive-recruitment slates. By comparison, the DiversityInc Top 50 average 25 percent of senior managers coming from outside the company, but 90 percent requires diversity in their executive-recruitment slates.

While the CEO of Company A does have a leadership position at a multicultural nonprofit, he has little exposure to employee-resource groups, which would have been essential in helping him overcome the misstep he made. He meets with the groups only once a year, while 44 percent of DiversityInc Top 50 CEOs meet with ERG leaders more than twice a year. Although ERG leaders have rotational spots on the diversity council, this CEO does not chair the council personally, unlike 30 percent of DiversityInc Top 50 CEOs. The council does not set diversity goals (usually demographic percentage increases) for the company, unlike 90 percent of DiversityInc Top 50 executive councils.

His lack of visible support for diversity management carries forward into the company’s communications, both internal and external. The company’s website does not clearly articulate its diversity commitment and, while a message from the CEO does appear after clicking on “diversity,” the information is general and includes almost no detail about employee-resource groups. Internally, the ERGs are predominantly only found at corporate headquarters and their presence is not widespread in remote locations, where hourly workers are predominant. The inclusion of hourly workers in ERGs is a challenge for many retail/consumer-packaged-goods companies, especially since their employment may be more transitional, but innovative solutions are occurring. Some labor-intensive companies have chosen to only include these workers by inviting them to attend non-shift events but not allowing them to be full members of the employee-resource groups. Others have had more success allowing hourly workers who assume leadership positions at employee-resource groups to be excused from shift duties and to be full-fledged group members. There is initial data indicating this also improves promotion and retention rates of these employees.

Recommendations for this company:

  • Document to the CEO the benefits of personally chairing the diversity council and using the council to set diversity-management goals (companies that do this increase racial/ethnic/gender diversity, especially at upper ranks, 10 percent on average).
  • Increase CEO interaction with ERG leaders to four times a year and ensure these meetings include discussion of corporate culture and customer insights.
  • Examine best practices of other organizations to increase ERG membership across the company and make ERGs more central to both human-capital and corporate-communications efforts.

Company B: Skilled Employee Base

This company, which has a large employee population of technically trained employees, fell in ranking this year, largely because of the survey’s increased requirement that companies on the list be strong in all four areas measured: CEO Commitment, Human Capital, Corporate and Organizational Communications, and Supplier Diversity.

Although the CEO of this company is a long-time diversity advocate, his message has been diluted because he has not held senior executives accountable for results and has not put in place a strong chief diversity officer. This is reflected in the lack of alignment between internal and external diversity-management efforts, especially supplier diversity.

This company, like many others, has faced business challenges in recent years because of the sputtering economy and increased global competition. Yet at a time when some competitors are increasing the focus on diversity management as a means of increasing long-term sales, the CEO and senior leadership have diminished their focus. 

Specifically, the percentage of executive bonuses tied to diversity goals was cut in half this year (from 10 percent of bonus compensation to 5 percent), while the number of employees in the diversity department dropped from three to two. What’s even more telling is the role of the chief diversity officer. At 28 percent of DiversityInc Top 50 companies, chief diversity officers now report directly to the CEO. At another 60 percent of the DiversityInc Top 50, the head of diversity is a direct report to a direct report of the CEO. At this company, the head of diversity is down yet another level and does not have a visible role at the company or much access to the CEO and senior leadership.

The results of this can be seen in a decline in human-capital demographics. In the last year, new hires of Blacks at this company declined by 43 percent, while new hires of Latinos fell 50 percent. Promotions into first management jobs fell 33 percent for Latinos, 23 percent for Asians, and 11 percent for women. Promotions within management dropped 52 percent for Latinos and 17 percent for Asians. This drop in diversity-management focus also was illustrated by the lack of management participation in its formal, cross-cultural mentoring program, which was down 90 percent from last year and another 50 percent from the previous year.

The company’s external efforts indicate the overall lack of focus on diversity efforts. Supplier diversity, one of the four areas measured, has never been a strong point of this company’s (or of its industry, for that matter), but the results this year show a diminishment from the previous year. Supplier diversity is a crucial means of building community support, and the data shows a definite correlation between companies with strong supplier-diversity best practices and percentages of procurement allotted to minority- and women-owned suppliers (MBEs and WBEs) and human-capital improvements. 

At this company, the trending is in the opposite direction. As the human-capital percentages declined, so did the supplier-diversity metrics. The company had low percentage spend with Tier I (direct contractor) MBEs and WBEs last year and the percentages dropped slightly this year. Last year, the company reported some Tier II (subcontractor) spend with MBEs and WBEs, but this year there was none. Last year, the company answered that it offered mentoring and financial assistance/education to diverse suppliers; this year, it did not. Enhanced questions added this year on certification of specific types of suppliers (i.e., those owned by LGBT people and people/veterans with disabilities) also negatively impacted this company. 

Recommendations for this company:

  • Enhance the position of chief diversity officer at least one level and provide more support (even if it’s dotted-line support) and access to senior management to enable the chief diversity officer to bolster metrics/emphasis driving human-capital results. Consider a person who has P&L experience as chief diversity officer; several companies in the DiversityInc Top 50, including several with educated workforces, have gone this route.
  • The CEO chairs the diversity council but the council meets infrequently and does not set and measure diversity goals. Increasing the council’s (and the CEO’s) ability to hold executives accountable for diversity goals will communicate the importance of diversity management to the company.
  • The company (and the CEO) have not communicated diversity’s long-term importance to their business goals, although they have been increasingly vocal about global corporate social-responsibility efforts. Both on their website and in internal communications, the same coordinated focus on diversity should improve human-capital and supplier-diversity demographics, according to the data trending of other companies that have been in similar situations.

Conclusion

It’s important to note that ranking in the DiversityInc Top 50 is completely separated from companies doing business with DiversityInc, including our benchmarking service. Both the DiversityInc Top 50 competition and the benchmarking service do benefit from our increased ability to fine-tune the questions to create far more separation between companies that excel and companies that merely check off a box. Our investment in more sophisticated software enabled these changes to be implemented. For example, we have asked in recent years what percentage of employees are members of employee-resource groups. But this year, we were able to ask and measure the percentage of employees in each specific group and, more importantly, whether the groups are available consistently through the organization or just at headquarters or a few locations.

What really propels ranking is the decisions at a company that impact its diversity-management efforts and, subsequently, its human-capital results. Those decisions, whether about resources, accountability or visible support, are dependent on the CEO. As you see from these examples, and as our data shows, without the direct involvement of the CEO, sustainable progress doesn’t happen.

 

1 Comment

  • Anonymous

    Unfortunately, these two examples are just further evidence about how when “corporations catch a cold, the diversity and inclusion initiatives catch the flu.” This lack of commitment evidences just how shortsighted these CEOs are in understanding and appreciating that in these challenging economic times engaging ALL employees is essential to weather these storms. And, leadership at all levels in the organization share in the responsibility to support diversity and include their people with respect and intentionality.

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