3 Case Studies: Why Companies Decline on the DiversityInc Top 50

Why do certain companies, well known as diversity leaders, fall in their rankings on The DiversityInc Top 50 Companies for Diversitylist

To show you what NOT to do, we offer three case studies of companies we’ve studied for more than a decade. All were early diversity leaders and had recurring spots on the DiversityInc Top 50 list. All have fallen off or down in the list in the last two years. They come from three very different industries, demonstrating that loss of initiativeor changing prioritiesoccurs everywhere. The names and revealing information about these companies have been disguised, but the lessons learned from their actions are quite apparent.

Case Study No. 1: Non-Technical, Consumer-Facing and Business-to-Business Company

The Situation: A decade ago, this large company was considered an early diversity leader, with its strong work/life benefits, high rates of hiring and promoting women, and frequent public verbiage about having an inclusive corporate culture. It was a mainstay on the DiversityInc Top 50, achieving a very high rank one year. The chief diversity officer, who came on right about that time, joined many diversity-related organizations and was a visible face of corporate diversity in the mainstream press. Although the CEO was not making personal statements about his commitment to diversity, he was holding senior leaders accountable for results and meeting with leaders of the employee-resource groups. Representation in the workforce and lower management was racially diverse, especially compared with the industry averages, but there remained a gap at the top levels of management.

What Happened: This company in recent years has fallen off the DiversityInc Top 50 as its representation of all groups, including women, has declined relative to the other companies participating and in its industry. The main reason for the decline: a change in CEO resulting in reduced efforts/accountability. This company, like many others, was hit hard by the economic turbulence in the last three years. The chief diversity officer, who did not speak of diversity in business terms, could not maintain diversity as a business imperative. The company has even removed the diversity section from its homepage.

Because the CDO did not track participation in employee-resource groups or have metrics for mentoring and supplier diversity, there was no way to assess what was working and what was notand what ramifications it was having on the bottom line. The chief diversity officer did not have frequent access to the CEO or to his direct reports, reporting in two levels down to the head of HR. The CDO was viewed strictly as a staff person whose business advice was not considered.

The Results: As other companies innovated and added diversity-management practices (and the DiversityInc Top 50 changed to reflect the importance of these new practices), this company actually dropped best practices. The CEO no longer met with employee-resource groups or signed off on supplier-diversity goals. Alternative career tracks for employees with long-term family concerns weren’t offered. Management participation in formal, cross-cultural mentoring declined dramatically.

Those results were reflected in the company’s representation numbers, which showed an even more precipitous decline in racial and gender diversity at the top ranks as well as sharp gaps in retention when examined by race/ethnicity. While the company was downsizing, Blacks and Latinos were leaving at a rate triple that of whites.

The Solutions: This company’s corporate culture has been changing dramatically in the last three years because of downsizing, acquisitions and a refocus on core business vital to its survival. This is, therefore, the perfect time for a reassessment of the role of diversity and a new chief diversity officer, a senior line-of-business executive who would have significant credibility with the CEO and his direct reports. In the case of this company, whose corporate culture is being reformulated, an external CDO could be very effective, bringing fresh business-oriented perspectives to the table. Or a CDO from within the company who has been heading a business unit or has had major P-and-L responsibility would bring new credibility to the diversity efforts. CDOs from this background are becoming increasingly valued at DiversityInc Top 50 companies and usually are in three-year rotations, often leading to major promotions afterward.

This chief diversity officer also should report directly to the CEO. Consider this: Five years ago, only 15 percent of chief diversity officers reported directly to the CEO and almost all reported to the head of HR. Today, 30 percent report directly to the CEO and less than half report through to HR.

The most critical factor in this realignment is gaining the support of the CEO. Hard facts demonstrating how competitive organizations have succeeded in growing their consumer base, as well as their B-to-B client base through their diversity-management efforts, are essential. Everything presented to the CEO must be business focused and demonstrable with valid data showing the correlation between increases in diverse representation, employee engagement, productivity and innovation.

Case Study No. 2: Brand-Dependent Consumer-Facing Company

The Situation: A diversity leader for several years, and also a mainstay on the DiversityInc Top 50, has fallen sharply on our list.

What Happened: The company, which had linked 20 percent of senior executive compensation to diversity metrics, decided to eliminate any compensation pay related to diversity because its leaders believed progress would happen intrinsically. A new CEO decided not to continue monitoring or signing off on executive accountability. At the same time, the company eliminated mandatory diversity training for its workforce, determining it was no longer necessary. Its leaders used the phrase “Diversity is in our DNA.”

The Results: Representation percentages in the workforce, new hires and management of Blacks and Asians have fallen dramatically, at a time when competitors, especially in this industry, have seen significant increases. The company is committed to using its employee-resource groups as a means of reaching multicultural customers, but their participation numbers also are declining.

The Solutions: This company needs to take a hard look at its diversity council, made up of its senior executives, and needs to reinstitute and reinvigorate its method of holding executives accountable for diversity results. Recent DiversityInc research on diversity councils found the most effective councils are comprised of the CEO and executive committee, the chief diversity officer, and rotating spots for leaders of employee-resource groups. These councils set company-wide representation goals and directly link the bonuses of all senior executives on the councils to the company-wide results, as well as to the results within their own business units/areas of responsibility.

The DiversityInc Top 50 average percentage of executive compensation tied directly to diversity goals is 10 percent, but the range goes as high as 35 percent. This company should go back to at least the 20 percent compensation-to-diversity bonus it had two years ago and admit its experiment has been a failure. It’s clear that without metrics tied to compensation, numerical improvement won’t happen, just as sales goals would not be met without the commission/bonus incentive so vital to this company’s success.

Additionally, this company needs to recognize the value of mandatory diversity training for its entire workforce to increase cultural competence, which furthers employee engagement. The decline in participation in its employee-resource groups is synonymous with an increasing failure in its culture to engage ALL employees and to make them comfortable in an inclusive culture.

Case Study No. 3: Tech Company

What Happened: Also a long-time DiversityInc Top 50 mainstay, this company’s CEO determined that diversity was a goal that had already been accomplished and an enhanced effort wasn’t necessary, despite the presence of increased competition.

The Situation: This company’s lack of diverse representation at its senior levels didn’t have a major impact five years ago because the other companies faced a similar lack of diversity. But as other progressive companies instituted strong efforts to develop diversity rapidly in their succession planning, this company did not and felt it wasn’t necessary. The company also failed to keep pace with its competitors, which increasingly rely on employee-resource groups as both sources for talent development and to identify gaps in the corporate culture that need addressing.

The Results: Leadership at the top of the organization remains all white and 90 percent men, while other companies on the list have made significant inroads. The 2010 DiversityInc Top 50 average 14 percent Blacks, Latinos and Asians and 24 percent women at the top leveland those percentages increase each year and at a higher rate than companies not on the list.

This company has seen its percentage of employees participating in employee-resource groups cut in half (from 10 percent to 5 percent) while the DiversityInc Top 50 average has increased from 16 percent to 24 percent in the last year alone (and was 5 percent five years ago).

The Solutions: The lack of diversity at the top leveland at the succession-planning level right below the CEO’s direct reportsis sending a clear message to executives throughout the company that they need to go elsewhere if they want a top-tier job. That is creating a spiral effect that inhibits executive innovation to fix this.

It trickles down to all levels, evidenced by the participation in employee-resource groups and the difficulty this company has had finding leaders for its ERGs. Where its ERGs once were responsible for creating ad campaigns that resonated with the Black and Latino markets and directly increased revenue, today they are mostly used to create heritage festivals and attend college fairs.

The company needs to start a concerted internal campaign about the specific benefits of joining an ERG, including leadership-development training, career advancement through exposure to senior executives, and the ability to have your ideas on innovative business solutions heard. Personal videos on the intranet are a very effective way of reaching potential ERG members.

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