The business case for equality and diversity in the workplace is compelling and goes far beyond the common misconception that it is simply about fairness. In this blog post, diversity and inclusion expert Joanna Abeyie explains how a lack of diversity can present operational risks to businesses in ways that may not seem immediately obvious.
This blog post features content from our ebook ‘Diversity & Inclusion: How to mitigate the invisible business risk’, available to download now. The ebook highlights business risks and offers practical suggestions and expert insight on how to build a diverse and inclusive working culture.
Think of equality and diversity in the workplace and it conjures up images of HR issues that centre around fairness and equal opportunities.
Or you may think of headlines that hit the news for all of the wrong reasons, such as when clothing retailer H&M’s ill-thought-out advert of a black child donning a ‘Coolest Monkey in the Jungle’ hoodie caused a PR nightmare in 2018.
But the fallout can be far more deep-rooted and impactful on an organisation than either of these reasons. A lack of diversity presents serious operational risks to businesses in ways that may not seem immediately obvious.
Getting equality and diversity in the workplace right
In 2013, Qantas Airways was in the grips of a downward spiral. A record loss of AUD$2.8 billion followed turbulent years where union disputes and technical troubles had grounded their fleet.
Yet by 2017, its fortunes had turned around, recording an AUD$850 million profit and – amongst many other accolades – it was named Australia’s most attractive employer, noted for innovation, financial health and strong reputation.1
The reason for this turnaround?
“We have a very diverse environment and a very inclusive culture… diversity generated better strategy, better risk management, better debates, [and] better outcomes,” said their CEO Alan Joyce2.
The business case for a diverse workforce is compelling and goes far beyond the common misconception that it is simply about fairness and equality.
Organisations with inclusive cultures are six times more likely to be innovative, two times more likely to meet or exceed financial targets, and six times more likely to anticipate change and respond effectively3.
The risk of institutional blindness
For all the benefits of building an inclusive workplace, there are risks in not doing so. From any business perspective, it always pays to know your customer base. One way to get this insight is to ensure your workforce reflects the diversity of your target markets.
Take the insurance industry, where knowing your customer goes beyond ‘business best practice’ and can have serious implications on the ability to accurately underwrite risk. The financial implications are huge. European insurance firms have come under the spotlight in recent years over the lack of diversity in their workforce4.
“The greatest risk to an insurer is institutional blindness – too many people with a similar world view looking at the same risks,” said Global Change chairman Patrick Dixon. “The result can be catastrophic underwriting errors. The most effective way to reduce risk is to ensure your teams are diverse.”
UK financial services highlight the reputational risk
As well as operational risks, there are reputational risks too. The UK financial services market is a prime example, with the Financial Conduct Authority (FCA) placing evergrowing importance on transparency and non-financial conduct.
In December 2018, Christopher Woolard, Executive Director of Strategy and Competition at the FCA, noted that only “15% of directors and 6.5% of chief executive officers (CEOs) across our regulated population are women5.”
The limited number of leadership and board-level jobs held by women in the financial services sector reflects in a pay gap that is almost twice the UK average. Gender pay gap reporting was made compulsory by the UK government in 2017 and has helped to shine a spotlight on industries that perform below the national average6.
Discover more with a free trial of our elearning course: Equality in the Workplace.
Reputational risk, however, can go beyond regulatory concerns and brand reputation with customers. It also reflects how businesses are perceived by prospective employees, as well as the way that existing employees discuss the reality of the company culture.
And this is crucial for any business looking to build an inclusive and diverse working culture. If you cannot attract a diverse talent pool of prospective employees, then addressing these risks becomes exponentially harder.
The changing face of the modern workforce
Building a diverse and inclusive workforce is entirely dependent on being able to attract, recruit and retain the right people.
And to do so it’s important to understand that the dynamics of employment are always changing, whether that’s what people look for in a job, or the increased importance of reskilling due to technology-driven change.
The face of the modern workplace is changing. People rarely work for one company for life now7, yet skip back a generation or two and this was commonplace.
As people move about more now, expectations change. Staff now actively look and question ‘What can this company do for me? Will my hard work be rewarded fairly? Do I trust those I work with to work without bias and routine? Is the working culture positive and something I can embrace8?’
Businesses that fail to recognise the importance of building a culturally diverse and inclusive culture often do not realise the risks until they see the consequences of costly mistakes – whether from institutional blindness or failing to offer the right working culture.
To understand more about equality and diversity in the workplace, and for practical tips on how to build a culturally diverse and inclusive workforce, download the ebook now.
1 Randstad (2017), ‘Qantas named most attractive employer in Australia, with aviation named top sector’
2 Deloitte Review, Issue 22 (2018). ‘The diversity and inclusion revolution: Eight powerful truths’
3 Juliet Bourke (2016), ‘Which Two Heads Are Better Than One? How Diverse Teams Create BreakThrough Ideas and Make Smarter Decisions’
4 Arthur (2016), ‘Why Diversity Matters in Risk Management’
5 FCA (2018), ‘Opening up and speaking out: diversity in financial services and the challenge to be met‘
6 PwC (2019), ‘Women in Work Index 2019’
7 & 8 Deloitte (2019), ‘Deloitte Millennial Survey 2019’