3 Things Your Company Can Do Now to Improve Diversity and Inclusion Results in the Age of New Capitalism

OK, people, it’s official. Rethinking capitalism is “a thing.” How do we know? If it wasn’t enough that BlackRock and Vanguard, the largest, most influential asset managers on the planet have weighed in on the topic, recently Paul Tudor Jones said, “Capitalism may need modernizing,” on CNBC. Jones, an investor, hedge fund manager, and philanthropist, is clearly a capitalist. And for the record, his wealth is estimated at $4.7B and he is ranked 144th on the 2017 Forbes 400 list.

Jones notes in his CNBC interview that, "When Milton Friedman said that [there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits], tax rates had just come from 91 percent to 70 and income inequality was one-fifth of what it is today. You can see how it was relevant at the time but fast forward to where we are today. It's a different deal."

Last month, Goldman Sachs launched an ETF based on John Paul Tudor’s Just Capital Index. To repeat: it’s a thing.

What does that mean for us mere mortals not breathing the heady, perfumed air of those wealth is ranked by Forbes? And what does this have to do with Diversity and Inclusion anyway?

Diversity and Inclusion in the Age of New Capitalism

?Now that we know it is a thing we can focus better on creating real and lasting change. Rethinking capitalism (click here for my previous post) is about better, holistic performance in today’s world in which the minority will be the majority in just a few years.

Which brings us to Diversity and Inclusion (D&I). We hear about D&I every day, everywhere. We know companies perform better when they have a diverse employee/leadership base. And that a more diverse employee base and leadership team helps reach and engage a range of vital stakeholders in a more effective manner. A virtuous circle.

According to a January 2015 McKinsey study:

• Companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set (that is, bottom-quartile companies are lagging rather than merely not leading).
•  In the United States, there is a linear relationship between racial and ethnic diversity and better financial performance: for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes (EBIT) rise 0.8 percent.
• Racial and ethnic diversity has a stronger impact on financial performance in the United States than gender diversity, perhaps because earlier efforts to increase women’s representation in the top levels of business have already yielded positive results.

We know it is the right thing to do from a business performance point of view and yet corporate America has been grappling with D&I for over 30 years. Unsuccessfully.

At present, there are three black Fortune 500 CEOs, zero of whom are female. There are fewer than 10 Hispanic Fortune 500 CEOS although the first Latina Fortune 500 CEO was named in 2017.  In total, there are 32 female Fortune 500 CEOs. How many Asians or other minorities? I could not find apples to apples data and only 3.1 percent of Fortune 500 companies report full race and gender information. Which alone is interesting. As Peter Drucker said, “You can’t manage what you don’t measure.”

How do we do better? To tackle this problem head on, we must hire people of all races and ethnicities with a focus on under-represented minorities. Creating a positive environment is indeed important but diversity programs without a strong link to hiring and retention won’t change anything.

If hiring minorities is critical to creating diversity throughout the organization including top leadership levels, how can diversity hiring be more effective? 

 To be successful, three things need rethinking:

• The notion of “Cultural fit” as a hiring selection criterion
• How we look at diverse candidates
• Where and how we find candidates

The Notion of “Cultural Fit”

The notion of “cultural fit” as a hiring selection criterion needs rethinking. “Cultural fit” is supposed to mean a candidate who will thrive within the company culture. Depending on your corporate culture, where you are, and where you want to go that could be a good thing – or a bad thing.

A 2013 survey by Cubiks International revealed that 82 percent of respondents said that they think measuring cultural fit is important but only 54% said that their organization has a clear definition of its culture. And only 32% of respondents said their organization measures cultural fit in recruitment processes.

We can surmise that there are a fair number of hiring managers out there looking for a fit to an organizational culture that is not clearly defined. In the absence of clear visibility into culture the search quickly devolves to “candidates I feel comfortable with” as opposed to candidates who could successfully do this job at this organization.

And voila – 59% of respondents to the Cubiks International survey have rejected candidates based on their lack of cultural fit.

“Cultural fit” generally ends up meaning someone a hiring manager is comfortable with on a social level. Someone whose sentences you can finish, someone you might bump into on vacation or who also plays squash or golf, say. Someone socially predictable and comfortable. But hiring someone you are comfortable with implies, well, more of the same. If you are already there, the company does not need another you or you-like being. The value-add of another you is for you, not the company. Too many you-like beings eventually means that should a crisis loom on the horizon the company is at risk of missing it. The company may end up trapped in its own eco-chamber of comfort and social predictability while the business goes down the tubes.

 Comfort too often breaks across class, gender, and racial lines – shared social experience. The whole point of diversity is to unite a wide variety of experiences under one roof. “Fit” can be a cover for bias or unconscious bias. If a hiring manager shrugs and says it just wasn’t a fit, especially for a minority candidate but really for any candidate, the hiring manager should be pressed for detailed structured thinking around why it was not a fit.

The question at hand when hiring is, what problem am I solving for, what needs to get done and how? What skills are needed? Not does this person play squash and can we have a nice chat about that? And definitely not would I mind being stuck in an airport with this person?

When cultural fit is not the yard stick, what happens then?  Letting go of fit as a hiring criterion does not doom a company to become the house of misfit toys. It does require hiring managers to get out of their comfort zones and look for liked-minded candidates. Finding liked-minded candidates differs from cultural fit in that it shifts the conversation away from social comfort to the business. “How is your golf game?” becomes “How do you build relationships with clients?” and “How have you found ways to go over and above in the past?” Let’s dump the airport test once and for all.

Changing How We View Minority Candidates

Getting better at diversity means finding reasons to say yes to minority candidates, not no.

In every discussion I have ever heard about diversity someone says, “We are looking for qualified candidates, of course.” Which implies that minority candidates are unqualified unless proven otherwise. It also does not take into account that a good hire is when the candidate has room to grow. Room to grow is regularly afforded white males candidates without question. In fact, it is considered part of the package. Why not the same for minority candidates? 

 Changing How We Source Candidates

Another practice that needs to change is how we source candidates. If your network is not diverse, you will need to find ways to source out of network. LinkedIn is a great resource. So is attending networking events that are affinity based or out of the norm of what you might usually do. It also means paying more attention to incoming. By incoming I mean the candidates approaching your organization looking for jobs and information. There could be a super hire out there who is not in your network but sent an email you never opened.

 Summary

We are going to have to think in new ways and get out of our comfort zones to make Diversity and Inclusion real. We are going to have to challenge ourselves. At the end of the day, it’s work.

What do you think?

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