Diversity In the C-Suite Is All About the Economics of Inclusion

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In recent months I’ve had the good fortune to speak with several authors and thinkers working in the Diversity & Inclusion field, and all of them shared with me a genuine sense of frustration at the slow progress minorities and women have made into the C-suite.  In thinking about this issue, and reflecting back on my leadership roles, it strikes me that we talk a lot about the social aspects of D&I in business but not much about the economics. Yet in D&I, as with so many other aspects of life, economics is a good lens through which to see this issue.

Perhaps the most basic economic aspect of D&I is the economic value of inclusion. In other words, what is the value of giving a seat to a diverse candidate that in past times would have gone to a traditional hire? Let’s take an overly simplified example and look at it from a lifetime value perspective: an associate-level hire in a consulting firm. Assuming an associate makes $125K a year and typically stays at that level for 3 years, we can argue that the economic value of an associate chair in the consulting firm is $375K at the time of the hire. Let’s say that after three years the associate becomes a manager with a salary of $175K and that most managers stay in that role for five years. In this case, the manager’s chair has a value of $875K at the time of promotion. After three years, the manager becomes a director. If all goes well, the director stays at that level for five years trying to make partner. Assuming a salary of $250K, the director’s chair has a value of $1.25M. After five years, our director makes partner and, assuming she holds that title for 20 years at a salary of $500K, that chair has a value of $10M at the time of selection. We can summarize this economic value progression as follows:

  • Associate Chair: $375K
  • Manager Chair: $875K
  • Director Chair: $1.25M
  • Partner Chair: $10M

A stroll through most consulting firms looking for diversity will lead one to find a very diverse talent pool at the associate and manager levels, which gets increasingly more white and male at the director and partner level. The same is true for most corporate organizations. Indeed, I could easily make a corporate version of the progression outlined above, with the notable change that a CXO chair can be worth tens of millions and CEO chair can be worth $100M+. With even a basic understanding of the economic value of inclusion, there should be no surprise that so many businesses are diverse at the bottom but not at the top. Looking at corporate org charts, it’s hard to ignore the fact that leaders are willing to absorb the cost of diversity at the entry and manager levels but giving up C-suite chairs is another matter altogether.

If I am right, then we can talk about the value of diversity and inclusion all day long (and in many places that’s all they do) but not much will change without addressing the hard-core realities of what it actually costs a white male management team to give up a C-suite chair to a minority or woman candidate. C-suite chairs are a zero-sum game. They are generally not created to accommodate social goals, which means that it’s strategy and economics that determine who sits in those chairs. D&I leaders should demand an honest discussion on the economic aspects of this topic and not let the discussion be solely about “reflecting society” or “the creative benefits of diversity.” Indeed, as one thought leader in this field me told recently: “The economics of D&I is really the only lens through which those in the majority see this issue.  To them, the compelling business case has not been made sufficiently.”

As with all things in corporate life, if there are benefits, then there must also be costs. Therefore, D&I leaders need to make the business to their organizations for why a white male candidate should bear the economic cost of inclusion when he, personally, has no responsibility for creating an our unfair system. Should white men simply accept the  economic cost of inclusion, like it or not? If so, then why is that discussion absent from so much of the D&I dialogue in the corporate world? Indeed, the current state of this debate reminds me of being in India during the height of the IT outsourcing wave, where I would hear Indian execs say that there was no cost to U.S. jobs moving overseas and that American IT workers who lost their jobs “would go on to find better ones.”  The fantasy that there was no cost to U.S. workers in moving IT jobs to India is just as fanciful as the idea that diverse candidates entering the C-suite happens without a cost to white male leaders.

We are talking about who gets the spoils of business success, and, again, wherever there are winners there must also be losers. Ironically, the civil rights leaders of the 60s understood this issue all too well. They knew that racism was as much about economics as it was about morality and justice. They also knew much of the negative reaction of working-class whites to the advancement of blacks was about the perceived lowering of whites’ social standing and economic benefits. This phenomenon has not changed, and we may be witnessing a similar reaction, conscious or unconscious, in business today. Is it that hard to imagine that white male senior executives are not in a rush to lose the power and privilege that has been inherent in their demographic for centuries?  Is it a crime if they aren’t? I can say honestly that it would be hard for me to do it, if the roles were reversed. Perhaps this idea helps explain why progress made in gaining even the lower-cost chairs has not advanced as much as we may like to think. A study last year published by Northwestern University, Harvard, and the Institute for Social Research in Norway noted the startling lack of progress in hiring of diverse candidates:

Since 1989, whites receive on average 36% more callbacks than African Americans, and 24% more callbacks than Latinos. We observe no change in the level of hiring discrimination against African Americans over the past 25 years, although we find modest evidence of a decline in discrimination against Latinos. Accounting for applicant education, applicant gender, study method, occupational groups, and local labor market conditions does little to alter this result. Contrary to claims of declining discrimination in American society, our estimates suggest that levels of discrimination remain largely unchanged, at least at the point of hire.

The conclusions of this study, even if exaggerated (and there is no evidence to say they were), only reinforce my point. Why should we expect the most valuable chairs in corporate life to go to diverse candidates, when we don’t want to bear that cost even at much lower levels.

In sum, the economics of D&I should be a part of this discussion anywhere we want to see meaningful change. Unfortunately, when the questions of race and gender come up, the economic considerations are typically ignored, detached or intentionally avoided. This is a mistake, and I think it helps explain the lack of progress in this area. Executive leadership roles, and the wealth and privilege that usually accompanies them, are extremely valuable goods, and no diverse candidate can gain their lifetime economic and social value without a non-diverse candidate losing them at the same time. It’s time to have this hard discussion in society. If we don’t, and let this issue continue to revolve around lofty goals and qualitative benefits, progress will continue only at the outer edges of corporate power, where D&I is a cost that can’t be avoided rather than an investment to by the corporation for the society on which it depends for survival.

 

See this post on LinkedIn.

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