Until recently, many companies considered diversity a “nice to have.” Companies supported diversity and inclusion because they wanted to be good citizens because it was the right thing to do, and – for some, cynically – because it was good PR. But now research is proving the business case for diversity and inclusion. It’s not just nice to have – it’s critical to building a great, enduring company. Creating a diverse and inclusive culture is essentially its own business mechanism for solving for diversity and inclusion.
Leading consulting firms are emphatic about this point. Deloitte reports that “research shows that diversity of thinking is a wellspring of creativity, enhancing innovation by about 20 percent. It enables groups to spot risks, reducing these by up to 30 percent.” A 2018 McKinsey study of companies around the world discovered similar results.“ Companies with the most ethnically diverse executive teams are 33 percent more likely to outperform their peers on profitability.” And there’s a penalty for not being diverse: “Companies in the fourth quartile on both gender and ethnic diversity are more likely to underperform their industry peers on profitability by 29 percent.”
Amazon and Netflix are two of the most admired companies in tech – admired not just for their astounding success, but for the way they are run. For different reasons, the two companies understand the business case for diversity and inclusion. “Our work has to be internal first, so it can impact what we do externally,” Netflix says. “We believe we’ll do that better if our employees come from different backgrounds, and if we create an environment of inclusion and belonging for them.” Netflix’s diversity helps it develop content that appeals to all kinds of people, everywhere in the world. It also helps the company understand how to deliver that content to anyone who wants it – “removing the barriers of language, device, ability or connectivity.”
How does Netflix achieve diversity? A great deal of it comes from hiring and promoting with diversity and inclusion in mind. The company reports that its employee base is about 45 percent White, 9 percent Black, 8 percent Hispanic, 24 percent Asian, and the rest a mix of other ethnicities, and it’s about evenly split between men and women. The leadership team is about 57 percent White and evenly split between men and women. Once people are inside Netflix, the company says, it’s important to make them “feel like they have a home here.” To help with that, Netflix created “Employee Resource Groups” such as Black@Netflix and Dream@Netflix (for “immigrant populations and allies”).
The company’s overall point is that to excel, Netflix must nurture a culture that values diversity not just because it’s right, but because it is good for business.
Amazon also believes in the business case for its diversity mindset. The company has what it calls its “Amazon pledge,” and it begins this way: “Diversity and inclusion are good for business—and more fundamentally—simply right. Customers represent a wide array of genders, races, ethnicities, abilities, ages, religions, sexual orientations, military status, backgrounds, and political views. It’s critical that Amazon employees are also diverse and that we foster a culture where inclusion is the norm.”
The company reports that in 2020 its U.S. workforce was 32 percent White, 27 percent Black, 23 percent Hispanic and 14 percent Asian. The management level skewed White (56 percent) and less diverse. Male employees outnumbered females, 55 percent to 45 percent. Also like Netflix, Amazon seems to understand that just having diverse employees isn’t enough – they must also feel at home and that they have an equal voice in the business. An employee survey led the company to this definition of inclusion: “Being valued, trusted, connected, and informed so that we can deliver the best results for our customers.” And Amazon says it uses that definition to guide it when developing programs and benefits that foster an inclusive culture. (Whether the programs are succeeding is up for debate: Some press accounts in 2021 said Blacks were systematically kept out of senior positions. Amazon denied the allegations.)
Internal diversity when serving a diverse world makes obvious business sense, but the business case for closing the economic gap between higher-paying jobs and lower-paying jobs is more nuanced.
Dan Schulman joined Paypal as CEO in 2014. In his previous position as a group president at American Express, he funded a documentary called Spent: Looking for Change, about the difficulties of being one of America’s unbanked. When he came to PayPal, he declared that the company’s mission would go beyond giving people a way to send money around. He wanted to “make financial services universally affordable and accessible.” If PayPal was going to do that for the world at large, Schulman declared, it had to have that same sensitivity to the struggles of the lowest-paid PayPal employees.
In 2017, Schulman established an “employee relief fund” to aid lower-level workers experiencing financial trouble. He initiated a survey of employees in 2018 and found that 60 percent of workers had little extra money for emergencies or education. The 2020 pandemic added a new level of financial stress to those workers, as many faced mounting healthcare costs while at the same time being asked to work harder for the same pay since the pandemic set off a PayPal boom as more commerce shifted online.
Schulman realized he had to do something about the large gap between the lower-paid employees and the rest of the company. “Imagine asking people to double down on serving customers when they’re more financially stressed than ever before when they don’t even have healthcare benefits,” he told Insider. So PayPal raised wages for lower-level workers by about 7 percent – not a huge amount, but enough to ease money worries – and gave them restricted stock units so they could share in PayPal’s success. The company also covered more healthcare costs, cutting the amount lower-level employees contribute by around 58 percent.
What happened? Employee turnover has been cut in half, which means that experienced employees stay while saving the company the costs of recruiting and training new workers.
PayPal grew at a record pace in 2020 and the stock price more than doubled that year. Perhaps the company would’ve done as well if it had never instituted programs to address financial inequality, but Schulman believes the policies paid for themselves and left PayPal with a reputation as a great place to work. Glassdoor has PayPal at a 4.1 rating with 4,500 reviews and Schulman has a 94 percent approval rating.
The companies that solve for diversity and inclusion internally tend to make the best products, innovate faster, avoid unintended consequences, lure top talent and, in the end, have the best business outcomes – all while helping close society’s wealth and opportunity gaps. No founder or CEO can ignore those results.
Editor’s Note – This guest blog post is an excerpt from Intended Consequences: How to Build Market-Leading Companies with Responsible Innovation by Hemant Taneja, pp. 67-71 (McGraw Hill, January 2022) We also published an excerpt on how to build a responsible innovation company.