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CEB CORPORATE LEADERSHIP COUNCIL

Business Case for Workplace Diversity


A recent survey from the Society of Human Resource Management reveals that 3 out of 4 executives consider diversity to be a key component of nearly every business initiative and
policy. This resource enables executives to build a data-driven business case for diversity investments.1,2
Table of Contents

IMPROVE CORPORATE FINANCIAL PERFORMANCE

Statistics: Racial and Gender Diversity Improve Company Financial Performance


Diversity Drives Innovation to Meet Consumer Needs
Case Examples: Leveraging Diversity to Drive Financial Success

WIDEN TALENT POOL

ENHANCE CORPORATE REPUTATION AND MANAGE DISCRIMINATION RISKS

Improve Corporate Reputation


Reduce Litigation Risks
Case Example: Leveraging Diverse Workforces to Mitigate Discrimination Claims

APPENDIX

Please note that the CEB program names referenced in this document have changed since the time of publication.

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Improve Corporate Financial Performance


Statistics: Racial and Gender Diversity Improves Company Financial PerformanceOrganizations with higher racial and gender diversity report better financial performance, as
3,4,5
highlighted below:

Figure 1: Impact of Racial Diversity on Financial Performance*

Average Revenues

Low Diversity
Organizations

Medium Diversity
Organizations

High Diversity
Organizations

$3.1 million

$3.9 million

$5.7 million

Figure 2: Impact of Corporate Board Gender Diversity on Financial


Performance*
13.9%

15%

9.1%

9.7%
7.7%

Average Number of
Customers

23,415

Percentage of
Organizations
Experiencing Higherthan-Average Market
Share

54%

Percentage of
Organizations
Experiencing Higherthan-Average
Profitability

13.7%

38,254

45,525

8%
4.7%

66%

72%

0%
Return on Equity (ROE) Return on Sales (ROS)
52%

61%

72%

*Based on a study by Professor Cedric Herring at the University of Illinois presented in 2006
using data from the National Organizations Survey, a survey of 251 U.S. for-profit businesses.

Return on Invested
Capital (ROIC)

Low Diversity Organizations (Bottom Quartile) n=132


High Diversity Organizations (Top Quartile) n=129
*Based upon the four-year average for ROE, ROS, and ROIC for 2001, 2002, 2003, and 2004,
and women board director data for 2001 and 2003. Financial data for the companies examined
were obtained from the Standard & Poors Compustat database. Due to movement in and out
of the Fortune 500, there are 520 companies in this analysis; the top quartile comprises the
companies with the highest average percentage of women board directors while the bottom
quartile comprises the companies with the lowest average percentage of women board
directors.

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Improve Corporate Financial Performance


Workplace Diversity Improves Financial Performance by Driving Innovation to Meet Customer NeedsOrganizations with working diversity strategies improve financial
performance by leveraging the innovation and creativity of a diverse workforce to meet customer needs. For example, diverse employees may be better equipped to:6,7

Build employee relationships to improve group performance and productivity


Challenge long-accepted views
Create dynamic environments leading to increased productivity
Drive overall flexibility of the organization to adapt to changing marketplaces
Increase diversity of thought enhanced by a variety of backgrounds and experiences

Case Examples: Leveraging Diversity to Drive Financial SuccessThe following examples demonstrate the financial impact of workforce diversity:

Safeway Leverages Workforce Diversity to


Succeed in a Competitive Industry

8,9,10

Frito-Lays Employees Assist in Successful


New Product Creation

Situation: Approximately ten years ago, Safeway supermarkets faced


increasingly stiff competition from both upscale specialty grocers and discount big
box retailers.

Situation: Recognizing the growing minority purchasing power in the


marketplace, Frito-Lay sought to improve the authentic flavor of its new product,
Doritos Guacamole Flavored Tortilla Chips.

Action: Safeway made efforts to broaden the diversity of its workforce to better
reflect its customer base made up of approximately 70% women. Efforts to
enhance and support the diversity of Safeways workforce included the following
actions:
Refocused its retail leadership development program on women and minorities
Implemented five leadership networks for different workforce demographic
groups
Emphasized the importance of mentoring, particularly for women and
minorities
Emphasized work-life balance programs and benefits

Action: Frito-Lay worked with its Latino Employee Network to provide feedback
about the taste and packaging of the product.
Result: Via the insight provided by the Latino Employee Network, the launch of
Doritos Guacamole Flavored Tortilla Chips was one of the most successful
product launches in the companys history, generating more than $100 million in
sales in the first year.

Result: Safeways diversity programs led to significant advancement for women


and minorities at both retail and corporate locations, and increased the companys
sales and earnings to $40 billion.

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Widen Talent Pool


Organizations should frame diversity within larger talent management strategies to ensure the attraction and retention of qualified, diverse talent. By establishing a comprehensive
diversity strategy, organizations can recruit from a wider talent pool. A diverse workforce can also reduce turnover, as employees with different backgrounds will feel more comfortable in
11
the workplace. As shown by the projected demographic shifts below, organizations will need to target recruitment diverse talent in order to meet overall organizational talent needs:

Figure 3: Projected Demographic Shifts in the U.S. Workforce, 2006-2016

Aging Workforce

Growing Minority Population

Growing Female Population

According to the U.S. Department of


Labor, the primary working age group
workers aged 25 to 54 yearsis projected
to decline from 68% of the workforce to
65% between 2006 and 2016. Across the
same time period, the workforce aged 55
and older will grow significantly from 17%
to 23%.

The U.S. Department of Labor estimates


that white, non-Hispanic persons will
compose a decreasing share of the U.S.
workforce, shrinking from 69% in 2006
to 65% in 2016. All other racial groups will
make up a slightly increasing share of the
workforce including African Americans,
Asians, and Hispanics. In particular, the
Hispanic workforce will grow most
significantly from 2006 to 2016, increasing
from 14% to 17% of the workforce.

Gender breakdown of the U.S. workforce


is expected to shift very slightly, with the
percentage of male workers decreasing
from 54% to 53% between 2006 and 2016
and the percentage of females increasing
from 46% to 47%.

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Enhance Corporate Reputation and Manage Discrimination Risks


Diversity can create an inclusive organizational culture, which in turn enhances corporate reputation in the marketplace and improves the organizations ability to source new talent. Also,
by integrating appreciation of diversity into corporate culture, organizations can mitigate litigation risks.
Workplace Diversity Improves Corporate ReputationKey constituents (investors, consumers, employees, and communities) increasingly hold organizations more accountable for
ethical behavior and corporate social responsibility; this can involve hiring workers from all segments to which they sell their products.12
Workplace Diversity Reduces Litigation RisksBy integrating an appreciation for diversity into corporate culture, organizations can reduce internal disputes and the likelihood of
discrimination claims.13 According to data collected by DiversityInc, since 1996, race and gender discrimination lawsuits have cost U.S. companies $974 million in settlements (excluding
costs related to decreased market shares, attorney fees, etc.). However, according to a Society for Human Resource Management (SHRM) survey, 41% of respondents report that
diversity programs decrease employee complaints and litigation.14 Organizations can reduce these costs by implementing a comprehensive diversity strategy; specifically, leveraging
diverse employee groups to ensure that company policies and benefits prevent discrimination.15,16,17
Case Example: Leveraging Diverse Workforces to Mitigate Discrimination ClaimsThe following case example demonstrates how American Express gay and lesbian employee
networking group drove implementation of domestic partner benefits to proactively mitigate possible discrimination claims.
American Express Pride Network Enhances Employee Benefits
In the late 1990s, American Express (AmEx) gay and lesbian employee networking group, the
Pride Network, developed a cost-benefit analysis examining the provision of domestic partner
benefits. The group presented the case to the companys chairman, and AmEx instituted domestic
partner benefits in 1997, thus increasing the satisfaction of this demographic group and proactively
mitigating potential discrimination claims.

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Appendix
Corporate Leadership Council Research on Workplace Diversity
This appendix includes a brief overview of selected Corporate Leadership Council resources on workplace diversity.
Creating an Effective Diversity Strategy, Corporate Leadership Council, March 2007
To assist members in creating a workplace diversity strategy, this document outlines the eight imperatives of a successful strategy, including the following:

Communicating Diversity Strategy

Structuring the Diversity Leadership Team

Defining Diversitys Business Case

Recruiting Diverse Employees

Developing Diverse Leaders

Retaining Diverse Employees

Measuring Diversity Initiatives

Training the Workforce about Diversity

Chief Diversity Officer: Understanding the Role and Its Impact, Corporate Leadership Council, February 2008
This document explores the Chief Diversity Officer (CDO) position, including responsibilities, management objectives, competencies, and reporting relationships. It also provides sample
diversity strategies and role descriptions, as well as assessment criteria for CDO candidates.

Tip for Accessing CLC Resources Online


Please note that resources available on the CLC Web site may be accessed by visiting the Web site at http://www.clc.executiveboard.com, logging in using your username and password,
and then selecting the links below. If this is your first visit and you do not yet have a password, please click on "Get a Username and Password" on the right side of the screen. You will
need to enter your business e-mail address and some additional information; your log-in information will then be emailed to you within one business day. Check "Remember Me" to log
directly onto the site on future visits.

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NOTE TO MEMBERS
This project was researched and written to fulfill the research request of several members of the Corporate Executive Board and as a result may not satisfy the information needs of all
member companies. The Corporate Executive Board encourages members who have additional questions about this topic to contact their research manager for further discussion. The
views expressed herein by third-party sources do not necessarily reflect the policies of the organizations they represent.
PROFESSIONAL SERVICES NOTE
The Corporate Leadership Council (CLC) has worked to ensure the accuracy of the information it provides to its members. This project relies upon data obtained from many sources,
however, and the CLC cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the CLC is not engaged in rendering legal, accounting, or other
professional services. Its projects should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult
an appropriate professional. Neither Corporate Executive Board nor its programs are responsible for any claims or losses that may arise from any errors or omissions in their reports,
whether caused by Corporate Executive Board or its sources.

Corporate Leadership Council, Creating an Effective Diversity Strategy, Washington: Corporate Executive Board (March 2007).
(Available at https://www.clc.executiveboard.com/Members/ResearchAndTools/Abstract.aspx?cid=100058840.)
2
Society for Human Resource Management, "Workforce Diversity Practices Survey Report," SHRM White Paper (2005). (Obtained through www.shrm.org).
[Accessed 18 March 2008]. (Due to copyright restrictions, a copy of this article cannot be provided.)
3
Author unknown, "The Color of Money," Best's Review (August 2007). (Obtained through ProQuest).
4
Herring, Cedric, "Does Diversity Pay? Racial Composition of Firms and the Business Case for Diversity," University of Illinois (August 2006).
(Available at http://sharepoint.agriculture.purdue.edu/agit/extension/Shared%20Documents/DoesDiversityPay0806.txt). [Accessed 18 March 2008].
5
Catalyst, "The Bottom Line: Corporate Performance and Women's Representation on Boards," Catalyst (2007).
(Available at http://www.catalyst.org/knowledge/bottomline2.shtml). [Accessed 18 March 2008].
6
Corporate Leadership Council, Creating an Effective Diversity Strategy.
7
Bowes, Barbara J., "The Business Case for Workplace Diversity," CMA Management (December 2007/January 2008). (Obtained through ProQuest).
8
Pomeroy, Ann, "Cultivating Female Leaders," HRMagazine (February 2007). (Obtained through ProQuest).
9
Corporate Leadership Council, Creating an Effective Diversity Strategy.
10
Johansson, Frans, "Masters of the Multicultural," Harvard Business Review (October 2005). (Obtained through Lexis-Nexis).
11
U.S. Department of Labor, Bureau of Labor Statistics, "Tomorrow's Jobs," Bureau of Labor Statistics (2007). (Obtained through http://www.bls.gov/oco/oco2003.htm). [Accessed 19 March 2008].
12
Corporate Leadership Council, Driving Social Responsibility through an Organization, Washington: Corporate Executive Board (February 2006).
(Available at https://www.clc.executiveboard.com/Members/ResearchAndTools/Abstract.aspx?cid=2272949&.)
13
Prince, Michael, "Anti-Discrimination Training Useful to Prevent Bias Claims," Business Insurance (27 January 2003). (Obtained through Factiva).
14
Society for Human Resource Management, "Impact of Diversity Initiatives on the Bottom Line," SHRM White Paper (2001). (Obtained through www.shrm.org).
[Accessed 19 March 2008]. (Due to copyright restrictions, a copy of this article cannot be provided.)
15
Corporate Leadership Council, Creating and Effective Diversity Strategy.
16
Corporate Leadership Council, Employee Resource Groups' Focus and Contribution, Washington: Corporate Executive Board (October 2006).
17
Cole, Yoji, "Employee Affinity Groups: In Lean Times, Smart Companies Use Them as Business Tools," DiversityInc, (20 September 2002).
(Obtained through www.diversityinc.com). [Accessed 17 March 2008.]

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Please note that the CEB program names referenced in this document have changed since the time of publication.

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