Is Diversity, Equity & Inclusion bad for business?

Recently, there has been a surge on social media stating that diversity, equity, and inclusion (DEI) are bad for business. Some of the world’s largest firms have also significantly reduced their investment in diversity and inclusion. But what does this mean for boards that do believe diversity and inclusion are good for business? Should they change how they approach this agenda, and if so, how?

In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses whether DEI is bad for business with Prof Grace Lordan from the London School of Economics, Founding Director of The Inclusion Initiative, economist, and labour market skills expert. Her research focuses on inclusive leadership, women’s progress in the workplace, the future of work, and productivity through diversity and individual success. Grace was an expert advisor and board member of the UK government’s Skills and Productivity board and currently leads the £2 million ESRC-funded diversity and productivity from education to work (DAPEW) project.

“What boards need to think about is how inclusive are their teams at the micro level, so that when they aggregate, we get those productivity gains”

Grace opens by considering an example – an imaginary scenario where DEI might negatively impact business. Imagine starting a new job and meeting your team for the first time, being different in some way – perhaps gender, ethnicity, or language. You have valuable knowledge and are excited to contribute, but you’re repeatedly interrupted or ignored when you speak up.

In this situation, you could respond in one of four ways:

Silence: Stop speaking up and be labelled an introvert – harmful since your insights are lost.
Dissent: Argue your point – but if the team resists, the atmosphere can become toxic, harming productivity.
Quitting: Leave, taking your diverse perspective with you – resulting in no impact on the team.
Conformity: Conform to the majority view to avoid conflict – leading to groupthink and stifling innovation.

These responses show how poor inclusion can make DEI detrimental to business. However, DEI becomes beneficial if a manager fosters an inclusive environment where diverse perspectives are actively heard and valued. For productivity gains, boards need to ensure their teams have inclusive leaders who encourage diversity and prevent conformity and groupthink.

“The biggest thing we can do is say this board doesn’t engage in consensus-based decision making”

Grace notes that it is key for boards to consider both what’s happening in the room and any member’s desire to “fit in”. She attributes many big behavioural risk scandals to groupthink at the team level and board members aware of a potential issue but who fail to speak up because they don’t want to upset the apple cart. These dynamics, both at the local team and board levels, are very problematic for boards. To drive inclusive behaviours within the executive team, Grace suggests board members should focus on several strategic actions.

Firstly, move away from consensus-based decision-making, which often suppresses diverse viewpoints. Instead, adopt a “disagree and proceed” approach, allowing decisions to advance despite dissenting opinions and encouraging a broader range of perspectives. She advocates establishing a system to track, understand, and register dissenting opinions, performing post-mortem analysis to assess decision-making quality and whether certain perspectives are being overlooked. Boards should cultivate an environment where robust and open debates are encouraged, welcome disagreement and will not impede the board’s progress, and foster a culture where challenging issues are addressed openly.

She advises that boards focus discussions on high-stakes and critical issues, allocating appropriate time for reflection on these and preventing minor issues from overshadowing important discussions. Distributing discussion papers in advance and encouraging board members to submit their perspectives in writing can help avoid groupthink and ensure that a diverse range of viewpoints is considered during meetings.

“These good habits, unfortunately, haven’t necessarily infiltrated boards yet”

Behavioural changes are vital to advancing diversity, equity, and inclusion (DEI) in organisations, not only at the board level. Grace outlines how to promote inclusive behaviours, starting with establishing clear rules for meeting hygiene. These guidelines will ensure everyone has an opportunity to speak. Such rules can support new or underrepresented voices because these members may find it daunting to navigate unwritten norms. Clear guidelines reduce this uncertainty and foster a more welcoming environment. To encourage concise contributions and various perspectives, Grace gives the example of introducing structured speaking time, allowing each person to speak for a set period with a “no interruptions” rule, after which interruptions are permitted. This balances in-depth discussion and inclusivity, managing discussion flow and maintaining fairness.

Grace emphasises that these practices should apply across all organisational levels—including boards—to ensure that inclusive behaviours permeate throughout the organisation. This approach supports better decision-making and cultivates a more innovative and productive business environment.

“If you invest in an inclusive culture, you should see gains in the fundamentals. You definitely won’t see losses”

The relationship between diversity and business productivity is well-documented. However, Grace’s research explores the broader implications of inclusion on fundamental business metrics such as growth, innovation, patent filings, stock returns, return on equity, and return on assets. She and her colleagues gathered extensive data on listed companies in the UK and US, with sources including employee reviews to gauge internal perceptions of inclusion. This feedback allowed them to develop a comprehensive measure of inclusion, and the research established a clear, positive relationship between inclusion and long-term business outcomes. Interestingly, diversity alone showed gains only after reaching critical mass; however, when inclusion is paired with diversity, the need for a high critical mass diminishes. Put simply, inclusion amplifies the impact of existing diversity. Investing in inclusive practices fosters a positive work environment and drives innovation and growth, proving beneficial in the long run.

“Millions and millions of pounds are wasted each year on diversity equity and inclusion initiatives”

Grace notes that to realise productivity gains, board members must prioritise fostering a culture of inclusion, where diversity is genuinely valued and diverse talents are not pressured into conformity. Diversity should enhance creativity and innovation rather than lead to groupthink. Investing in inclusive leadership is also crucial. Developing and supporting leaders who actively promote inclusive behaviours creates environments where all voices are heard and diverse perspectives valued. Measuring and rewarding inclusive behaviours is also essential, as is evaluating the return on investment (ROI) of inclusion efforts. Monitoring the ROI by linking inclusion to key business outcomes like innovation, stock returns, and overall financial performance helps gauge the effectiveness of inclusion initiatives. Grace also notes that integrating DEI initiatives (rather than outsourcing them to consultants or confining them to the HR department) ensures they influence all levels of decision-making. By focusing on these actions, board members can ensure that the investment in inclusive practices translates into tangible productivity gains and long-term business success.

The three top takeaways from our conversation are:

• Integrate inclusion with diversity: Ensure that diversity and inclusion strategies are embedded within the business itself, not confined to HR or external consultants.
  
• Audit and enhance boardroom voice: Boards must pay attention to who has a voice in discussions, ensuring sufficient cognitive diversity. Regularly audit and adjust the composition to foster robust, diverse debates.
  
• View DEI as a long-term strategy: Treat DEI as a long-term investment, particularly valuable for companies focused on growth and innovation. Prioritise creating a culture where team members feel comfortable challenging each other, driving real business gains.

 

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