Business is starting to think more about ROI than DEI

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Several days ago, over the Martin Luther King Jr holiday weekend in the US, the big four accounting firm PwC announced that it would be dropping some of its diversity targets in the US. Race-based criteria would no longer be used for awarding scholarships or places on an internship programme.

It was odd timing for the announcement, perhaps, but it reflected a broader American trend. Since the Supreme Court’s decision last June to reverse affirmative action, many companies are rethinking their DEI — or diversity, equity and inclusion — strategies.

Let’s be clear: nobody doubts the fundamental benefits of a diverse workforce. There’s a large body of long-term research showing that when it’s higher, particularly in executive teams, companies are more profitable. That’s a no brainer. If your staff reflects an increasingly diverse customer and supplier base, your organisation will do better in the marketplace. The problem is that in recent years, DEI has often become too politicised and performative, particularly in America.

Over the past decade, following the emergence of the Black Lives Matter movement and then accelerating in the wake of the 2020 murder of George Floyd by a police officer in Minneapolis, companies “jumped on the DEI bandwagon”, as Diana Scott, head of the Human Capital Center at the Conference Board, puts it.

Business spent hundreds of millions on big diversity initiatives, unconscious bias training and PR campaigns linked to identity politics. “But they didn’t think things through very well,” Scott says. “What does all this really mean? What’s the business case? Can we quantify it?” 

Now, say Scott and other DEI experts, not only are the same conservative activists who pushed back on so-called campus “woke-ness” filing legal suits against companies’ DEI programmes, but “boards are asking for the results of these programmes — and in many cases, companies can’t quantify them”.

This reflects something that has become endemic in many workplaces over the past few years — an uncritical attitude towards inclusion without clear, fact-based communication about the metrics that really matter: engagement, retention, promotional strategies, leadership pipelines and, crucially, clarity on how this all relates to the core business objectives of the company. Another email from HR about happy hour to celebrate a particular identity day is not enough.

Things are about to change. Not only has the legal landscape in the US shifted, but the cultural winds are changing direction too. The ousting at the beginning of January of Claudine Gay, the first black Harvard University president, amid concerns about antisemitism on campus and plagiarism allegations, was a significant moment. Her support of DEI policies had also fuelled much of the criticism from the right.

What’s more, the current economic volatility and uncertainty has business leaders thinking more about ROI (return on investment) than DEI. That’s predictable — when chief executives sense the possibility of slowdown, they tend to focus on their core business propositions.

While this doesn’t mean companies are dumping their diversity programmes altogether (not a single respondent in a recent Conference Board study said they were scaling back DEI in 2024), they are clearly changing their approach. Quotas — always contentious and now legally dubious — are out. Clear board-ready metrics are in.

This could actually be good for inclusion in the long run. One of the things that will be front and centre as companies continue to grapple with inflation is how to get and keep the best talent in a very tight labour market. That will in turn force them to move on from merely performative activity and do some real soul searching about how to deliver diversity.

Scott remembers a company she worked with long ago that was shocked to discover it systemically ranked women employees higher than men on performance, but lower on potential. Why? Because, it turned out, male bosses tended to assume that women of child-bearing age or with families wouldn’t want to be considered for certain types of positions — client-facing jobs with lots of travel, say. As a result they failed to ask if they wanted to apply for them, or think about how to make such jobs work for a broader group of employees. Talk about cognitive bias.

Then there’s the question of what diversity even is, or will be, particularly in a country like the US, which could be “majority minority” by 2045. Or how global companies that have operations in countries with many different definitions of diversity should think about it. Should they use the definition that is politically popular in a given location? It’s easy to see how slippery the conversation can quickly become.

That’s why I think that just as the Supreme Court’s rejection of affirmative action presented a silver lining for universities to think more deeply and honestly about identity and inclusion, so this will be a good moment for companies to do so as well.

They should focus on the core truth, which is that smart companies make themselves attractive to the broadest number of talented people not by virtue signalling, but by creating real opportunity for the many. Doing so is good not just for inclusion, but for business.

rana.foroohar@ft.com