The business case for diversity management About ACCA This paper presents research ACCA (the Association of Chartered Certified commissioned by ACCA and ESRC Accountants) is the global body for professional into the limitations of current accountants. We aim to offer business-relevant, first- choice qualifications to people of application, ability diversity management and at what and ambition around the world who seek a rewarding could be done to help organisations career in accountancy, finance and management. benefit from greater diversity and Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity inclusive cultures. and accountability. We believe that accountants bring value to economies in all stages of development. We aim to develop capacity in the profession and In particular, it considers the role encourage the adoption of consistent global standards. of the finance function in helping Our values are aligned to the needs of employers in all sectors and we ensure that, through our qualifications, gather relevant financial and non- we prepare accountants for business. We work to open financial data and developing and up the profession to people of all backgrounds and remove artificial barriers to entry, ensuring that our implementing diversity strategies, qualifications and their delivery meet the diverse needs policies and procedures. of trainee professionals and their employers. www.accaglobal.com About the ESRC The Economic and Social Research Council (ESRC) is the UK’s largest organisation for funding research on economic and social issues. It supports independent, high-quality research which has an impact on business, the public sector and the third sector. The ESRC’s total budget for 2010/11 is £218 million. At any one time it supports over 4,000 researchers and postgraduate students in academic institutions and independent research institutes. The ESRC’s research makes a difference: it shapes public policies and makes businesses, voluntary bodies and other organisations more effective as well as shaping wider society. www.esrc.ac.uk © The Association of Chartered Certified Accountants September 2014 The business case for diversity management Mustafa Özbilgin Ahu Tatli, Gulce Ipek Muhammad Sameer 4 Executive summary There is a need for refreshed enthusiasm to fuel effective diversity management and inclusion in global organisations. THE BUSINESS CASE This report responds to this challenge and presents ways in which organisations can build the business case for speeding The business case for diversity is an organisational up progress towards diversity and inclusion. There is no quick discourse that connects workforce diversity with a set of fix for this. Instead, organisations should develop customised organisational outcomes. The business case for diversity business cases that engage their stakeholders. management operates at four levels. At each level, there are different sets of justifications for adopting diversity BACKGROUND TO THE STUDY management practices. Making a robust business case continues to be the first step  Shareholder value: at the shareholder-value level, in organisational commitment to diversity management. Yet business case arguments focus on ‘single bottom line’ the evidence for the organisational outcomes of achieving arguments. In this approach, organisations typically workforce diversity is mixed, demonstrating both positive and measure the contribution of diversity to profitability, negative consequences. This is because it is the effective return on investment, effective management of management of diversity that enables improvements in budget and other resources at work. performance (Tatli and Özbilgin 2012). Drawing on interviews with diversity or finance leaders in 22 globally significant  Stakeholder value: while the shareholder-value organisations, the report explains how to make a strong approach focuses on the ‘single bottom line’, the business case for diversity management. stakeholder approach focuses on the ‘triple bottom line’ of profits, people, planet. In this approach, KEY FINDINGS organisations typically measure the contribution of effective management of diversity to profitability, There are five key findings from this study. turnover rates, satisfaction at work and among consumers and to the well-being and sustainability of • The business case for diversity is expanding its focus. This the wider social, political and ecological environment. expansion has been from shareholder value to stakeholder value, regulatory context and global value chain.  Regulatory context: at the regulatory-context level, organisations recognise the links between effective • There is growing need to develop an evidence-based regulation and accruing positive benefits from approach to the business case, to suit the needs of diversity. Regulation may, however, take multiple organisations in different locations and sectors that need forms for organisations, including self-regulation, to approach diversity in different ways. industry-regulation, legal regulation, economic • Organisations should reflect on their stakeholders, the regulation. In this approach, organisations typically demands of their business environment and the maturity measure their compliance with regulations. of their diversity management programme when crafting their business case. It is important to ask whose benefit  Global value chain: at this level, the business case the business case promotes. Answers to this question can argument connects the management of diversity to reveal the varying impact that diversity policies may have transnational and international differences. on different groups at work. Organisations typically measure the impact of the parity between different national implementations of • The finance function, with its ability to account for diversity policy. The organisation at this level does not strategic resources of organisations – one of which is the simply localise its practices but enhances cross- workforce, can play an important role in crafting the national learning. business case for diversity. • Organisations are increasingly moving from best practices to customised practices, in recognition of the fact that diversity requirements are contingent upon a range of organisational idiosyncrasies. THE BUSINESS CASE FOR DIVERSITY MANAGEMENT 5 RECOMMENDATIONS managers. The business case for diversity should be promoted through engagement. A complex set of internal Broaden the business case and external stakeholders drive organisations to build Organisations need to develop a sound understanding of the business case arguments. In developing a business case, it is business case for diversity, including the economic necessity important to focus on the multiple stakeholders, business for widening their talent pool, tackling inequality and non- environment and the stage of development of the diversity meritocratic practices, and establishing inclusive work places. programme. If the conditions in the external business Return on investment measures may be particularly useful for environment are supportive, stakeholders are vocal with their involving line managers. An effective business case needs to diversity demands and the diversity programme is mature, account for shareholder value, stakeholder value, legal the organisation can move towards developing more context, and global value chain, capturing the organisational, sophisticated business case arguments. sectoral, institutional, social and environmental impact. Business case arguments should advocate not only diversity Engage the finance function but also a culture of inclusion. The business case should move Diversity management should be seen as everyone’s beyond a narrow concept of short-term returns because the responsibility. Hence the finance function, alongside all other benefits of diversity are often accrued in the medium and functions, should play a role in the design and longer terms. implementation of diversity-management policies. The finance function needs to play a proactive and central role in Build the evidence base managing diversity processes, including data collection, Organisations need to engage in data gathering, monitoring analysis and reporting. Finance professionals’ expertise may and analysing activities in a systematic way to demonstrate offer an invaluable resource for the diversity office in the business case for diversity management in their specific developing tools for measuring the phenomena that will circumstances. Organisations should identify their available support the business case. Organisations often have a wealth data and their new data needs. Building the evidence base of employee data. The finance function can offer its expertise requires a creative flair in relating the strategic priorities of to in mining the existing workforce data so as to link diversity the organisation to the possible and actual contributions of and performance. Diversity function and the finance function diversity. Collecting qualitative and quantitative evidence is can together explore what the current data reveal about essential for building a robust business case for an effective diversity and identify future data needs. diversity management plan. Organisational diversity approaches should be sensitive to local contexts while Move from best practices to customised practices meeting national challenges and drawing on transnational To be effective, diversity management policies and and cross-national learning, which may be garnered through programmes need organisation-wide support and corporate communication strategies that target sharing of commitment. A strong business case is crucial in convincing good practice. all organisational actors about the importance of diversity management. Developing a business case for diversity is Master the business case about creating a sense of relevance, urgency and immediacy The business case should be systemic rather than ‘bolted on’ in order to gain legitimacy and achieve buy-in from senior so that diversity management becomes ‘business as usual’. executives and line managers. All these require the This requires a focus on the long-term gains rather than organisation to move from the pursuit of best practices to the quick-fix solutions. The business case arguments should development of customised practices that are sensitive to the engage with the existing projects in the organisation and circumstances of the organisation. stretch the imagination and understanding of the project 6 ACTION POINTS FOR CRAFTING A BUSINESS CASE FOR DIVERSITY MANAGEMENT  Define what diversity means for your organisation.  Identify the strategic priorities.  Know your organisation’s data sources and needs so as to align diversity policy with organisational priorities.  Take stock of current and new data.  Gather data, build trust and demonstrate integrity in the use of data.  Develop a business case by linking diversity data with business outcomes.  Achieve commitment for the business case from stakeholders.  Craft diversity strategies that are informed by the business case.  Share the responsibility for management of diversity across the organisation.  Monitor the effectiveness of the business case. THE BUSINESS CASE FOR DIVERSITY MANAGEMENT 7 1. Introduction Building a robust business case is the first step in METHODOLOGY organisational commitment to diversity management. The evidence shows that effective management of diversity is a The study involved a literature review and interviews with success factor for organisations (King et al., 2012; Özbilgin organisational leaders, and generated 22 interviews with case and Tatli, 2008). There exists a well-developed literature on study organisations and one focus group with SMEs. In the effects of diversity on the organisational performance. selecting organisations for inclusion in the research, the Earlier studies explored the link between different diversity sector, size, country of origin and diversity sophistication level dimensions (eg race/ethnicity, gender, age, nationality, were taken into account. Through the case studies, the report tenure, functional background, education) and organisational presents the complexity of the business case for diversity outcomes (eg innovation, team performance and management around the world. In the selected organisations, effectiveness, decision making quality, internationalisation, interviewees were either a senior diversity practitioner or a corporate reputation, and financial performance). Yet the senior finance leader. results are inconclusive, with research demonstrating conflicting diversity outcomes (see Urwin et al. 2013). It is the effective management of diversity that is crucial. Drawing on 22 case studies in globally significant organisations, the present report outlines the state-of-the-art practices in creating the business case for diversity management. . AIMS OF THE RESEARCH The report answers five critical questions. Two of these relate to broadening the business case. • What is the existing evidence base on workplace diversity and its impact on business performance and innovation? • What motivates business diversity policy? A third relates to building the evidence base. • Through what means does the evidence suggest that increased diversity can result in improved business performance? How is this manifested? The fourth is concerned with mastering the business case. • How do organisations understand the business case, plan diversity into their strategies, and implement and monitor diversity policy in line with their business case? Lastly, there is the question of moving from best practice to customised practice. • What does ‘customised practice’ in policy and implementation look like? 8 2. The finance function and the business case for diversity Diversity management has traditionally been associated with ‘diversity and inclusion’ scorecard for finance in order to human resource management and therefore the role of the monitor the effects of gender diversity across processes of finance function in managing diversity has not been examined talent acquisition and career management. This system previously. In order to fill this gap, we explore the role that the helped to link diversity to the business priorities for finance. finance function plays in managing diversity and mastering the business case. In other organisations, the finance function does not appear to play a prominent enough role in leading diversity The finance function plays different roles in different management, although there is some awareness of its organisations. In some organisations it plays a strategic role, possible significance for the finance function. In the in others it can provide a service to other strategic organisations studied, diversity management was often departments. The relationship between the finance function something that happened to the finance function. and diversity management has been similarly varied. The finance function is not considered a natural home for diversity One of the challenges that the finance function experiences is management. Yet it is important for the finance function and skewed representation in the function and in senior positions diversity management to form an effective partnership in the and leadership in these departments as the function itself is organisation. This leaves a wide scope for developing lacking in diversity among its staff. To develop a robust business case arguments for integrating diversity business case to address this problem, employee data are considerations into finance function operations. needed. The finance function can help gather evidence on the HIGHLIGHTS FROM ACCA/IMA GLOBAL ECONOMIC financial impact of diversity management. Finance staff can CONDITIONS SURVEY develop diversity indicators and indices for return on investment, impacts on internal and external stakeholders, The finance function has the potential to play a distinct role compliance with sectoral and legal regulation, and both in advancing diversity management and in collecting transnational parity in global operations. The finance function and analysing the evidence on the business case for diversity serves a role in accounting for the strategic assets of management. The ACCA/IMA Global Economic Conditions organisations. Diversity is a key strategic asset (Alcázar et al. Survey that was conducted in the first quarter of 2013 2013) and the finance function has a role in monitoring included four questions on diversity. The results based on the effective management of diversity as one of the capitals in responses from 1,299 ACCA and 644 IMA Members are the organisation. ‘The capitals are stocks of value that are presented in Table 2.1. increased, decreased or transformed through the activities and outputs of the organization. They are categorized in the The majority of the participants in the survey considered International Integrated Reporting Council’s (IIRC) Framework workforce diversity to be an important issue (61%). This figure as financial, manufactured, intellectual, human, social and demonstrates an increasing awareness of diversity among relationship, and natural capital’ (IIRC 2014: 4). In the finance finance professionals. Even so, one-fifth of the participants function, the value of non-financial capital, such as human did not consider diversity to be an important issue, capital, is increasingly recognised as a strategic resource. suggesting that there is work to be done to raise awareness Effective use of human capital, and of diversity as a key across finance functions about the role that they may play in component of that, facilitates the partnership of the finance workforce diversity policy. function and diversity management. The workforce diversity data that organisations collected are The finance function may also help by looking deeply into the often limited to that on gender and a few other categories. information that the organisation already has for leveraging The data show that gender diversity is often lacking within diversity. This can be done through accounting for direct the finance function itself, particularly in relation to gender costs and hidden costs when considering ways in which representation in higher echelons of the function. The diversity is managed. perception of diversity differs, however, according to the survey, which shows that 70% of the participants believe that In one organisation, the finance function has developed its there is sufficient gender diversity. More than half of the own diversity metric and priorities. Supported by the global participants also note age and educational background as finance leaders of the company, the function designed a categories across which they find their organisations to be THE BUSINESS CASE FOR DIVERSITY MANAGEMENT 9 diverse. Participants report much lower levels of diversity the creativity and innovation in organisations, followed by across categories of political affiliation, sexual orientation and business performance and problem-solving and decision- disability in their organisations. These findings are similar to making outcomes. These findings are not surprising those in an earlier national study in the UK (Tatli et al. 2008). considering that many organisations have been interested in the evidence of the relationship between workplace diversity Table 2.1: Diversity in the finance function and performance and innovation. Under which of the following criteria do you consider your finance and Diversity should be built into the objectives of all operational accounting department to be diverse? areas, not just finance alone. In this way, the business case Diversity category Proportion of may be tailored according to the specific needs and priorities participants of each functional area in the organisation. Developing such Gender 70% specific functional business cases can help eliminate possible backlash or resistance. Age 69% Educational background 56% The case study below gives an example of good practice Marital status 45% through proactive involvement of the finance function in Socio-economic background 45% managing diversity. Ethnicity 44% Family responsibilities 40% Nationality 36% CASE STUDY Languages spoken 35% Shell: Finance function driving the diversity agenda Religious beliefs 31% Shell is a global group of energy and petrochemicals Cross-cultural skills 27% companies. Shell reports promoting diversity and Political affiliation 19% inclusion to give all its employees the opportunity to develop their skills and talents in line with corporate Sexual orientation 13% values and objectives. Shell General Business Principles Disability 9% identify one of the corporate aims as creating an Other – please specify 2% inclusive work environment with equal opportunities. An interview with the vice president of finance showed When asked about the effectiveness of a range of workplace that the finance function, with the assistance of a global diversity activities, participants reported the following steering committee, focuses closely on diversity activities as most effective: (a) a competency framework that management. Global finance leaders of the company defines the knowledge, skills, and attributes needed by have a strong commitment to diversity and they actively employees (45%), (b) targeted recruitment and retention promote diversity in the finance functions. This senior (38%), (c) flexible working (40%). This picture is in line with leadership support has helped inculcate a positive arguments that a balanced approach to workplace diversity cultural shift in the finance function towards recognising should consider merit and diversity as complementary rather the value of diversity. The diversity leaders in the finance than competing ideas (Tatli et al. 2013). Targeted recruitment function believe that ‘winning hearts and minds’ is not and retention strategies are also considered to be effective enough alone; structures, targets and processes are alongside flexible working arrangements. Furthermore, it is needed to produce significant improvements in important to put a caveat here that merit itself is not a outcomes and to initiate a culture change. Currently, the concept that is free from biases. Merit should also be function has a global emphasis on gender diversity. In considered from a wider perspective. Narrow and biased addition, the need to go beyond gender is recognised definitions of merit should be avoided. and there is a significant effort to increase ethnic diversity, with a particular attention to Asian talent, Workforce diversity interventions received variable ratings for given Shell’s customer base and capital investment. their contribution to aspects of core business concerns. Diversity management is considered to contribute most to 10