Diverse Talent is an Unfair Advantage
The rest of the world will eventually catch up, but you can cash in now
We tend to think of companies’ Diversity & Inclusion efforts as a general social value or “the right thing to do.” That’s why some fear that progress towards bringing more diversity into the hiring process will suffer during the financial pressures of COVID-19—i.e. in a world where there is massive profit pressure, it’s a nice-to-have, higher-level benefit.
I don’t know how individual companies or the broader market will react, but I am increasingly confident that diversity is a profit-driving must-have. Those who miss this will be on the losing side of history. The best way to drive change might be for you to exploit this unfair advantage while your competitors have committee meetings and push “supportive” social media posts.
The Data is Real, and Stunning
The business world is only one Google search away from seeing real, trusted data to prove that diverse teams drive superior business results. The gold standard is the May 2020 update of McKinsey’s Diversity Wins report on more than 1,000 large public companies in 15 countries. The findings are powerful:
Companies in the top quartile of executive team gender diversity were 25% more likely to experience above-average profitability compared to the bottom quartile. That’s up from +21% in 2017 and +15% in 2015.
The higher the representation of women on exec teams, the higher the likelihood of outperformance.
Companies in the top quartile of ethnic and cultural diversity were 36% more likely to experience above-average profitability compared to the bottom quartile.
But wait, there’s more! Key data from this Harvard Business Review piece way back in 2016 show:
In a Credit Suisse study of 2,400 companies around the world, those with at least one female board member out-performed those without a female board member by 26% on return on equity and net income growth.
This study of 4,277 companies in Spain showed that companies with more women were more likely to introduce radical new innovations.
And the London Annual Business Survey of 7,615 companies showed that companies with more diverse leadership teams were more likely to develop new products.
Nothing above is coming from “feel good” surveys around social justice. The most profit-minded, dollars-and-cents capitalist can look at these and many more data points and should be convinced of the value.
The “Why” Diversity Works is Very Clear
Of course most people don’t believe data alone. We need to know the why and what’s going on here. Thankfully, again, the thinking is consistent, logical, and hits on multiple ways that humans have evolved to work together.
First, more diverse team members bring ideas from different sources. Whether its in inventing new products or judging the appropriate strategic response to a competitor, the more, different input a team can bring to the table, the more potential options they have. And more options improve outcomes.
Second, diverse teams avoid the negative risks of group think. It is less likely that they jump to a single conclusion or blindly follow the leader. They process information more carefully because they are not victims of homogenous group-think. There is some healthy tension in any network that has diversity.
Another (Hopefully) Unconscious Bias
No matter how healthy it can be, this tension in a network of diverse people and perspectives is something that can be difficult to overcome. Our brains are built to reduce their cognitive load—in other words, we really don’t like to think that much. Meeting with people who are different than us really is straining!
Think about the last time you were on either end of a job interview, or when you had to pitch an idea to a new person. Even extroverts come away spent from “being on.” Compare that feeling to the last time you chatted with a good friend. You were relaxed and probably came away energized.
In the case of team work, it is mentally easier for everyone in the meeting to agree or just follow the leader. And it’s much simpler to hire people who look like us and went to the same schools we did. This happens despite the data above and our earnest belief in adding diverse opinions and people to the mix.
A recent example of the frustrating imbedded bias is this 2019 study of institutional investors. These are the people who manage $70 trillion in money for groups like college endowments and government retirement funds. Of note, less than 1.3% of that money is managed by women and people of color.
In the study, a group of these investors were asked to evaluate Venture Capital funds for potential investment, based on information about fund performance with a mix of white and black male fund leaders. Not only did they rate white-led firms higher, but they couldn’t judge the difference between strong and weak black-led firms’ performance.
“One explanation of this finding could be that investors have rarely seen black-led teams. They simply don’t know how to evaluate them.” - Jennifer Eberhardt, Stanford
In other words, these (98% white, male) experts, who are paid a great deal of money to maximize the returns on their investments, had trouble doing their jobs because of race.
How to Get Conscious Change
With biases this strong, we need tools to snap out of them. The first solution is to continue to publish research from trusted sources, such as the McKinsey Study above—lord knows McKinsey could use some good publicity. By continuing to draw awareness to the issues and opportunities we will shift minds and then behaviors. This includes shining light on the specific companies that are succeeding and failing in driving change. Investors, customers and employees will move with their feet and thus shift behavior.
Second, companies are increasingly adding rules of behavior that help change habits. For example, many large companies we have spoken with have linked executive bonuses to diversity recruiting and retention targets. Several others are mandating that any manager job opening have at least one diverse candidate go to advanced stages—it’s a version of the Rooney Rule that the NFL adopted in 2002.
Another proven solution is to actually train executives on the realities of network effects, which includes the value of diversity and risks of bias. Not only does this help improve the overall company performance and culture, but research shows that such training also makes executives more successful and less likely to leave.
Companies that are not doing the right thing for profit-seeking shareholders, will increasingly feel rules pressed upon them. Last week, for example, NASDAQ proposed a new rule requiring board member diversity for companies listed on its exchange.
What We’re Doing to Help at Hearty
Ryan and I spent a lot of time speaking with recruiters and HR leaders as part of exploration on Hearty, and came across a fascinating, yet troubling, insight: We heard that while recruiters see tremendous benefits in hiring candidates who come from employee referrals, there is a dark side. When employees are asked on the spot, “Who do you know?” for a specific job, they tend to think of just 1-2 people who they are closest to…who happen to look a lot like them. In other words, increasing referral hires in the usual way will worsen the diversity issue for most companies.
Upon hearing this we decided that Hearty must be part of the solution. That’s why our core product for companies is a tool that allows employees to dig much deeper into their networks, and it’s why we ask “Do they bring diversity?” every time they recommend a candidate. We allow recruiters to see diverse candidates that have been recommended by people outside their company walls. And in our recruiter dashboard we highlight these diverse candidates in multiple ways—making it super easy to discover and prioritize them in their processes.
Meanwhile, on the individual side, we’re crazy early in our product, but we’re already providing insights about members’ network diversity. We believe we can encourage and reward change by giving you data. So far we’ve got two tools:
Your Network Diversity - we look at the people you have recommended and calculate the percentage of them that others’ have said add diversity. Then we show you how your percentage measures up to our overall membership as well as the others in your company. As you can see below, I’ve got some room to improve:
Most Diverse Networks - we show you the people within your recommended list that have the highest percentage of diverse members in their lists. The idea is that these are the people who might help you expand your network accordingly. Here’s some folks that have the most diversity in my list:
Last week I shared our launch of The Daily Cast, which features one cool new job each day in an engaging video format. Here, too, we’re doing extra work to support diverse organizations. For example, in our first week we shared a call-for-speakers for Together Digital, an amazing 20-city network of women leaders in digital marketing and technology. In the weeks ahead we’ve cued up spots for Queen City Certified and a new app that is focused on self-improvement for women.
We’re not doing this because we’re trying to ride some wave of social consciousness. We’re doing it because we know that diverse teams are more successful, and the more successful our partners are, the more likely they will be to buy from and recommend us. It’s not charity, it’s capitalism at its finest.
Profit is the Best Argument, and Revenge
My teams and I have made a lot of money over the years by choosing to work with people who are undiscovered, under-appreciated and under-valued by the market. I love hiring new college grads and throwing them into advanced positions early. I give chances to people who are changing jobs mid-career because they’ve found their true callings. I believe in promoting managers from within rather than hiring from the outside. I read resumes for signs of initiative rather than selective school degrees. And I quickly hire people when those I trust stake their reputations on a recommended candidate.
It takes work to dig for the talent gold that others miss. It would be easier to have an A.I. weed through hundreds of applications so we didn’t have to. But guess what? That’s what your competitors are doing, to their demise. They are hiring and bidding up salaries of the same people—who are good at passing tests. Meanwhile they ignore the rest of us “mutts” who want to work on the job, not our interview stories or resume keywords. It’s yet another non-thinking bias that you can take advantage of.
So much great talent is out there waiting to be discovered and just waiting for My Shot. They don’t need your charity, they need your conscious thirst for profit. And if you’re up for helping great talent be discovered, here’s your invitation to start making recommendations of diverse talent at Hearty.