Here’s How Companies Can Integrate DEI Into Their Corporate Strategy

A year ago, when the resentment toward DEI was starting to grow, I suggested that “trying to manage DEI using only diversity as a metric is akin to trying to manage corporate finances using only your balance sheet.”

This post expands the analogy between DEI and finance, and explains why and how leaders can—and should—leverage DEI metrics in a way similar to how they use financial metrics to drive strategic and tactical decisions.

Multiple Metrics To Monitor Financial Health

For more than a century, corporate leaders have used standardized financial statements to monitor the health of their firms, and to guide them in making strategic and tactical decisions. In particular, the balance sheet, cash flow statement and income statement offer three complementary views into an organization’s financial health.

  • The balance sheet is a snapshot in time that provides information about the organization’s current mixture of assets, equity and liabilities that results from everything that you do in the organization.
  • The cash flow statement tells you about everything that the organization is doing within a short time frame, that is either generating cash or using it. It helps you understand how the organization’s operations are running.
  • The income statement covers a range of time, providing an overview of revenues, expenses and net income. The main purpose is to show the profitability of business activities, and it is useful to track changes in financial performance over time as operations and market conditions change.

Multiple DEI Metrics To Monitor ‘People Health’

Just as finance uses multiple metrics and reports, DEI needs to move beyond using diversity as the sole metric. However, the lack of clear, measurable definitions of “inclusion” and “equity” has led most DEI initiatives to focus on diversity alone.

I have previously given simple definitions of diversity, equity and inclusion: inclusion is what you do, diversity is what you get, and equity is what you want. I have also proposed ways of measuring both inclusion and equity. Here I want to point out interesting parallels between these three DEI measures and the three financial measures.

  • Diversity is simply a snapshot in time of the current blend of individuals in your organization, which results from all the things happening in the organization that influence recruitment and retention. In this context, diversity is clearly akin to the balance sheet.
  • Inclusion is about all the day-to-day experiences that influence each employee’s ability to do their work, and therefore their satisfaction and motivation, which in turn are directly linked to productivity levels. Hence inclusion is akin to cash flow.
  • Equity is about tracking the outcomes of people interacting with the organization’s policies and processes to identify potential disparities and monitoring how they change over time in response to changes in workplace and market conditions. Hence equity is akin to income.

Why We Need All 3 DEI Measures

In the context of financial assets, the balance sheet does not capture all the dynamic factors that influence the generation or use of resources, from sales and investments, to salaries and equipment expenditures.

This is why organizations also measure and track the cash flowing in and out of the organization through the cash flow statement. This additional financial statement is critical in helping leaders understand and manage what is happening in the organization. Without proper cash management, an organization will struggle.

Furthermore, organizations need the income statement to understand which parts of the organizations are working well and which are not, and also to measure the impact of different actions they take, or changes in market conditions.

No leader would want to run their organization using only one or even just two of these financial statements. Only the combination of all three gives leaders the complete picture they need to make sound strategic and tactical decisions.

Similarly, the organization’s diversity does not capture all the policies, processes and individual behaviors that influence the day-to-day workplace experiences of every employee, nor does it show how these experiences shape the organization’s overall performance in recruiting, hiring, advancement and retention of its people.

This is why trying to make decisions about human assets using only diversity metrics is akin to trying to run an organization using only the balance sheet. You may be able to see that there are overall imbalances, but it will be a challenge to figure out why these imbalances exist.

Inclusion is analogous to cash flow because it helps you track all the day-to-day experiences that impact the satisfaction and motivation of your employees, and it helps you understand how these experiences ultimately shape the resulting levels of diversity. Without proper inclusion management, an organization will struggle.

The parallels between cash flow and inclusion are not just figurative. As I have explained elsewhere, the level of inclusion of an organization has a direct and measurable financial impact because it influences productivity and employee attrition. Proper measurement and management of your inclusion is just as important as proper measurement and management of your cash flow.

Finally, equity as I have defined it is very similar to income, because it tracks the progress of different groups of people over time. For instance, what proportions of members of different identity groups are being promoted? How fast? How much money are they earning?

This incidentally, is why I say that “equity is what you want”: if you have two identity groups, and one of them is advancing more slowly, being compensated less, and having access to fewer opportunities, they will be less satisfied, will produce less, and be more likely to leave unexpectedly. Hence the lack of equity is literally costing the organization money because one part of its organization is producing less than it would as a result of being treated differently.

In sum, just as an organization tracks the profitability of different parts of its operations, it should track equity across the organization, and then take steps to reduce inequities to avoid unnecessary financial losses.

Using DEI To Support Middle Management

The analogy with finance reveals another benefit of using all three elements of DEI.

In recent years, some organizations have tried to encourage the adoption of DEI by linking the performance of middle management to organizational diversity metrics. This has created a lot of resentment among managers, who have little direct control over diversity, and who are often asked to implement initiatives that add to their workload and sometimes interfere with their already busy schedules.

Once you see the analogy between diversity and the balance sheet, it becomes obvious that this is a bad strategy. Would you ask each and every manager to track and be responsible for their own balance sheet? Of course not! Every group in an organization contributes differently to the balance sheet of the entire organization.

Managers should instead be given guidance on how to measure inclusion and equity. Both of these quantities can be measured—and controlled—at a granular level. Moreover, creating greater inclusion and equity is something that every manager should appreciate because it will help them figure out how to increase productivity and reduce unwanted attrition, without creating polarization and resentment.

Why DEI Is A Key Element Of Corporate Strategy

The analogy between DEI and finance also leads to another important reflection. When DEI experts say that DEI has to be embedded in every aspect of the organization, this tends to scare a lot of leaders, because it seems like a tremendous amount of work that will disrupt every part of the organization.

But when you think about DEI as finance, this argument makes a lot more sense and is much less daunting. Financial management is something done in every single part of the organization—imagine if, say, the marketing department complained that they should not have the burden to worry about finances! Every manager of every team, department or division knows that they need to track their revenues and expenses. This information flows through the organization up to the finance department, which is then charged with providing high-level information to the leadership.

DEI should be the same way: just as the organization’s financial leadership collects financial information and rolls it up into organization-wide reports to support the executive team in their decision making, the DEI leadership should provide organization-wide summaries to the leadership—including inclusion, equity and diversity data—who can then make tactical and strategic decisions to improve the overall “people health” of the organization.

The current wave of anti-DEI backlash has taken advantage of the limitations of using diversity without inclusion and equity: diversity alone gives rise to complaints of reverse discrimination, and focusing on diversity alone has failed to produce significant and consistent results. Once leaders learn to embrace all three elements of DEI and begin to treat their human assets the way they treat their financial assets, DEI will become a key element of every leader’s strategy, and the anti-DEI wave will fade quickly.

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