Diversity and Inclusion: Why Should You Care?
July 14, 2022 by Sam Rowe
When you tell someone that you wish to talk to them about Diversity and Inclusion and why it is important for their company, the responses tend to be ones of frustration or disengagement. It’s easy to see why from a surface level; D&I issues are notoriously difficult to define in a company policy or implement a set of rules to fix. So why should companies care (outside of the obvious moral reasons) and how should they go about addressing it?
What is Diversity and Inclusion?
Diversity and inclusion, although very connected topics, do have separate meanings. Both aspects are important, one without the other can create more problems for the firm such as a toxic culture or stagnation/lack of creativity.
Diversity is about representation within an entity and can include race, gender, culture, religion, class etc. Having a diverse workforce means your staff consist of individuals who bring new perspectives and backgrounds to the table.
Inclusion is about how well the contributions and perspectives of different groups are valued and integrated into an environment. In a workplace it means that everyone is involved, treated fairly and with respect.
The Business Case
As we start to emerge from the Covid-19 crisis, it is not surprising that D&I has receded as a priority for many organisations, with many focusing solely on profitability and growth following the downturn in the economy. However, the benefits that could be seen from D&I have not changed and did not change in the pandemic. Over the past five years, diverse companies have out earned their industry peers. According to Deloitte, diverse companies enjoy 2.3 times higher cash flow per employee over a three-year period and Gartner found that inclusive teams improve team performance by up to 30 percent. A McKinsey study found that gender-diverse companies are 25% more likely to outperform their peers and ethnically-diverse companies are 36% more likely to do the same. The business case is clear, increased D&I can lead to better creativity within companies and ultimately an improved bottom line!
In addition to this, another identified benefit from having a diverse and inclusive workplace is the ability to recruit and attract a larger talent pool, and ultimately retain those employees too. When an employee feels their ideas or contributions are not valued or taken seriously, they are much less likely to want to stay at their company long term. However, if a proper culture of inclusion is fostered at a firm, this can help to build employee engagement and trust.
As the benefits have grown in recent years, so have the potential penalties for companies lacking diversity. The FCA has been clear that it will impose fines and dismiss directors in firms engaged in ‘non-financial misconduct’. Their most recent policy statement, PS22/3, pushes for greater transparency on the diversity of company boards and their executive management, with in-scope companies being required to make disclosures in their annual reports since 1st April 2022.
The FCA have clearly marked this area as a priority in speeches, stating that they see “D&I as a mainstream business issue that speaks to a firm’s culture and conduct”. The speech also stated that firms which haven’t prioritised diversity may not value challenge or internal debate and that this is an indicator of a firm where “misconduct can flourish”.
As this is in the FCA’s headlights, we can expect a lot more development in this area following the listing rules.
What can you do?
- Senior Management involvement – Engagement from Senior Management and the allocating of resources to drive D&I efforts within your Firm are required.
- Management Information – The only way to know if D&I is improving is to continuously monitor and track it. The FCA recently issued a questionnaire to large financial institutions (including those not currently in scope of their rules) asking for management information on their D&I improvements in the last 12 months. Listed companies are now required to report on their D&I programmes and to provide explanations to the FCA when targets are not met. Firms must start to identify what KPIs they can create on D&I.
- Hiring Practices – Is your panel of interviewers diverse and selecting candidates based on skills and experience? Training on what unconscious bias is and what should/should not be asked in an interview is a good step.
- Policies and Procedures – Do your conduct rules outline the company’s approach to discrimination? Consider putting in place training sessions and internal policies with regards to discrimination and building an inclusive culture.
How can Effecta help:
- Regulatory Updates: Effecta are constantly monitoring the requirements and will be issuing further articles as the FCA clarifies its expectations.
- Independent Reviews: Effecta can carry out reviews of policies, procedures and monitoring you carry out relating to D&I.
- Advice: Effecta can provide ad hoc compliance support and guidance on Regulatory matters.