In 2020 and through 2021, widespread conversations about diversity and equality led many business leaders to prioritize and re-evaluate their diversity and inclusion (D&I) programs, and in some cases, establish D&I programs if they did not already exist. It is clear that D&I programs are here to stay, but what exactly is D&I? What are the benefits of building robust D&I programs and initiatives? How can companies leverage D&I programs to manage risk? How can a strong D&I strategy serve as a way to retain and attract top talent?
What are diversity, equity, and inclusion?
Diversity and inclusion work in tandem with one another, but they should not be used as interchangeable terms. Diversity is about representation or the makeup of an organization, while inclusion is about how well the presence and perspectives of different groups are integrated into an environment. If a group of people is comprised of individuals with different races, genders, nationalities, and sexual orientations, but the strategic leaders are all of a similar profile, then the group is diverse while not necessarily inclusive. A diverse and inclusive organization should make all employees feel equally involved, supported, and heard in the workplace.
Why does DE&I matter?
There are many proven benefits to having D&I programs, one of which includes improved business performance. In 2020, McKinsey released their Diversity Wins study, which served as a continuation of D&I research they began conducting in 2014. The study encompasses over 1,000 large companies in 15 countries. Their analysis found that companies in the top quartile of gender diversity on executive teams were 25% more likely to experience above-average profitability than peer companies in the fourth quartile. This is up from 15% in 2014. McKinsey found a 48% performance differential between the most and least gender-diverse companies. In the case of ethnic and cultural diversity, companies in the top quartile outperformed those in the fourth by 36% in terms of profitability in 2019.
Furthermore, having a diverse and inclusive workforce attracts diversity in talent, which then translates to diversity in thought and skill. Glassdoor conducted a study that found that 67% of job seekers value a diverse workforce when they are evaluating companies and job offers. When employees feel validated, this also improves employee retention, which saves companies money on the recruitment and hiring process. Employee retention also has the added benefit of attracting top talent.
DE&I as a Risk Management Issue
On the flipside, failing to foster an inclusive work environment can have negative impacts on a company’s bottom line. Diversity, equity, and inclusion have become business risks, and boards should take steps to mitigate them. Title VII of the Civil Rights Act prohibits job discrimination based on race, color, sex, national origin, religion, age, equal pay, disability, or genetic information. The spirit of these laws also extends to the concept of inclusion. Companies may be sued for disparate treatment, which is a form of employee discrimination based on protected categories. Unlawful disparate treatment occurs when employers make decisions based on protected categories. And lack of inclusion, or an environment that does not promote inclusivity, can lead to employees who become disengaged because they do not feel their contributions are as highly valued as those of the dominant demographic groups in their organization.
Public and Private Company Director and Officer Liability Insurance (D&O) and Employment Practice Liability Insurance (EPL) have also become areas of concern in risk management as they relate to D&I. D&O carriers are preparing for potential litigation that might arise from D&I programs that have been improperly implemented. This is a trend that is not likely to go away any time soon, which is why you should take a proactive approach to ensure their commercial coverages sufficiently protect them from these exposures.
Because of the social climate and other hardships brought on by the COVID-19 pandemic, employee benefits will also need to cater to a more diverse range of needs. Employers rolling out D&I programs should think about how the benefits they offer to their workforce can foster inclusivity.
Employers might consider replacing one-size-fits-all benefits packages with customizable benefits packages where employees can pick and choose services that best match their unique needs, including mental health support, transgender-inclusive health benefits, adoption support, and childcare. Social benefits, such as student loan replacement programs, paid family leave, and commuter benefits, to name a few, could also fortify DE&I programs.
Although it takes a lot of time and resources to create a fully diverse and inclusive workplace, it can be critical to the health of your business. Your Advisor is here to help provide guidance about how to structure your benefits and commercial risk programs to meet the needs of this evolving space.