Making Best Practices Even Better

January/February 2005, HISPANIC BUSINESS Magazine

Propelled by the pressures of rapidly changing consumer and workforce demographics, a new stage of corporate diversity is under way that increasingly seeks to broaden efforts and more closely integrate programs with core company values and accountability measures.

Long-held best practices for corporate diversity – such as college minority recruitment efforts, targeted career development programs, numerical and percentage diversity targets for workforce and supplier programs – no longer are seen as adequate for keeping pace with a changing global market. New best practices now include skill-based diversity training, technological innovations to identify and nurture job candidates and suppliers, and higher levels of cost and return on investment accountability.

But the slowly shifting paradigms on corporate diversity also come amid signs of slowing progress. While it is estimated that more than 80 percent of major American companies focus on diversity as a strategic advantage and business leverage – and many of the country's largest companies are at the forefront of diversity best practices – increases in Hispanics and other underrepresented groups among the executive ranks, boardrooms, and supply chains of Corporate America remain slow and not broad based.

"I think the field of diversity is at a crossroads," says R. Roosevelt Thomas Jr., president and founder of the American Institute for Managing Diversity, whose Diversity Leadership Academy in Atlanta was launched with a $1.5 million grant from the Coca-Cola Co. "We tend to think that if we got rid of all the '-isms' everything would be OK. That hasn't happened."

Measuring ROI

While corporate diversity programs have long been considered "soft" programs, driven historically by Equal Employment Opportunity and affirmative-action plan numbers, a growing number of companies are seeking to quantify their success by tying efforts to return on investment in human capital.

For years, Prudential Financial, for example, had assessed the effectiveness of its diversity programs by the numbers: the number of such things as diversity job fairs, college minority recruitment trips, or diversity recognition events in which it participated. But with a change in management in 1998 came the decision to concentrate on numbers that counted – bottom line results.

The Newark, New Jersey-based company hired California consultant Edward Hubbard to apply more scientific measurements to its diversity efforts. In his analysis model, Mr. Hubbard collected broad data on diversity contributions to the company including the number of new hires resulting from recruiting trips, retention and promotion rates, and whether a job satisfaction gap between men and women or between diverse employees appeared to be closing.

The study converted the data to financial values and calculated a "diversity return on investment" and benefit-to-cost ratio by using the resulting net initiative benefits and costs. While Prudential declined to release specific results, the benefit-to-cost ratio was "significant" for its diversity-related activities in 2000, says Ignace Conic, Prudential's vice-president for diversity.

Prudential continues to gather the data and provide twice-yearly updates to CEO Art Ryan. The compensation of senior management is tied to the company's progress on diversity, which Ms. Conic says is closely integrated into the operations of each business unit.

A recent study by the National Urban League, for example, found that fewer than a third of American workers surveyed said they believe their companies have effective diversity programs; fully one-quarter of Hispanics in the survey said their employers could do better. And while sheer demographics are propelling a growing number of Hispanics into the workforce, progress remains slower at executive levels.

While Hispanics account for 11.4 percent of the U.S. labor force, they make up 9.4 percent of the total managerial-professional class, according to Census data. Hispanics in "managerial and professional specialty occupations" surged 74 percent to an estimated 4 million between 1992 and 2002, but Hispanic representation on corporate boards at Fortune 1000 companies rose just 8 percent from 1999 to 2004, according to a report by Microquest, a Novato, California, research firm that helps companies identify diversity candidates for top positions.

In addition, the number of Hispanics at the vice-president level or higher rose just 6 percent from 1999 to 2004, the report says. And about 80 percent of Fortune 1000 companies have no Hispanic board members, according to the most recent annual report by the Hispanic Association on Corporate Responsibility (HACR).

"Our position is that unless Hispanics are represented at the highest levels, true diversity really doesn't exist," says Alfonso Martinez, president and CEO of HACR. "The key decision-making process begins and percolates from the top of the company." In an effort to boost accountability, HACR this year is launching an index tracking the progress of Fortune 100 companies in including Hispanics among their leadership, suppliers, and community contributions.

Little specific research exists regarding the bottom-line financial benefits of diversity to companies, but a study published in 2004 by HACR found that from September 1997 to September 2002, 61 Fortune 1000 companies with Hispanic board members had financial returns of 17.5 percent, compared with 4.6 percent for the Dow Jones Industrial Average, and negative returns for the S&P 500 and Nasdaq. And a recent study of Fortune 500 companies by the University of Texas at Dallas School of Management found that racial diversity appeared to have positive financial impact for companies that used team structures, displayed aggressive growth strategies, and were operating in a fluid market.

But measuring diversity efforts has been difficult for a variety of reasons, including the fact that the origin of diversity programs as an affirmative action tool has often led companies to rely on traditional recruitment and retention metrics, says Michael Hyter, president of Boston-based consultant Novations/J. Howard & Associates. Gathering and tracking more detailed data over time, relating it to the company's financials, and filtering out extraneous factors is complicated and often considered prohibitively expensive.

In addition, "You have a challenge that people have different perceptions of what diversity is," says Ana Duarte-McCarthy, director of Global Workforce Diversity and College Relations for New York-based Citigroup Inc., which created an internal diversity index to track the company's own progress. Rather than set specific numerical targets, she says, the company monitors such factors as the diversity of candidate slates for key positions, rates of promotion and turnover, and employee satisfaction.

Another difficulty is defining, quantifying, and tracking diversity investment since many large companies have decentralized operations. Philadelphia-based Comcast Corp., for example, says the majority of its diversity outreach-related spending is done at the local level at its dozens of cable systems around the country. In support of those efforts, Comcast's corporate office estimates it spent about $40,000 in 2004 – in addition to the production of print materials, Web site services, and corporate staff support for tracking and monitoring diversity programs.

Companies that are aggressively managing diversity efforts are using an array of relatively new tools, including executive diversity councils and employee affinity groups. Companies also are increasingly expanding their diversity mission statements – historically rooted in affirmative-action compliance aimed at ensuring ethnic access to equal opportunity – and training programs to encompass gender, ethnicity, and sexual orientation. Mortgage lender Freddie Mac, for example, defines diversity as "all the visible and invisible similarities that exist in people culture, gender, race, age, sexual and gender orientation, religion, [and] physical ability."

New approaches to diversity training also are being used. "We've gone from the '80s understanding of diversity, where the goal was making the affected groups feel better, to where we connect it more to our business end and hold managers accountable," says Howard Inman, director of diversity and work environment at Merck & Co. As part of its efforts, the Whitehouse Station, New Jersey, pharmaceutical maker seeks to send nearly all of its 62,000 employees through an innovative diversity management training by the end of this year.

The microinequities training aims to change corporate culture by providing a common vocabulary and skills that help diverse members of a work team communicate better. Improved communication can lead to increased productivity and retention rates, Mr. Inman says. "It's a diversity message that's about inclusion and not necessarily the numbers, but we expect it will affect the numbers over time. I can tell you, anecdotally, that it's already made a real impact."

In the areas of procurement and community contribution, numbers continue to count. Companies continue to view community outreach as an important approach, with millions of dollars invested nationwide. The foundation of San Antonio-based SBC Communications Inc., for example, last year gave the League of United Latin American Citizens $1 million to help the nonprofit integrate technology into its operations and community outreach programs. And more companies are turning to technology to help them manage diversity programs: Information technology companies such as Microquest and Chicago-based CVM/DiversityQuest are gaining new clients, for example, among companies seeking to broaden their base of executives, board members, and suppliers.

"As companies have grown more sophisticated, supplier diversity has grown from an outreach program to a strategic part of the supply chain," says Mike Anguiano, president and CEO of CVM/DiversityQuest, which offers products that can provide clients with lists of minority suppliers as well as detailed spending reports. For example, many companies such as Marriott International now also are tracking second-tier diversity – or how diverse their suppliers' suppliers are. Marriott, for example, requires its prime suppliers to spend at least 10 percent with diverse companies. Marriott itself says it spent 6.7 percent in 2003 and has a goal of reaching 10 percent by 2008.

Ultimately, says Marc Morial, president and CEO of the National Urban League, "Diversity is a business issue, not only a compliance issue. The more companies embrace that, the more we'll see diversity become a core corporate value."

Source: HISPANIC BUSINESS Magazine