Report finds that diversity policies can improve business performance

A new report published by the European Commission in November 2003 looks at the issue of workforce diversity policies, assessing their costs, their benefits and the obstacles to the establishment of such policies. It makes a variety of recommendations aimed at encouraging the promotion of workforce diversity. The report has been drawn up in the context of the implementation of two new EU anti-discrimination Directives.

A new report, The costs and benefits of diversity, carried out for the European Commission by the Centre for Strategy and Evaluation Services and published on 12 November 2003, examines the measurement of the costs and benefits of voluntary 'workforce diversity' policies. It has been drawn up within the context of the implementation of two new anti-discrimination Directives across the EU – the Directive (2000/43/EC) implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (EU0006256F) and the Directive 2000/78/EC establishing a general framework for equal treatment in employment and occupation, which covers the grounds of religion or belief, disability, age and sexual orientation (EU0102295F).

The report is based on a survey of 200 companies in four EU Member States, literature reviews, eight case studies of diversity promotion programmes in six Member States, and a total of 48 interviews with companies, business organisations, national governments, equality agencies, trade unions and non-governmental organisations. The report finds that a range of short-, medium- and long-term benefits flow from the implementation of diversity policies, defined as those policies which seek to encourage a mix of races, sexual orientations, religions, physical disabilities, ages and sexes within the workplace.

Key benefits of diversity policies

The study identifies a number of key findings. It finds that the implementation of diversity policies strengthens organisational and human capital, assets which can be used by companies to establish competitive advantage and to create capital. Specific benefits cited by companies include:

• strengthened 'cultural values' within the organisation;

• enhanced corporate reputation. Around 69% of companies participating in the study stated that their reputation had been enhanced by diversity policies;

• better attraction and retention of highly talented people, cited by 62% of survey participants;

• improved innovation and creativity among employees. Just under 60% of participants said that the implementation of diversity policies had improved motivation and efficiency and 57% cited increased innovation;

• enhanced service levels and customer satisfaction, cited by 57% of participants;

• help in overcoming labour shortages, also cited by 57% of participants;

• reduced labour turnover;

• lower absence rates;

• improved access to new market segments;

• avoided litigation costs; and

• improved global management capacity.

The report also finds that it is essential to carry out effective, systematic measures of the costs and benefits of workforce diversity policies in order to sustain existing programmes and to build the business case for greater investment.

Obstacles and costs

In addition to the benefits, the report also acknowledges, however, that there are costs associated with the implementation of diversity policies, including the costs of complying with legislation in this area. Further, there are costs linked to changing the internal culture of an organisation in order to recruit, retain and develop a diverse workforce.

A number of obstacles limit the scale of investment in diversity policies. These include:

• legal restrictions on the holding and processing of sensitive data;

• differences in national cultural responses to different social groups;

• difficulties in changing the culture of business; and

• a lack of awareness amongst companies of the contents, benefits, mechanisms and rational of diversity policies.

The latter two are identified by the report as the two major 'internal' obstacles limiting investment in diversity policies.

The study also notes that the business case for investment in workforce diversity is 'embryonic and fragmented' and at an earlier stage of development than in the USA or Canada. It characterises diversity policies as an 'intangible asset' which is therefore difficult to quantify and measure. Nevertheless, it says that the business case for diversity is growing, owing, amongst other things, to the testimony of a small number of leading European businesses.

Recommendations

The report makes a number of recommendations in areas where it believes that actions could be undertaken to improve the evidence for the business case and strengthen the evidence for investment in diversity programmes:

• a compendium of case studies should be developed;

• there should be support for a network of demonstration projects across the EU, involving leading companies in different sectors and of different sizes;

• there should be investment in surveys of companies across the EU to highlight the extent of the penetration of diversity policies, obstacles to their establishment and the costs and benefits of such policies;

• a network of diversity promotion organisations should be supported in order to share good practices and ensure full dissemination of EU-funded research;

• there should be support for national studies aimed at establishing links between investments in diversity and business benefits;

• similarly, there should be support for EU-level conferences to highlight the benefits of workforce diversity for businesses of different sizes. These conferences should be run jointly by the social partners and other relevant organisations;

• information should be provided about the benefits of workforce diversity policies;

• formal and informal networks should be developed in order to share information about the costs and benefits of workforce diversity policies and methods of measurement; and

• new tools should be developed for measuring the benefits of workforce diversity programmes.

Commentary

The new report provides significant food for thought for the European Commission and other policy- and decision-makers in this area. In establishing diversity policies, companies must first know what legal framework they are operating in, which necessitates implementation by all Member States of the two new anti-discrimination Directives. The EU employment and social affairs Commissioner, Anna Diamantopoulou, stated that: 'This study shows that introducing legislation on non-discrimination within Europe is not just a question of principle but is good for business as well. I hope that companies will take this on board and that Member States will do their part in adopting national legislation to implement the two European Directives on non-discrimination as soon as possible.' Once this is in place, further work needs to be done to promote the benefits of diversity policies. Ms Diamantopoulou added that the Commission will play a part in this, in particular in addressing the 'awareness gap' surrounding the benefits of diversity policies which exists in many EU countries, especially in small and medium-sized companies. It intends to do this through a range of initiatives, such as targeted programmes and measures such as a list of good practices, which it will draw up in 2004. (Andrea Broughton, IRS)