Diversity in a recession – will necessity be the mother of invention?

United Kingdom

As businesses ease out of lockdown and look to the longer term, it is inevitable that cost-cutting will mean some projects are abandoned, where they are not perceived as core to business growth or stability. Should diversity and inclusion programs come off the to do list?

Economic outlook

Certainly, the future economic outlook is not rosy (British understatement). According to the Bank of England, the UK faces the worst recession in 300 years, with the OECD forecasting that the UK will top the developing world’s recession league table. Over recent months we have worked with clients as they have had to slash their people costs; through salary reductions, shorter working weeks, furloughing staff, and sadly redundancies. Further job losses are unavoidable as the Job Retention Scheme is phased out and the full impact of the pandemic fallout is felt.

While we may have seen long queues outside of non-essential retailers as they reopened, and while many of us are no doubt craving other (if not all) aspects of ‘normality’ to return, it is clear that - for most businesses - coming out of lockdown is not going to deliver an instant bounce back. Cost pressures and a desire to maintain cash reserves are going to be front and centre as we ease our way forward.  It may be tempting, against that background, to see diversity measures as being something that can be dispensed with. We consider the opposite is true, however with the changes in the way we work and live and against this economic backdrop, business should  innovate to deliver greater engagement with diversity in business.

Is diversity an optional extra?

While no business would want to be seen to discriminate unlawfully, there are a range of approaches and levels of enthusiasm for embracing diversity more widely. Some may view diversity as a “nice to have”, rather than a need to have. The phenomenal response to recent Black Lives Matter events and commentary has highlighted a core issue with this; it is not enough not to be racist, there is a need to be ‘anti-racist’ to have an impact and achieve change. 

We are aware of some businesses who, as part of cost cutting, have removed diversity roles. A first reaction may be to think this can only be a backward step, and indeed it will be if this is symbolic of a lack of importance being placed on the subject matter.  However, there have also been criticism in recent years of the corporate industry that has been created around many aspects of diversity; the allegation being that it has become a bandwagon, with little progress towards true change under the shiny surface. 

Perhaps businesses should challenge themselves now, to show that necessity is indeed the mother of invention, and that a lack of funding need not stamp out positive culture and forward progress? Can this be the spark to do things differently, seeking to draw on grass roots support and ideas from within business to be positively engaged, rather than risking diversity becoming a corporate tick in the box?

The right culture

In recent years, through scandals and corporate failures, regulators have recognised that the ‘right’ culture is a key component of effective risk management. But what is the right culture?

In basic terms culture is about how people behave in an organisation. And while that sounds simple there are many components that need to be in place to achieve a consistent culture across a large organisation. Diversity and inclusion are central building blocks to achieving that. If diversity is about taking account of differences and valuing those differences, then inclusion is about building on diversity by giving a sense of belonging through the culture of an organisation. Poor working cultures also contribute to a host of legal problems e.g. whistleblowing complaints, workplace harassment, poor mental health and absence.  All of these lead to reduced productivity and increased costs (direct and indirect).

The business case for diversity

The business case for diversity is well rehearsed, and many campaigners express frustration that there is still a need to address this in 2020. Gender diversity is proven to have a direct link to both improved profitability and value creation. There is no reason to think that diversity more widely does not do likewise. 

In their original research, using 2014 diversity data, McKinsey found that companies in the top quartile for gender diversity on their executive teams were 15% more likely to experience above-average profitability than companies in the bottom quartile. In the expanded 2017 data this number rose to 21% and continued to be statistically significant. Clients and customers are also more attuned than ever to thinking about the actions of businesses in this area, and making purchasing decisions accordingly. 

Tackling group think

Having teams and leaders with different views and life experiences produces innovation and reduces “group think”, commonly cited in relation to the financial crash in 2008.  Put simply, if you only have one type of view available, you will inherently lack healthy debate, innovation and challenge. 

None of us know what the post Covid-19 future looks like, but there is widespread agreement that many aspects of our lives and how business need to respond to these, will change.  Businesses that are alert to creating competitive advantage through having diversity on the agenda (and round the boardroom table) may well find that they also ‘pay it forward’ to more embedded engagement with diversity.

Consequences of rolling back on diversity?

In the last 5 years, we have seen significant gains in some areas of workplace diversity.   Gains have happened most notably in gender equality, in part because of the gender pay gap reporting rules, but also from wider initiatives including the Hampton Alexander review on women on boards, and the rise of the #Metoo movement in tackling workplace harassment. Similarly, significant steps have been made with mental health at work following the Stevenson Farmer report as organisations embrace a proactive model of mental health. 

Calling a halt on this now will see this valuable progress slide away, and sadly may contribute to it getting worse.  With studies showing that this pandemic’s fall out has had a disproportionate impact on women and BAME individuals,  arguably this is a time to increase the focus on diversity rather than reduce it. 

Areas to improve

There is, of course, more to be done, and many areas where the road is longer than others. We have yet to see the final details of ethnicity pay gap reporting in the UK. However, given the welcome renewed focus on addressing race discrimination, we expect that ethnicity pay gap reporting will be pushed up the agenda, and within workplaces a greater focus on tackling racial inequality. 

2020 seems to bring with it a growing sense that now is the time for actions, not words.  Some businesses will continue to dedicate significant financial resource to this area and that should be welcomed.  But this is not the only option, and it should be remembered that much can be done without (material) cost; many measures might reasonably viewed as very sensible investments in employee engagement, when normal paths to this are less open.  Cost pressures cannot be ignored, and things like holding big events or sponsoring awards may understandably go by the wayside.  But there is so much more that can be done without these things; perhaps even allowing a more authentic voice to be found?

Can we afford to focus on diversity in a recession?  The question should perhaps be, can we afford not to and how do we do so in a way that best meets the challenge of the new normal? 

The future

As businesses move out of this crisis and rebuild, we will explore the various issues that employers should consider, including how diversity and inclusion can work in a new world of remote working and limited resources. We are also eager to hear your stories and please do contact us at CMSEmployment.Team@cms-cmno.com if you would be interested in sharing how this pandemic has been or may be a platform for diversity or other change within your organisation, rather than a blocker.