A box labelled 'Dismissed' with office stationery inside and a plant.
22nd February 2023

Times are tough, but cutting DEI staff will come at a greater cost in the long run

Evidence is building that companies are rowing back on DEI pledges amid a squeeze on revenue. That will have far-reaching implications when economic conditions brighten.

Companies have made big promises on diversity, equity, and inclusion (DEI) since the murder of George Floyd almost three years ago.

US companies pledged nearly $340 billion to help address “broader systemic inequality” during the period, all while setting ambitious diversity goals and promising “to do better” to diversify teams right from entry level to senior executives, McKinsey senior partner Shelley Stewart, told CNBC in January.

But look closely and cracks are beginning to appear as tougher economic conditions squeeze revenue and leaders begin swathes of job cuts.

Twitter is among the most high profile so far. The company’s diversity, equity and inclusion team is down to just two people from 30, one former employee told Bloomberg News in January. HR departments, which often include DEI teams, took the biggest hits at Amazon, Meta, and Microsoft, according to a study of LinkedIn data by 365 Data Science.

This isn’t just a US tech sector issue, either. In a “significant shift”, more than a third of UK organisations aren’t planning to focus on any specific I&D (inclusion and diversity) areas over the next five years, the Chartered Institute of Personnel and Development (CIPD) said in December. That’s a huge number, given the fact that only 5% of organisations said they hadn’t focused on any I&D areas during the previous five years.

Non-revenue generating roles tend to be the first to go during a crisis and it’s clear that many corporate leaders still view DEI as a cost, rather than a buttress of long-term resilience.

This is a mistake and I’ve written about it before. During 2019, the latest year for which McKinsey has published its survey, top-quartile companies for ethnic and cultural diversity outperformed those in the bottom quartile by 36% in profitability. That’s moved up from 33% in 2017 and 15% in 2014. The likelihood of outperformance remains higher for diversity in ethnicity than for gender, the company found.

The evidence that diversity brings fresh thinking is well established, and it isn’t easy to know why some senior executives still fail to make the link. Shaun Harper, founder and executive director of the USC Race and Equity Center, suggests that at least part of the problem remains a lack of data, which leaves a strategic gap:

“With the exception of demographic representation numbers, the CEO and executive leadership team usually don’t have the same expectations for KPIs; the same shared, enterprise-wide accountability standards; and the same strategic concern for DEI as they do other things;”Harper wrote for Forbes earlier this month.

That’s borne out by the CIPD research, too. A little under half of UK employers still don’t have a dedicated DEI strategy in place, the group found. The sooner companies act the better. Employees remember choices made during difficult periods and DEI is already a key issue for most people when considering where they work. More than three quarters of job seekers and employees now consider diversity and inclusion when sizing up potential employers, according to research from Glassdoor.

I’m not suggesting layoffs are wrong – we can’t deny the economic reality of the moment – but fair and equitable redundancy processes will be vital if companies are to avoid taking huge steps backwards over the coming months. ‘Last-in first-out’ firing policies will disproportionally impact the diverse hires made in recent years. Indeed, longitudinal research covered by Harvard Business Review revealed that Black employees have historically been particularly affected by these types of policies.

Revenue generating roles might also seem vital in this moment, but the process needs to be holistic. Leaders and their advisors should utilise data and evidence to unearth whether their redundancy processes are skewed towards those who are underrepresented or marginalised. Ask the question: are we moving back towards becoming a homogenous organisation, or are we going to retain the diversity that we recently fought so hard to attain?

These are difficult decisions, and the results might not show today, or even tomorrow, but the research is unequivocal that the winners of the next economic cycle are more likely to be those that stick to the decisions made during brighter economic times.

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