Inclusive hiring. It’s a term that evokes a strong response, even from those within the bubble of more liberal thinkers. It’s a concept that, while the long-term reality of inclusive hiring leads to stronger teams, throws up conversations around quotas. Many see this as hiring people ‘for the sake of it’, rather than on merit, which sits badly with people across the belief spectrum. From a business perspective, such significant system change – depending on the size of the business – can take years to roll out (and even longer to see the tangible benefits of it). However, just because something is hard, controversial or expensive, doesn’t mean it should be avoided completely. So, with this in mind, let’s together dive into the challenges around inclusive hiring, the common arguments against inclusive hiring, and then dive into the data to see what the benefits actually are.

The idea of quotas first entered mainstream conversations in the US in the 1970s in connection with affirmative action and diversity initiatives, however, these were initially more focused on racial diversity and broader workplace equality. It wasn’t until 2003 that Norway passed its Gender Quota Law, requiring corporate boards of public companies to have at least 40% women on their boards by 2008. This law was a pioneering move that significantly influenced global conversations about gender quotas in business.

Read here our article “How women help companies make 35% more money”

Now, more than 20 years and several more legislations later, quotas on boards are seen as a standard by many, and even investment giants like BlackRock, State Street Global Advisors and Vanguard have increasingly pushed for greater gender diversity on boards, often advocating for targets or quotas as part of their corporate governance policies. Yet when you look within organisations themselves, the diversity question remains, and we so often see a significant lack of diversity.

Common arguments for why diversity and inclusive hiring practices aren’t actively pursued are varied, but ultimately there’s an overarching feeling that actively pushing for inclusive hiring will ruin a company, and are underlined by the following key arguments:

Implementation challenges

Inclusive hiring initiatives may face resistance, as they are perceived to cause disruptions in both the workflow and status quo. In terms of cultural resistance, a study from the Society for Human Resource Management (SHRM) noted that 41% of HR professionals identified organisational resistance as a significant barrier to diversity and inclusion efforts. While in terms of change management, research – such as that used in Kotter’s 8-Step Change Model – highlights that any significant organisational changes, including diversity initiatives, are a critical barrier to overcome as they can disrupt workflow and face serious friction.

Short-term costs

Another concern for why DEI initiatives might have a negative impact on organisations, is the short-term costs related to the training and restructuring required to properly cause impactful change and accommodate diverse teams, which can strain financial resources, especially in younger or growing businesses.

Again, this is a valid worry; reports from organisations like the Korn Ferry Institute and Deloitte have found that implementing diversity and inclusion programmes can incur significant costs, especially upfront, related to training, restructuring, and monitoring. The Deloitte study from 2023, found that the costs associated with implementing DEI training and programmes can cost between $10,000 and $50,000 annually for DEI training and development per 100 employees (including training sessions, workshops, and the development of educational materials). This doesn’t take into account the additional financial commitments relating to changing organisational policies, updating recruitment practices, and developing new monitoring systems to track DEI progress.

Conflict and miscommunication

Another perceived way that inclusive hiring has the potential to ruin companies is that diverse teams might experience higher levels of conflict and miscommunication due to differing perspectives and cultural backgrounds, potentially hampering productivity.

For instance, a study in the International Journal of Intercultural Relations from 2010 reported that cultural diversity can lead to communication barriers, with participants noting a 30% increase in misunderstandings and inefficiencies in team interactions due to cultural differences.

Perceived tokenism

We also see friction around inclusive hiring concerning tokenism, which, if not managed properly, can cause employee dissatisfaction and impact team morale (I mean, who wants to be the diversity hire?!).

Back in 2016, a Harvard Business Review study found that 25% of employees felt that their company’s diversity efforts were insincere or driven by external pressures, and these employees reported a 20% decrease in job satisfaction and organisational commitment.

But it’s not all doom and gloom! Thanks to the legislative change for quotas, and trailblazing companies who have taken it upon themselves to pursue inclusive hiring practices actively, we have significant data from the past years to challenge the argument that ‘inclusive hiring ruins companies’. And the data looks good! On average, we see that companies with inclusive hiring practices benefit from stronger financial outcomes.

Improved financial and market performance

The data is overwhelming: research consistently shows that diverse companies – including all forms of diversity – are more likely to outperform their less diverse peers in terms of profitability and financial returns.

For instance, job-related diversity (meaning in terms of jobs held, educational background, and time spent with the company) among executives and top leadership produced better financial performance. Additionally, a 2001 study found that functional diversity (job and technical expertise) improved technical quality and budget performance in research and development organisations. Regarding gender diversity, a Mckinsey study found that companies in the top quartile for gender diversity (again within executive leadership teams) are 25% more likely to have above-average profitability compared to those in the fourth quartile. Diversity beyond management is also key; an academic study found that optimal market performance occurred when the gender distribution of a company was 50% female and male.

For racial and cultural diversity, the numbers continue to show that diversity is a huge advantage. The same McKinsey study showed that companies in the top quartile for ethnic and cultural diversity were 36% more likely to outperform on profitability, while an academic study found that racial diversity enhanced the return on equity (ROE) of banks with an innovative strategy, while racial diversity decreased ROE of banks with a low innovation strategy. Furthermore, data from the “LGBT 350” report (by Credit Suisse) highlighted that the 350 companies studied, which had supportive LGBTQ+ policies, outperformed the broader equity market.

Better governance and decision-making

Given the significant data showing that diverse teams tend to be more financially successful, it follows then that inclusive teams are more likely to make better decisions.

In fact, the study by Cloverpop found that diverse teams made better decisions up to 87% of the time compared to individuals. The main reason for this is that a variety of people with different backgrounds and lived experiences bring a broader range of viewpoints that positively influence company decisions, from how to market to different target groups effectively to how to speak to investors from different markets.

Plus, the United Nations Development Programme also shares this view point, highlighting that inclusive decision-making processes that integrate diverse viewpoints are shown to improve governance outcomes. This is because diverse teams can better anticipate and address the needs of different community segments, leading to more effective and inclusive policies.

Access to both a wider talent pool and wider customer base

Perhaps one of the most compelling things we read while researching for this article is: “your workplace should reflect your customer base.”

Today, so many companies have the goal of global expansion, especially within the VC-backed startup space. Going global means companies need to understand and speak to the delicate nuances of different markets. And while individuals can (and should try to) learn these nuances, it makes business sense to have individuals on your team who understand what different target groups want, and how to connect to them in an authentic way (or at least, have access to a community to gain trust and learn from within communities).

Coors Brewing Company (Molson Coors) began as a company with a homogeneous white workforce brewing one brand for mostly white male college students. The brand had global aspirations and realised the power of inclusive hiring for expanding its offering and customer base. Currently, the brand is actively involved in programs that promote the advancement of underrepresented groups, such as scholarships for Black and Hispanic students and leadership programs for Latino communities. They also – perhaps surprisingly – received a perfect score on the Human Rights Campaign’s Corporate Equality Index for 18 consecutive years, marking it as one of the “Best Places to Work for LGBTQ Equality.” Additionally, they have also implemented various employee resource groups and community partnerships to further foster diversity and inclusion within the company.

Today, Coors brew over 20 brands of beer for many different customers, and, at the end 2023, they reported a sixth consecutive year of profit growth. For the full year 2023, the company achieved net sales of $11.7 billion, a 9.4% increase compared to 2022.

We realise we’ve hit you with a lot of facts! So here comes the tl;dr version. Yes, many of the arguments against implementing inclusive hiring practises – such as disruptions to workflows, increased short-term increased costs, more potential for conflict, and friction around perceived tokenism – are completely valid concerns, and we in fact see that these concerns can lead to negative effects. However, if we take a step back and look at the long term effects on business performance, it’s clear that there are significant business benefits that lead to healthier financial returns, a healthier working environment and a healthier company image. The difference between inclusive hiring failing and succeeding is implementing a culture of DEI at a company’s core, and ensuring that it is not simply rolled out half-heartedly for the sake of it. We’d encourage you all to look at your hiring practises, and see if you can find ways to improve them – because, ultimately, inclusive hiring is in a business’ best interest.

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Written by Emily Hoffschmidt-McDonnell, edited by Sophie Webber, and researched by Rachel Bolte.

See our sources here