Tuesday, January 16, 2007

 

Diversifying for Profit

The Washington Post has an article Monday extolling the benefits of “Diversity”. And this time they have a study to prove it:

“[Sociology Professor Cedric] Herring has just completed his study. He found that companies that are more diverse have more customers, a larger share of their markets and greater profitability. In fact, when Herring puts his numbers on a graph, he finds a linear relationship between diversity and business success, meaning that as diversity increases, those business indicators increase in step.” In Boardrooms and in Courtrooms, Diversity Makes a Difference

I don’t know why Post writer Shankar Vedantam says Professor Herring “just completed his study” – the paper’s been out since August 2006 – but my guess is Mr. Vendantum has been saving this tidbit especially for Martin Luthor King Day. Since this is the Post, though, I decided to read the Professor's study myself.

Professor Herring early on attempts to de-flame the emotionalism surrounding the term “Diversity”:

“For some people, the term "diversity" provokes intense emotional reactions because it brings to mind such politically charged ideas as "affirmative action" or "quotas"; yet, at its base the term merely refers to variety. Diversity is an all-inclusive term that extends beyond race and gender and incorporates people in many different classifications. It includes age, geographic considerations, personality, culture, sexual preferences, tenure issues, and a myriad of other personal, demographic, and organizational characteristics. Generally speaking, the term "workforce diversity" refers to policies and practices that seek to include people within a workforce who are considered to be, in some way, different from those in the predominant group.”

Sounds great but later…

The focus in this paper is on diversity that is based on race,…”

I am further on notice as to a possible agenda when I read, as part of his “Overview of the "Business Case for Diversity" Perspective” (p6), this tired old canard:

“In addition, Executive Order 11246 issued in 1965 required government contractors to take affirmative action to overcome past patterns of exclusion and discrimination.”

Since that wasn’t the way I remembered it, I went and looked up EO 11246. Read for yourself:

“The contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex or national origin. Such action shall include, but not be limited to the following: employment, upgrading, demotion, or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship.” Executive Order 11246, As Amended

Nothing about past patterns of exclusion and discrimination – in other words, the exact opposite of what affirmative action is purported to mean today.

So his conclusion is as expected:

“The analysis provided support for all four hypotheses: racial diversity is associated with increased sales revenue, more customers, greater market share, and greater relative profits.”

Now I will admit, I did not study extensively his use of regression analysis, stochastic curves and what-have you. But some of the numbers within are interesting. First, the data he uses isn’t new – it’s from 1996-1997. Further he is culling data from a database that already culled data. In this instance, 1,002 U.S. work establishments were stratified from over 15,000,000 work establishments in 1996/97. Apparently, Professor Herring then obtained information from 251 of these 1,002 to produce his work.

The information on Market Share and Profitability were based on perceptions of the respondents and not the actual numbers. Some of his results are so unsurprising; I’m not sure why he even thought to include it. If I told you that Sole Proprietorships were less-likely to be racially diverse than Corporations, would you felt like you learned anything? But there it is on Page 16 of the report. Then there is my favorite stat:

Although the differences are not large, businesses with low levels of racial diversity have, if anything, slightly higher percentages of female employees (57%) than those with medium levels of racial diversity (51%) or those with high levels of racial diversity 54%).”

I think he’s embarrassed by that because it’s the only time he notes that the differences are not large – even though there are instances where the differences are smaller than reported here. Also I’m curious as to his data base if, in all three levels (low, medium, high), women make up more than 50% of the workforce when, as a group, they supposedly only now make up 46% of workforce (2005 Workforce statistics).



In the end, I don’t know what the study is supposed to add to the debate; a debate that Professor Herring paints thusly:

“The paper began with two competing views about the effects of diversity. The "business case for diversity" perspective argues that a diverse workforce, relative to a homogeneous workforce, produces better business results…

“In contrast, skeptics point out why diversity is counterproductive.”

There may be such skeptics out there but I believe that most Diversity skeptics instead just think the whole skin-deep diversity bit is, at best, irrelevant. Even Professor Herring admits the study shows a relational not causal link. I doubt that’s the way it’ll be used.

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