Social Value ROI: Moving Beyond Diversity Metrics
The Challenge of Measurement
Research on the value of DEI initiatives has clearly demonstrated that diverse, equitable, and inclusive cultures are good for business. Organizations with comparatively better DEI metrics enjoy higher overall revenue, revenue from innovative new products, brand reputation, employee retention, and access to capital. This undisputed economic value has caught the eyes of job applicants, employees, customers, partners and investors--and the SEC.
The new SEC human capital reporting guidelines recommend reporting DEI metrics—but do not define those metrics. Instead, organizations have been left to identify appropriate DEI metrics from a complicated milieu of potential metrics, standards, and benchmarks. The result?
- A confusing set of measurement options that may not reflect the goals an organization wants to achieve;
- A focus on the outcome metrics of demographic categories without understanding what drives those metrics;
- Human capital development strategies that do not create the behavioral changes leading to a more diverse, equitable, and inclusive culture, thus creating a leaky bucket of talent and adverse impact for the organization.
Organizations lack a strategic measurement and analytics framework that links human capital investments to creating diverse, equitable, and inclusive environments.
The Leaky Bucket
Too often, diversity metrics are confined to reporting percentages of various demographics and social identities, e.g., gender, race, disabilities, or age. Organizations may report those metrics by different data slices, like organizational levels (e.g., board, senior team, functions), geographies, or functions. Transparent reporting of diversity metrics is both important and expected. However, these diversity metrics about representation are outcomes—they are a rear-view mirror into the past. Outcomes tell organizations what has already happened—but not how to change them. Unfortunately, these outcome metrics can hide systemic issues that lead to a “leaky bucket syndrome” where attrition of people of color, people with disabilities, women, and other minority groups drains the organization of its diversity and undermines its commitments to DEI.
Diversity without equity and inclusion creates a leaky bucket.
Creating a DEI Human Capital Investment Plan
So what can we do differently? Creating truly diverse, equitable, and inclusive cultures requires an intense commitment to organizational culture change and human capital development. A comprehensive measurement and investment framework can help organizations put teeth into those commitments. How? By moving beyond diversity metrics to what drives them—and then crafting human capital investment strategies to meet those goals. A strategic framework of metrics, analytics and investments enables organizations to:
- Capture the right data to measure your DEI commitments;
- Use analytics to identify risks and opportunities;
- Identify the right human capital investment strategies with the biggest impact on attaining your DEI goals.
Organizations can begin this process by thinking about a comprehensive system of metrics that measure progress on DEI commitments and business outcomes. Defining the DEI metrics is the first step. Consider these DEI measurement categories, compiled from SEC guidelines, ISO reporting standards, ESG working groups, HR associations, and benchmarking companies. The categories represent a rich suite of possible outcome metrics and data that can be used as predictors of those outcomes--the levers of change:
Measures of Diversity
· Overall diversity metrics by demographic categories; includes overall organization, board, senior leadership, specific functions and geographies.
· Candidate Hiring: Demographics of candidates applying for jobs and calculations of adverse impact
Measures of Inclusivity and Belonging
· Policies supporting diversity, including childcare, flexible work hours, remote work, benefits for LBTQ+ couples, accessibility policies,
· Cultural Inclusivity and Belonging Assessments, including measures like psychological safety and metrics of belonging and equitable opportunities
· News and Controversies, for example, the number of controversies published in the media linked to workforce diversity and opportunity, like wages, promotion, and harassment
· Employee Resource Groups, for example number of groups, active membership, senior team member engagement and sponsorship
Measures of Equity
· Promotion metrics, including advancement of people in various demographic categories within each promotion opportunity; reviews of performance ratings and “9 Box” ratings; levels of promotion
· Wealth metrics, such as average hourly earnings, annual salary, stock ownership/options, patents
· People Development Investments, including career development paths, access to skills and management training
Measures of Retention
· Retention, including employee retention, voluntary attrition, and turnover
· Employee Satisfaction, including employee Net Promoter Score
· Well-Being: Examples include metrics related to health (hospitalizations, sick days) and well-being indicators like stress and burnout
· External Benchmarks from organizations like the Human Rights Campaign or the Disability Equality Index or Refinitiv
· Internal Benchmarks that compare business units, functions, or groups on specific internal DEI metrics
Linking to the Greater Good
To inspire employees and help paint the picture of how your organization contributes to a greater good, consider linking your DEI commitments to the United Nations Sustainable Development (SDG) goals. Three UN SDG goals relate to DEI investments, including:
· Goal 4: Quality Education--Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
· Goal 5 Gender Equality---Achieve gender equality and empower all women and girls
· Goal 8: Decent Work and Economic Growth. Promote sustained, inclusive, and sustainable growth, full and productive employment, and decent work for all
Each SDG goal includes specific targets and indicators (metrics) that may be useful in linking your own DEI metrics to positive societal change.
Human-centered leadership requires creating both economic and social value—and diverse, equitable, and inclusive environments are a critical component of that equation. Crystal-clear DEI goals accompanied by a human capital investment roadmap for attaining them will help organizations move beyond the numbers game of representation. Instead, they can focus attaining their diversity goals by developing more equitable and inclusive cultures.