Frank Dobbin and Alexandra Kalev, Harvard Business Review, July-August 2016
Businesses started caring a lot more about diversity after a series of high-profile lawsuits rocked the financial industry. In the late 1990s and early 2000s, Morgan Stanley shelled out $54 million–and Smith Barney and Merrill Lynch more than $100 million each–to settle sex discrimination claims. In 2007, Morgan was back at the table, facing a new class action, which cost the company $46 million. In 2013, Bank of America Merrill Lynch settled a race discrimination suit for $160 million. Cases like these brought Merrill’s total 15-year payout to nearly half a billion dollars.
It’s no wonder that Wall Street firms now require new hires to sign arbitration contracts agreeing not to join class actions. They have also expanded training and other diversity programs. But on balance, equality isn’t improving in financial services or elsewhere. Although the proportion of managers at U.S. commercial banks who were Hispanic rose from 4.7% in 2003 to 5.7% in 2014, white women’s representation dropped from 39% to 35%, and black men’s from 2.5% to 2.3%. The numbers were even worse in investment banks (though that industry is shrinking, which complicates the analysis). Among all U.S. companies with 100 or more employees, the proportion of black men in management increased just slightly–from 3% to 3.3%–from 1985 to 2014. White women saw bigger gains from 1985 to 2000–rising from 22% to 29% of managers–but their numbers haven’t budged since then. Even in Silicon Valley, where many leaders tout the need to increase diversity for both business and social justice reasons, bread-and-butter tech jobs remain dominated by white men.
Executives favor a classic command-and-control approach to diversity because it boils expected behaviors down to dos and don’ts that are easy to understand and defend. Yet this approach also flies in the face of nearly everything we know about how to motivate people to make changes. Decades of social science research point to a simple truth: You won’t get managers on board by blaming and shaming them with rules and reeducation. Let’s look at how the most common top-down efforts typically go wrong.
Do people who undergo training usually shed their biases? Researchers have been examining that question since before World War II, in nearly a thousand studies. It turns out that while people are easily taught to respond correctly to a questionnaire about bias, they soon forget the right answers. The positive effects of diversity training rarely last beyond a day or two, and a number of studies suggest that it can activate bias or spark a backlash. Nonetheless, nearly half of midsize companies use it, as do nearly all the Fortune 500.
Many firms see adverse effects. One reason is that three-quarters use negative messages in their training. By headlining the legal case for diversity and trotting out stories of huge settlements, they issue an implied threat: “Discriminate, and the company will pay the price.” We understand the temptation–that’s how we got your attention in the first paragraph–but threats, or “negative incentives,” don’t win converts.
Another reason is that about three-quarters of firms with training still follow the dated advice of the late diversity guru R. Roosevelt Thomas Jr. “If diversity management is strategic to the organization,” he used to say, diversity training must be mandatory, and management has to make it clear that “if you can’t deal with that, then we have to ask you to leave.” But five years after instituting required training for managers, companies saw no improvement in the proportion of white women, black men, and Hispanics in management, and the share of black women actually decreased by 9%, on average, while the ranks of Asian-American men and women shrank by 4% to 5%. Trainers tell us that people often respond to compulsory courses with anger and resistance–and many participants actually report more animosity toward other groups afterward.
But voluntary training evokes the opposite response (“I chose to show up, so I must be pro-diversity”), leading to better results: increases of 9% to 13% in black men, Hispanic men, and Asian-American men and women in management five years out (with no decline in white or black women). Research from the University of Toronto reinforces our findings: In one study white subjects read a brochure critiquing prejudice toward blacks. When people felt pressure to agree with it, the reading strengthened their bias against blacks. When they felt the choice was theirs, the reading reduced bias.
Companies that institute written job tests for managers–about 10% have them today–see decreases of 4% to 10% in the share of managerial jobs held by white women, African-American men and women, Hispanic men and women, and Asian-American women over the next five years. There are significant declines among white and Asian-American women–groups with high levels of education, which typically score well on standard managerial tests. So group differences in test-taking skills don’t explain the pattern.
More than 90% of midsize and large companies use annual performance ratings to ensure that managers make fair pay and promotion decisions. Identifying and rewarding the best workers isn’t the only goal–the ratings also provide a litigation shield. Companies sued for discrimination often claim that their performance rating systems prevent biased treatment.
But studies show that raters tend to lowball women and minorities in performance reviews. And some managers give everyone high marks to avoid hassles with employees or to keep their options open when handing out promotions. However managers work around performance systems, the bottom line is that ratings don’t boost diversity. When companies introduce them, there’s no effect on minority managers over the next five years, and the share of white women in management drops by 4%, on average.
Only about 15% of firms have special college recruitment programs for women and minorities, and only 10% have mentoring programs. Once organizations try them out, though, the upside becomes clear. Consider how these programs helped Coca-Cola in the wake of a race discrimination suit settled in 2000 for a record $193 million. With guidance from a court-appointed external task force, executives in the North America group got involved in recruitment and mentoring initiatives for professionals and middle managers, working specifically toward measurable goals for minorities. Even top leaders helped to recruit and mentor, and talent-sourcing partners were required to broaden their recruitment efforts. After five years, according to former CEO and chairman Neville Isdell, 80% of all mentees had climbed at least one rung in management. Both individual and group mentoring were open to all races but attracted large numbers of African-Americans (who accounted for 36% of protégés). These changes brought important gains. From 2000 to 2006, African-Americans’ representation among salaried employees grew from 19.7% to 23%, and Hispanics’ from 5.5% to 6.4%. And while African-Americans and Hispanics respectively made up 12% and 4.9% of professionals and middle managers in 2002, just four years later those figures had risen to 15.5% and 5.9%.
This began a virtuous cycle. Today, Coke looks like a different company. This February, Atlanta Tribune magazine profiled 17 African-American women in VP roles and above at Coke, including CFO Kathy Waller.