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How to Encourage and Leverage Diversity

A few weeks ago I found myself reading a job posting that had been recommended to me. This job was similar to the one I have today – eerily similar, in fact – but was with an organization roughly twice the size and with more potential for growth. My curiosity piqued, I began to do a little research on the company. In all respects this appeared to be a healthy, stable firm that had experienced steady and sustainable growth over the course of its 140+ years. The company had a warm and inviting feel to it with a loyal base of employees and customers. All good things.

While exploring the company’s website I stumbled across a page containing very brief bios of every board member and executive team member, complete with photos. That was where my research into this company ended, and I promptly deleted the email with the job recommendation in it.

What happened? Simple: of the 31 people who were in the top level leadership of this company (yes, I went back and counted), 27 of them were male, and all 31 of them were white. No diversity whatsoever. None. In 2018 that is not a sign of a healthy organization with its finger on the pulse of the country. What I saw was suggestive of a strong sense of organizational identity, but that that identity was one which would be resistant to change and continually limited by homogeneity of ideas and perspectives, in addition to being out of touch with its customers, and probably its front-line employees.

That any large or medium-sized firm could still not understand in 2018 why diversity is important is, honestly, a bit beyond me. I genuinely think that most high level executives today get this. What they don’t get, however, is how to encourage and leverage that diversity. And that I think many of us can relate to because the HR field as a whole, which is usually responsible for diversity and inclusion efforts in an organization, also has not got a good grasp on how to do this well.

I know that’s a bit of a sweeping statement to make, but it is also true. Many, many HR professionals have been taught that encouraging diversity is a matter of putting a policy in place, meeting EEOC guidelines, and offering a few diversity workshops. The fact is that these efforts, while well-intentioned, do not accomplish the goal they are designed to achieve. For many organizations this actually accomplishes the perpetuation of the mythical colorblind ideal. Meaning: organizations often prefer to “treat everyone the same” and assimilate differences into a single culture, pretending that differences don’t matter. But ask yourself this: what is the dominant culture in the vast majority of U.S. businesses – the one that everyone is expected to assimilate into?

Hopefully you now see the problem.

Differences Matter

The real key to making diversity efforts stick, and to helping members of minority groups feel like they truly belong, is inclusion. You can’t just build a diverse organization and pat yourselves on the back. You also have to make everyone feel like they are a part of what you have built, and that their differences are welcomed, not ignored.

So how do you get there? That, friends, is the hard part. Diversity and inclusion experts have tried a number of different methods over the years, the vast majority of which have been met with varying degrees of failure. The methodology that seems to be the most consistently effective, unfortunately, is also the most time consuming and expensive. In organizations where this already a relatively strong sense of diversity and genuine desire to be inclusive, some experts have had success with simply bringing together people of different backgrounds and letting them work together. But I suspect this situation is not very common and so the simple solution would not work in most companies. For everyone else, the most effective solution seems to be focusing on the individual, especially managers.

Past research has shown that people are most open to embracing the differences of others when they have a better understanding of their own cultural identities, which can include gender identity, cultural-ethnic group, sexual orientation, religion, age, disability, etc. The better we understand these things about ourselves – their history, their meaning, and so forth – the better we are able to recognize and embrace differences between ourselves and others. There are a lot of ways to build that understanding, via focus groups, workshops, reading, mentoring, and so on. But they all take time and energy. The investment is worth it, however.

Another key element in building your inclusion efforts is the establishment of trust and high-quality relationships between managers and their teams. This is true not just of direct reporting relationships, but also of middle and senior leaders and the larger organizations – departments, divisions, etc. – that report up to them. Leaders must take the time and effort to establish trust and quality relationships with the people in their area of responsibility, and with their key stakeholders. Clearly, I don’t mean that every EVP should be out there getting to know every single person in their division. That isn’t always practical. But you can take time on a regular basis to get out and talk with people, to listen to what they have to say, and to show that you are interested in their input and in them as human beings. Demonstrating that kind of humanity will go a long way in building trust, which in turn will help build feelings of inclusion.

This is just a high level view of what can be done to initiate an effective inclusion program, and obviously my perspective is colored by my own cultural identity. So I am curious: what else have you seen that works? Are there programs you have seen in other organizations that were effective at building a truly diverse, inclusive organization where everyone – regardless of cultural identity – felt they belonged?

Courage at the Top: Empowering the Board of Directors

In January 2001, Tyco’s then-CEO L. Dennis Kozlowski presented his board of directors with a new employment contract stipulating that a felony conviction would not be grounds for his termination. The board signed it without any fuss. Eighteen months later Kozlowski was being investigated for fraud, while Tyco was on the brink of collapse with $32 billion in debt and an $8 stock price.

Kozlowski’s replacement, Edward Breen, promptly set about overhauling Tyco’s board of directors for one simple reason: he knew that in order for the company to survive, return to sustainable success, and to never have this problem again, the company would need board members who asked questions. Kozlowski had spent five years taking Tyco down a path to its own destruction, but at no point did the board ever question his lavish spending, his nearly 600 corporate acquisitions, or even his unusual contract terms. It was this lack of courage, as much as Kozlowski’s excesses and shady dealings, that doomed Tyco.

After all, what is the purpose of a board of directors, if not to provide oversight and guidance to a company’s officers on behalf of shareholders? A board that fails in these duties is every bit as responsible for the company’s demise as the CEO who makes bad decisions.

Unfortunately, establishing a board of directors with the appropriate amounts of intellectual curiosity and courage is somewhat easier said than done. Many CEOs understandably want board members who are supportive and will allow the CEO to run the company as he or she sees fit. But ultimately this is a less effective option for the long term health of the organization.

Board members can come from inside or outside the corporation, and there are pros and cons to both. Board members who come from outside the company are normally less beholden to the CEO and are more prone to critically examining the proposals and decisions of company officers. The downside is that, unfortunately, outside board members also have less information, less context, related to what is happening within the company. To put it another way, they are not as closely in tune with the day-to-day goings on of the business as board members who come from inside the company.

Here in the U.S., the New York Stock Exchange requires that a company’s board be comprised primarily of company outsiders. The reasoning behind this rule is sound, but it is not without its problems. For one thing, while outsider-dominated boards typically provide better monitoring and control, because they have less information than insiders they tend to rely much more heavily on financial controls – which are easier to objectively measure and require less understanding of the business – than on strategic controls. This reliance on financial controls over strategic ones often leads to less reinvestment in the company, and occasionally to over-diversification.

Of course, many companies do not have to worry about the rules of the NYSE. These firms are free to stock their boards with as many company officers as they like, but this can come at a cost as well. While better informed, insider-dominated boards are less likely to critically question CEOs and board chairpersons who also happen to be the company’s majority owner. Owners and chief executives are able to exert a great deal more influence over such a board, so even though the board makes better-informed decisions and is typically more focused on the long term health of the company, some issues don’t get the attention they need because inside board members are also concerned about maintaining a good relationship with their boss.

The best course of action is to have a good mix of both inside and outside board members. This provides a good balance of well-informed members with those who can safely ask hard questions, and enables the board to better balance short term profitability with long term sustainability. The trick becomes keeping the outside members properly informed of the goings-on within the company. With the introduction of Sarbanes-Oxley and a host of other regulatory changes affecting U.S. companies, board members are now flooded with information about the companies they serve, most of it financial. An extremely common complaint from board members today is the difficulty in digesting all of this information and still having time to discuss and make good decisions. Additionally, because there is so much information to sort through, it becomes difficult to spot potential red flags or issues to address within the data.

One partial solution to this problem is to increase the amount of time outside board members dedicate to the company. Some companies have resolved this through the introduction of more frequent meetings. Some require that outside board members spend a portion of their time onsite at various company facilities talking to people and learning about the business. Some provide more frequent updates to the board between meetings.

Another partial solution is to encourage curiosity and critical thinking by the board. Like any other employee, board members can be reviewed based on their performance, and replaced if they do not perform. The use of critical thinking, the willingness to ask tough questions, is something that board members absolutely should be rated on.

And CEOs have to encourage it. None of these suggestions will do any good if the CEO is unwilling to engage in critical discussions and to have their plans potentially torn apart by a board that is just trying to do its job. That’s not an easy thing to do. It requires a strength of character that is not easy to come by. But organizations that can establish this level of courage and intellectual curiosity at the top while finding the right ways to get their board of directors fully engaged will have the potential for a long run of success.

Identifying Organizational Core Competencies

When C.K. Prahalad and Gary Hamel first introduced the idea of core competencies to the broader public in their 1990 Harvard Business Review article, the idea caught on quickly. Today, it is basically impossible to find a manager or business school graduate who is not familiar with the concept. The term is part of our common business lexicon, but… how many people actually know what their organization’s core competencies are? Or why they are so important?

If you can’t answer the second question, then you are wasting your time trying to answer the first. Luckily, understanding the importance of core competencies is not hard, and the answer is the same for everyone.

Core competencies are important because they are one of the three elements of competitive advantage, along with resources and capabilities. To elaborate on this trio in brief, resources are the elements the firm expends in order to create capabilities; they can be physical, financial, human, or technological, and can be intangible just as easily as they can be tangible. Buildings and equipment are resources, but so are public image and brand recognition. Capabilities are simply the things the firm is capable of doing. An auto parts manufacturer is capable of making a fuel filter, a bank is not. However, both are capable of marketing and making investments to help their business along. If they are not capable, they use their financial resources to acquire the needed capability.

And that brings us back to core competencies: those capabilities that truly distinguish a company from its competitors and give it a competitive advantage. These core competencies are often reflective of the organization’s personality, and in short, are what make the company special. Here are a sampling of well-known and easily recognizable core competencies:

Apple Innovation and design
Walmart Inventory tracking and logistics
Adobe Deep understanding and relationships with their core user base
Southwest Airlines Empowering employees

How do we determine our core competencies?

I recently spent a little time trying to determine if the internet held the answer to this question. Turns out, it doesn’t. Not really. What I did find was a number of articles and blog posts claiming to answer this question, but then not actually answering it. One in particular, from a professional organization that you would think should be among the best places to find the answer, actually held some very bad advice and very little useful information.

So, since I was unable to find an answer already out there, I decided to go ahead and put the answer out there myself. Here goes:

The first step in determining your organizational core competencies is to poll several of your firm’s decision makers. I would recommend, at minimum, pulling together the executive team. Ask them very simply to identify the things which they believe the organization excels at in relation to not only their competition, but even other companies operating in totally unrelated areas. Each person should come up with their own list. (Ideally, I would like to see each person take a couple days to think about it and make their own list before coming together as a group; this eliminates the problem of dominant personalities taking over the meeting and some ideas never being heard.) The number of people you query is entirely up to you, but you need enough to get a saturation of ideas.

Once you have collected the suggested core competencies, you want to assess each one against the VRIO scale developed by Jay B. Barney in 1991. Briefly, the VRIO scale examines a competency against four criteria:

  1. Value – Do resources and capabilities enable a firm to exploit an external opportunity or neutralize an external threat?
  2. Rareness – How many competing firms already possess particular valuable resources and capabilities?
  3. Imitability – Do firms without a resource or capability face a cost disadvantage in obtaining or developing it compared to firms that already possess it?
  4. Organization – Is a firm organized to exploit the full competitive potential of its resources and capabilities?

A capability is not considered a core competency unless it meets all four of these criteria. Another criteria I would add is that core competencies should be aligned with the mission and vision of the organization. If they don’t align, then either the competencies or the mission/vision should change.

Yes, it is possible to change your core competencies, and in the interest of full disclosure, it is probably easier to change your mission and vision statements and do all of the change management associated with that than it is to change core competencies. Changing core competencies is difficult, expensive, time consuming, and requires absolute commitment on the part of leaders at all levels. But it is possible.

A list of core competencies is typically going to be fairly short. If it isn’t, then that’s a good sign that you haven’t been quite critical enough when weighing things against the VRIO scale. Don’t be surprised if you find yourself in this situation. A lot of leaders believe their organizations are good at a lot of things, and they probably are, but very few of those are truly core competencies that provide competitive advantage.

Communication in times of major change

A few years back the folks at Aon released an interesting white paper about how to manage employee engagement during major organizational changes. A much shorter version was re-released last year, but some of the really useful information was unfortunately dropped, presumably in the interest of brevity. One of those really useful bits of information, I thought, was a chart showing the top five drivers of engagement during different types of organizational change. It looked like this:

managing-emp-engagement-aon
 (Aon, 2013)

This is terrific, actionable information. Most organizational development professionals can look at this table and understand, at least at a high level, what they ought to do to address each of these drivers.

Of course, key to many of these drivers of engagement is communication. This is especially true during large transformations that will affect the whole company, such as being acquired by another firm or a major restructuring. Being on the buyer’s end of an acquisition could also qualify, depending on how the acquisition is being structured. The point is: these scenarios create tremendous uncertainty for employees at all levels, and uncertainty leads directly to disengagement. Communication is the only tool at our disposal for combating that uncertainty.

Okay, but…

But many, many leaders get stuck here. They know they should communicate, but they just aren’t sure how they should do it, or when, or even what to say. And because they don’t know how, when, or what, they often default to not communicating anything at all. And that’s a problem.

So here is my simple solution, and the advice I give to business leaders who find themselves in this situation: tell them everything you know, via every channel you have, at every chance you get. It is virtually impossible to over-communicate during these major organizational transformations, especially during M&A situations. And it needs to be a top priority. Senior leaders, and the CEO in particular, need to build time into their schedules for communicating with their people. It is that important.

Why is it so important? Because human beings loathe uncertainty. During times of major change, when uncertainty is high, people dedicate a significant amount of their mental resources to trying to resolve that uncertainty. In the absence of reliable information from an authoritative source, they will actually draw their own conclusions from the information they have available as a way of resolving the uncertainty. This is how wild rumors get started during major organizational changes, and in the absence of an authoritative voice countering those rumors with facts… you can probably guess where this is going.

Let’s talk specific strategies

My advice to leaders here has three elements to it. I’ll hit them in order.

1) Tell them everything you know

An article in a recent issue of Training magazine had some excellent thoughts from David Noer, author of Healing the Wounds: Overcoming the Trauma of Layoffs and Revitalizing Downsized Organizations. David says, “Avoid the four no’s: no secrets, no surprises, no hype, and no empty promises” (Freed, 2017). The first two are just absolutely critical. Be honest, and share everything that you are legally allowed to. If you don’t know something, you can tell them that, too. In fact, you should. “I don’t know” is a perfectly acceptable answer to many questions during times of major change, but it should be followed up with some kind of timeline as to when you think you will have the answer. What you should never do is lie, or make promises – even ones you think you can keep. Lies will eventually be found out, and even one broken promise will utterly destroy your credibility with the broader employee population. Do not do it.

2) Use every means at your disposal

Using a variety of different means of communication might seem overly time consuming, but it is also a necessity. People will not feel like they are being engaged unless you communicate to them in the ways that they prefer to be communicated to. For some people that will be email. For some it will be via conference calls or web meetings. For some it will be in-person meetings. You will need to use all of these, and quite possibly some others, as well. You will want to have an email account set up that people can send questions to. You will want to host town halls. You would be wise to post FAQs on your company intranet, with links to supplementary information. The more significant the change, the more of these channels you will need to take advantage of.

3) Communicate often

Finally, it is important to communicate with people as often as possible, especially as the changes begin taking place. At times this will seem hard, and it will feel like information is being repeated over and over again. Or it will feel like there is nothing new to say. And that will be true. But during times of major organizational change people will need that reassurance, and you never know who missed that last email or company-wide conference call. (Hint: you can safely assume a lot of people missed it.) During M&A scenarios, what typically occurs is that people have many questions and concerns in the first few weeks immediately after the announcement. Then things will lull back into a state of calm until the deal closes and the actual integration starts to take place, and that’s when uncertainty rears its head again.

Major organizational changes are hard on everyone involved. They create an enormous amount of uncertainty, and can generate very high levels of disengagement if they are not managed properly. Without an effective communication strategy, you can count on an even rougher road ahead.

References

Aon. (2013). Managing employee engagement during times of change. Retrieved from http://www.aon.com/attachments/human-capital-consulting/2013_Managing_Engagement_During_Times_of_Change_White_Paper.pdf

Freed, J.E. (2017). What they don’t teach in business school. Training, 55(4), (pp.10-11).