Transcript
Speaker: Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: Today's episode of The Market That Moves America is about the value of diversity. How important is it for middle market companies to feel the diverse workforce? And what is diversity anyway? I'm Tom Stewart, the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business. We're the nation's leading research outfit studying mid -sized companies, which account for a third of private sector employment and GDP, and the lion's share of economic growth.
Speaker: It is the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and SunTrust Banks, Grant Thornton LLP, and Cisco Systems. With me today is a special guest, an old friend of mine, Stephanie Sandberg, who is the managing director of OutLeadership, a research, consulting, and advisory firm in New York.
Speaker: Stephanie is the former president and publisher of the New Republic Magazine and the chair of the Independent Magazine Group. She's also served as the chief marketing officer for a couple of consulting firms and overseen strategic communications for the private equity firm Rosemark Capital. Stephanie, welcome.
Speaker: Stephanie, let me begin with a couple of points and maybe a factoid or two to set the stage. Over the years, there's been a lot of compelling research that demonstrates that diversity isn't just a feel -good, socially responsible thing, though it's that, but it's also directly related to the bottom line.
Speaker: For example, there was one study that showed that when Fortune 500 companies are ranked by the number of women directors on their boards, those in the highest quartile with the highest percentage of women reported a 42 % greater return on sales and a 53 % greater return on equity than the other companies.
Speaker: similar studies that looked at the percentage of minority or female executives, and there are studies that show that cognitive diversity, a mix of left brain and right brain, or of old and young, of poets and quants, all this leads to better decision making. Stephanie, you're working particularly in the area of LGBT diversity, and you've done studies that show the value of that in financial terms. What do they show?
Speaker: Well, we've done some, but more importantly, other firms such as Credit Suisse have done research that helps correlate. And let's be clear, no one has really found the magic pill that describes exactly the causation between diversity of any sort and women. But the correlations are so strong, you'd be crazy to deny it.
Speaker: LGBT as a diverse component in the diversity set is we think an undervalued asset that companies should probably take better advantage of. In terms of your question, what's the research and what's the lift? They say typically at 10 % lift, the companies that have been studied that have a stronger mix and stronger policies around LGBT inclusion show year after year
Speaker: a pretty consistent 10 % lift. But if you look at it even from a broader perspective and think of it sort of common sensically, of course, you know, pick your number. It's hard to please everyone, but call it 5 % of the population just to use a media might be LGBT. And so from a market opportunity perspective, you know, it's a relatively small percentage of the population, but it drives disproportionate spending power. That research has come out pretty consistently year over year.
Speaker: And now on par with other diverse populations and that doesn't even get to the talent piece, which maybe we can discuss So we have this across all of the diversities if you will say you see this this evidence of lift or you see a correlation and you were right to say it's correlation you can't prove causation and
Speaker: And some of this could be there may be more of certain kinds of diversity in certain sectors. I mean, we've heard a lot about the lack of diversity in technology for women, for example, but there may be more other kinds. There may just be sector differences. There may be
Speaker: you know, fast -growing cities, residential differences. But, you know, I think it was Damon Runyon who once said that the race is not always to the swift, but that's the way you bet. And sort of, you know, causation may not, or correlation isn't necessarily causation, but it is pretty suggestive. Why? I mean, what do you think is the mechanism? What could be the causative mechanism?
Speaker: Well, the results in terms of getting away from group thing, for example, and this notion of diversity driving better decision making, whether it's combining quants and poets or people from different generations or different ethnic backgrounds, there's just no getting around that there are going to be better decisions made.
Speaker: And any company worth its salt is going to want to make sure that they have a competitive edge on any front. And from a talent and decision making perspective in particular, you just don't want to leave anything on the table. I think in terms of LGBT, what we've found is it's a combination of it galvanizes other minority groups. And again, I don't have the concrete proof for you. We have anecdotal and
Speaker: you know, correlations to make in terms of the hundreds of companies that we've worked with over the years and have conversation with, any company that is aggressively welcoming to its LGBT employees sends a message to any other minority group that you are welcome here. There's something about that rainbow halo that helps others feel, you know what, that's a company, if it's really, you know, working hard to welcome that community on this axis,
Speaker: We imagine that they will be welcoming. So you've been working with hundreds of companies. And obviously, the focus of this podcast and the National Center for the Middle Market is on mid -sized companies. As you've looked at big, middle -sized, and small, do you see any differences in terms of benefit or maybe differences in terms of
Speaker: the willingness of these companies to embrace workforce diversity. Any salient things you see that show up in terms of company size? Sure. I think it's a combination of intent. So something about willingness is I think there are a few people and if
Speaker: And if there are people who are against any kind of diversity, they probably haven't met me yet. I wouldn't know them. But there are few companies that are unwilling, I think. But the question becomes one of resources and knowledge. And larger companies, by and large,
Speaker: spend a lot more time on, I imagine, and from the folks that we've spoken to on this topic, because they can. They hire chief diversity officers. Although it's interesting, I just was speaking to a company this week, they have probably 700 employees, they're US based, and their CEO,
Speaker: is an enlightened leader of a company where he wants to make sure that he's having best practices on all fronts. And he, after looking into it and having a committee report back to him, just hired, actually promoted someone from within, but to become a chief diversity officer of his mid -sized firm.
Speaker: And most such smaller firms don't have a chief diversity officer per se, whereas the Fortune 500, I would say the majority of them have that person and then have a diversity and inclusion initiative. Apart from that, there really isn't a difference. There certainly isn't a difference in
Speaker: opportunity, right? So anyone, whether you have a hundred or a thousand or a hundred thousand employees, you want the best talent. And so from a talent perspective, particularly among millennials, as mentioned, the more LGBT inclusive you can be, we can talk about how companies can do that. But in general, putting yourself out there and branding yourself as that kind of company
Speaker: Helps attract not just the lgbt employees, you know, the figures are around 70 of lgbt job seekers consider the company's reputation Before deciding a company, you know on that would be true on that axis lags hispanics women anybody you just sort of say Is this going to be a place where I can thrive? Yeah, it'll be a place where I can thrive. Yeah, I
Speaker: I would think so. There's a perception and then there's the data. From our research, we do know we have the hard numbers on the LGBT front. I imagine that those numbers are also true. You mentioned groupthink earlier. One of the things that I've been thinking about is what happens
Speaker: A lot of family companies, for example, or relatively small companies, they start out as, you know, a cohort of friends from business school or my drinking buddies or my sisters and brothers and cousins and aunts. They start out as this group of people who know each other very well and who really value
Speaker: the close -knit team. And I've sort of wondered personally, what's the difference between a team that's so close that you can complete each other's sentences and a team that's so close that you get groupthink?
Speaker: Are these things actually in tension with one another? Can you get the best of both worlds? How do you know that you're caught in sort of a cognitive or gender or racial or other kind of bubble that is not letting you take advantage of the world that's out there?
Speaker: Well, I think that's two things. So one is the short answer is culture is hard to change. And even with the recognition, and we can get back to how one can see what's going on and when and whether one has fallen short as a result, but recognizing that
Speaker: You know, we all are more comfortable with people who are like us and people talk a lot about that. And so you're going against the grain already to sort of reach across and bring in difference. And celebrating difference means a different kind of person, a different kind of perspective, and potentially, of course, as what we're talking about is the, you know, the results are in that the more voices, of course, informed voices, smart people, that's all given.
Speaker: So around that table, if I'm the CEO of a company and I look around and pretty much from an ethnicity and gender and orientation perspective, people are pretty much like me. I don't have to think that much deeper to know that we bring similar perspectives because it's just built in.
Speaker: Even the optics, which might seem glib, but they're real because you bring your whole self to work unless you're in the closet, which is something we talk about.
Speaker: opportunity for corporate America to create the welcoming environment means that half of the workers, which in corporate America, half are still in the closet, they're leaving a lot of value on the table there. So that alone, of course, brings people out.
Speaker: But putting those faces and then bringing those experiences around the table automatically diversify the conversation and I think drive that better results. I'm going to guess. The clearer our shared vision and shared goals are, the easier it is to value, encourage, and even relish
Speaker: robust and diverse conversations and arguments because we know we're trying to get it right. So if we're sharing that strategic vision and sharing those values, it's a lot easier to love the idea that there are five or six different points of view around a table. There's no question. And setting the tone from the top,
Speaker: and driving policy and decision making from the top, that's what it's all about. Talk to me about the market opportunity. We've mentioned, well, two things. I mean, two things that begin with them, millennials and markets. And talk to me about LBGT in particular, but also what you sense and know about diversity in general. And I guess it's opportunity not just internally, but in terms of revenue driving.
Speaker: Sure. Well, in the narrow world of LGBT inclusion and market opportunity, there's no question that a company that isn't aware of the LGBT
Speaker: dollar spend, which in this country alone is now close to a trillion dollars, and as I say, almost for the first time on par with other minority groups, people of color, then that is a missed opportunity. Now, you can be in the trade, maybe you're in the trade and it's a
Speaker: B2B business so where does that opportunity come in that is one more turn of the wheel so that becomes more of a talent and in terms of your end product if you're not a B2C company that's a different conversation but if you're selling something directly to customers and you don't understand the opportunity around the LGBT market
Speaker: That simply is a missed opportunity, given that not only are those tens of millions, hundreds of millions of consumers ready to buy, and there's all sorts of data around they're willing to pay 20 % more, they're willing to recommend it to their friends.
Speaker: They are, as we said, far more willing to work for a company that seems inclusive, particularly to the millennials. But they also have the opportunity to, for B2B companies in particular, we have found that companies that connect on this axis, if you will, and I'll try to think of a clear example, lawyers that work with a consulting company,
Speaker: if you probably know that a lot of companies are now holding their law firms far more accountable on diversity representation and diversity working on their issues. This is not about the moral high ground and that's what makes this a sometimes confusing conversation and why we love bringing it back to data and business impact.
Speaker: Customers care if their law firms are bringing diverse voices and diverse participants to their work because they know the work will be better. It's not because they're trying to earn a gold star or get a gold cup at a diversity banquet.
Speaker: It's because, to your point, it's so hard to get culture moving that without holding people accountable and actually doing a headcount and saying, how many diverse lawyers did you have working on my business and what kind of diversity was that?
Speaker: Then people will, you know, sort of slip back into the, you know, who has seniority, who looks like me, who do I speak to most easily. So that's a roundabout way of addressing a few different pieces of this LGBT market. If I'm hiring a lawyer or a law firm, I want a law firm that's going to look at my problem from every possible angle.
Speaker: I mean, that will just be a definition. You were also reminding me of a story which dates back three quarters of a century, I think roughly, to the Cola Wars, when Pepsi Cola was trying to expand against Coca -Cola, and it was the Avis to Coke's Hertz, and in particular Coke owned the South.
Speaker: And at that time, I think Walter Mack was the famous CEO of PepsiCo, who also gave us the Pepsi -Cola hits the spot jingle, so he has both stars and black marks in his book. But one of the stars is he said, you know, we can penetrate the South because we're going to sell to black communities.
Speaker: and sort of started selling Coca -Cola and Pepsi -Cola in places where Coke wasn't going because Coke at that time was very much a Southern company and there was like this untapped market and Pepsi just sort of snuck in and suddenly it started developing a market that hadn't been there. Makes a lot of sense. We talk to companies who have employee resource groups, for example.
Speaker: play resource groups as you know are minority communities within companies that come together to show each other up, get to network, and increasingly companies are calling them business resource groups because they actually want them to say tell us about your market.
Speaker: So LGBT and we encourage this, of course, deeply. So there might be a social hour, but perhaps more importantly, there's a strategic plan conceived where this ERG helps its company understand
Speaker: Why the market you know in a pharmaceutical or you know it could be Skittles who did rainbow Skittles this year? You know is there a market out there that that this group can understand better than the company at large and and that that too is a great example of leveraging
Speaker: diversity within the company, and sometimes you just need a little tonnage that way. Get all of those people around the table to say, well, you shouldn't sell to our market this way, or to your point, you're ignoring our market, and they would be delighted if someone paid specific attention to that.
Speaker: is that globalization, in many cases in mid -sized companies, rides on the back of the country of origin or the ethnicity of an employee or two. We've got somebody on our staff from Argentina who says, wait a minute, there's a market for widgets in Argentina, or somebody who is Slovenian.
Speaker: And these companies, mid -size companies, rarely have windowless cube farms full of people crunching numbers and saying what the market is. And so it's often that personal awareness and knowledge. And hey, this is a market where we can go to, and I know a little bit about it, that can actually be the can opener that opens that market.
Speaker: Before we wrap this up, I want to ask you
Speaker: How do I get started? I mean, imagine that I'm a company of a mid -size, I've got a pretty lean HR department. I get it, I understand the case, and I want to go a little bit beyond that informal riding the back of one person whom I know. How do I, what can a mid -size company do to understand a lot of its current situation and understand its opportunity?
Speaker: Well, the easiest and most practical short -term solution would be to use our diagnostic tool, which we developed earlier this year for precisely that company that doesn't have broader resources. Of course, the larger company can utilize it as well. But we found that there was no quantitative measuring device that also allowed a company a private purview
Speaker: across multiple dimensions, kind of spit out to them, if you will, where the opportunity lies and specific steps that they can take. So, like you, for example, it takes an hour, so any HR lead could easily, you know, fill that out, and in an hour, half back,
Speaker: a pretty comprehensive snapshot of how the company's doing. And there's no judgment, of course, because it's private. And where the opportunity to improve specifically is sort of by area and by tactical step. It might have to do with supporting your employees in a variety of different ways. It might have to do with the philosophy. If your company gives politically, it might have to do with making sure that you understand the implications.
Speaker: of your political action committee work. So that would be my first self -serving, but I think true, because there's nothing else like it in the market. And then the other thing is just to make sure that you do the gut checks and that you educate yourself in this community of opportunity. And there's a lot of information out there. Of course, our leadership has a ton.
Speaker: But so does a lot of advocacy organizations. We're a for -profit business, so we focus pretty strictly on the business impact. But there are lots of companies that do terrific advocacy work, of course. So gut checks always go better with data. And give me the URL or give people who are listening the URL for this assessment tool. Outleadership. So outleadership .com.
Speaker: And if you go to our website and you go to the diagnostics area and click on there, up will pop our OLIQ diagnostic survey and you just click on that and you're good to go. One of the things that I sense, Stephanie, and I'm really grateful to you for the time you've spent with us today is
Speaker: One thing that often happens with companies, particularly when they're lean and they're growing and they're really busy, is that there are opportunities that they miss.
Speaker: They're sometimes not even aware that they're missing them and that this is a big one. That the opportunity to get the full panoply of opinions and backgrounds and ideas and insights around the table and also the idea to present your company to a market that's right there, right in front of you, but that you probably, you haven't focused on keys that might unlock that specifically.
Speaker: is one of those things that companies can do and sort of actually get, even though culture changes hard as you said, you can get a pretty fast benefit from it in terms of better decisions and in terms of better talent and in terms of
Speaker: better sales. So with that, Stephanie Sandberg, the managing director of OutLeadership, thank you very much for joining us. And thank you all for listening to The Market That Moves America.
Speaker: Never miss a new episode. Please subscribe to the podcast on iTunes, Stitcher, Google Play, or wherever fine podcasts can be found. You can subscribe and learn more about us at our website, middlemarketcenter .org. Thanks very much.
