Investing In Diversity

Many companies like to say that they invest in diversity. But the truth is, they treat investing in diversity far differently than their other investments, and that’s a problem.

Problem #1: They don’t have an investment thesis with a target return.

When companies make investments, they generally have an investment thesis that spells out the underlying assumptions, the success criteria, and a target return.

Would any CEO accept it if the CIO argued for a major IT upgrade, and when asked for its benefits, the CIO replied, “it will just be better.”

Diversity has clear potential benefits in the form of greater productivity and a more efficient hiring process. Investing in diversity without a target return is actually a negative, not only because it implies that you don’t believe it’s economically worthwhile, but also because the lack of clear metrics means that decisions between diversity investments are not based on expected value, which means it’s more likely that the organization will choose less valuable options, hampering future diversity efforts.

Problem #2: Even though there is no target return, the only acceptable payback period is zero.

Paradoxically, even though there isn’t a clear target return for diversity investments, there is a clear acceptable payback period: zero.

When a company makes a long-term investment, it’s just that–long term. It’s not open-ended; there is an expected payback period, but that also implies that it is expected that the investment will be negative in the short-term before turning positive in the long-term.

Investing in diversity is probably the only form of investing where short-term negatives are considered unacceptable.

Investing in diversity should make things harder in the short-term–you’re trying to change your organization and build new capabilities, both of which typically require up-front investment with a longer-term payoff.

If each diversity program includes an investment thesis with an expected return and a projected payback period, your organization can build an optimized portfolio of diversity investments that delivers better returns to a patient investor.

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