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September 29, 2006
Book Review: The Business Case for Diversity
by Bill Baue
DiversityInc presents compelling anecdotal evidence supporting the business case for diversity as
well as copious empirical evidence, some of which is marred by editorial oversights.
SocialFunds.com --
"The goal of this book is to provide hard, irrefutable proof of the business benefits of
diversity," say Luke Visconti and Foulis Peacock, partners and cofounders of DiversityInc, in the Introduction to The Business
Case for Diversity. They cite perhaps the "hardest" piece of empirical evidence the page
before, noting that the 2005 DiversityInc Top 50 Companies for Diversity Index yields a 23.5
percent higher return than the S&P 500 when examined over a ten-year period, with dividends
reinvested. (The 2006 index,
constituted since the publication of the book, outperformed the S&P 500 by 24.8 percent over ten
years.) To create the 2005 index, DiversityInc assessed 203 companies (256 in 2006) on diversity
performance in four areas--CEO commitment, human capital, corporate communications (internal and
external), and supplier diversity--through an "exhaustive" 230-question survey.
 The book is chock-full of such "hard" empirical evidence
supporting the business case for diversity, as well as ample anecdotal evidence from companies with
strong diversity performance. For example, the book relates a story of former PepsiCo (ticker: PEP) CEO Steve
Reinemund receiving an email in 2001 from a woman who was part of a meeting with a small group of
black employees who said that his talk reminded her of a plantation owner talking down to slaves.
"Since that day, Reinemund has tried to avoid podiums," the book states. "He also has
helped his company cement its status as a corporate-diversity leader."
PepsiCo, which
recently made headlines by appointing Indra Nooyi (an India-born woman) as CEO, placed fourth on
the 2005 DiversityInc Top 50 Index but fell to 18th place this year, while competitor Coca-Cola (KO) placed third
this year.
"In addition to tying his management team's compensation to diversity
initiatives, Reinemund also assigned his team to become executive sponsors of the company's various
employee groups, which offer resources for blacks, Latinos, Asian Americans, women, people with
disabilities and others," the book continues. "The executives were placed with groups different
from themselves [in order] to understand their members' needs, identify key talent, and personally
mentor three people in their groups."
While the book generally inspires confidence with
the breadth and depth of statistical evidence it brings to bear, this fifth edition also falls prey
to the vagaries of inattentive revision, with current data intermingled with (and sometimes
contradicting) past data. The phenomenon starts on the very first page of the first chapter.
"A few states, most recently Texas, already have reached 'majority minority' status, where the
numbers of single-race, non-Hispanic whites is lower than the population of other races and
ethnicities combined," the book states. "These include California, District of Columbia, Hawaii,
and New Mexico, with Texas edging closer with a 49.5 percent population of people of color."
Clearly, the first sentence contains new information about Texas while the second sentence
contains dated information about the Lone Star state (with a footnote citing US Census Bureau
estimates released on September 30, 2004.) While this instance may be fairly easy for a reader to
figure out the correct information, a later instance is not so clear-cut. On page 32, a chart
shows that 84 percent of the 2005 Top 50 Index have mandatory diversity training for managers and
82 percent of companies ranked 91 and higher have such programs, while the text places the
statistics at 80 and 45 percent, respectively. Which set of statistics is correct? And why look
at companies ranked 91 and higher?
Again, this is clearly an honest proofreading mistake,
but here readers have no way of knowing the correct information. Worse yet, the book does not
provide a rationale behind the parameters chosen--not a mere proofreading oversight. The problem
this creates is that readers have no way of knowing to what degree this is an anomaly and to what
degree other "proof"--the foundation of the book's goal of convincing readers of the business case
for diversity--is tainted.
Compounding this problem is a conspicuous lack of diversity
in references. Of the 63 footnotes in the chapter where this chart appears, only eight come from
sources other than DiversityInc. For example, footnote 39 cites a 1997 study by the National
Council on Aging, National Alliance for Caregiving, and the AARP to a 2005 DiversityInc article,
which is not particularly helpful for anyone trying to track down the study in question.
What the book lacks in methodological rigor it makes up for in knowledge of the field. Its
discussion of Wal-Mart (WMT), which it advances twice in
the book in slightly different forms, is particularly telling. After instituting a diversity
department in 2003, the company entered the DiversityInc Top 50 Index in 2005 at number 29 on the
strength of initiatives such as making diversity-goal achievement a performance measure for
officers and managers," the book states.
"If an officer did not meet his or her
diversity goals, he or she lost 7.5 percent of his or her bonus," the book states, noting elsewhere
that 88 percent of the 2005 Top 50 Index companies directly tie managers' compensation to diversity
success. "In contrast, most companies in the Top 50 give managers extra money if they meet their
goals."
"Of course, the company still has a way to go before it overcomes years of
diversity neglect," the book concludes. Indeed, Wal-Mart fell off the Top 50 list in 2006.
©
SRI World Group, Inc. All Rights Reserved.
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