CHAPTER SIX

DIVERSITY BONUSES AND THE BUSINESS CASE

My main purpose in life is to make enough money to create ever more inventions.

—THOMAS EDISON

Having presented logic for how diversity bonuses arise and presented evidence that they exist, I now widen the aperture and evaluate their contribution to the broader business case for diversity and inclusion. The direct implication requires little elaboration. Diversity bonuses can lead to higher profits, larger market shares, and faster rates of innovation. That potential creates an incentive to hire, support, and promote people with diverse cognitive repertoires.

The second-order implication, that identity diversity creates the same opportunity, necessitates thinking about when and how germane cognitive diversity correlates with or is caused by identity diversity. As already noted, identity diversity may be more relevant in some domains than others.

Throughout this chapter, I emphasize that every business or organization exists for a reason. It has a mission. McDonald’s aspires to produce “good food,” create opportunities for “good people,” to be a “good neighbor,” and to be its “customers’ favorite place and way to eat and drink.”¹ The outfitter REI is “dedicated to inspiring, educating and outfitting for a lifetime of outdoor adventure and stewardship.”² The University of Michigan, where I work, strives to provide an uncommon education for the common person. The business case for identity diversity depends on leaders, managers, and rank-and-file employees believing that identity diversity can produce mission-relevant bonuses and on everyone taking actions to reach that goal.

Diversity bonus thinking is not the only reason an organization would promote inclusion. Historically, business conversations about diversity and inclusion have emphasized legal compliance and the advancement of normative ideals. Often, companies promote diversity and inclusion as core values without any reference to diversity bonuses. They situate being inclusive, like being honest or courageous, as the right thing to do.

Recent demographic trends create a business case for diversity and inclusion that relies on market logic of supply and demand. To the extent that members of an identity group have special knowledge of that group, firms that attract diverse employees will be more successful selling to diverse consumers. Given that the pool of potential workers and consumers will soon be majority minority, organizations unable to hire diverse employees or sell to diverse consumers will suffer in the long run.

In this chapter, I argue that the link between identity diversity and better outcomes gives the diversity-bonus logic a special power within the business case.³ As I touched upon in the prologue, legal and normative arguments frame diversity and inclusion efforts as counter to performance. The demographic argument frames them as necessary and painful. These other frames create a reluctance to embrace diversity, save for those who believe in the cause. In contrast, the diversity-bonus logic implies the contrary assumption that diversity drives excellence. It places inclusion in a company’s self-interest.

Even leaders who create diverse teams for legal or moral reasons or out of demographic necessity would like those teams to succeed. If diverse teams fail, support for inclusion will wane. An understanding of how diversity bonuses arise increases the chances of realizing bonuses. The logic provides a rudder and compass.

The diversity-bonus logic does not make an unequivocal case for diversity. In some cases, cognitive and identity diversity produce bonuses. In others (see the US Congress), they contribute to conflict. The logic implies that tasks will differ in the extent to which identity can produce bonuses. They will also differ in the extent to which any form of cognitive diversity can produce a bonus.

Organizations like NASA, Boeing, and Google that seek technological breakthroughs place a huge emphasis on cognitive diversity. Cognitive diversity is also front of mind for financial firms and the homeland security industry, which traffic in large amounts of data. Both those industries also emphasize identity diversity, though for different reasons. Financial services firms must attract investors. They need to understand a diverse customer pool. Homeland security analysts need to understand the motivations of potential terrorists. To do so, they need to understand marginalized people. Identity diversity is relevant to both those tasks.

The logic also implies that a supporting organizational culture is key to success. It is not enough to just have diverse people in the room. People must feel comfortable sharing their ideas, engaging the ideas of others, and responding to challenges. People who share a strong sense of mission, be it taking people to Mars or making the best yogurt in the world, will be better able to achieve bonuses.⁴ One would hope that the same cultural features that encourage cognitive diversity—openness, tolerance, a commitment to facts, and so on—would also be welcoming to people from diverse identity groups.

Though I refer to the business case, I mean to address the broader class of organizations. The analysis will not always carry through unchanged. Universities place more weight on the normative dimension than most businesses because creating an inclusive society or serving the entire society may be part of their mission. While universities seek bonuses in the advancement of knowledge, their role in creating opportunity and creating a well-functioning multicultural society creates a demand for representation of diverse identities for its own sake.

The final two lines in the mission statement of the University of Wisconsin–Madison, “to provide a learning environment in which faculty, staff and students can discover, examine critically, preserve and transmit the knowledge, wisdom and values that will help ensure the survival of this and future generations and improve the quality of life for all,” speak to a direct benefit from diversity and inclusion. In contrast, the missions of for-profit entities may be less directly linked to identity concerns. To connect Goodyear Tire Company’s global purpose, “delivering the highest quality tires, related products and services for our customers and consumers,” to diversity and inclusion is not as straightforward.⁵

The remainder of this chapter consists of five parts. In the first part, I dig deeper into the possibility of and potential for identity-based diversity bonuses. In the second part, I describe the normative and demographic arguments. In the third part, I comment on how diversity bonuses position inclusion to be in a company’s self-interest and show that this reinforces the normative and demographic arguments for inclusion. In the fourth part, I describe the full business case based on bonuses, normative concerns, and demographics, using the financial sector as an exemplar. I also comment on board diversity. In the last section, I expand on how the weights allocated to the components of the business case can, and should, vary by industry.

THE GROWING BELIEF IN DIVERSITY BONUSES

The contribution of the diversity-bonus logic to the business case for diversity and inclusions rests on identity diversity correlating with or causing relevant ways of thinking. Put more informally, our identities must influence our repertoires in ways that produce better outcomes.

The idea that organizations should hire and consult with people with diverse cognitive repertoires has begun to take root. The litany of quotes that lead off this volume demonstrates that leading organizations believe in diversity bonuses. The actions of those same companies back up their prose.

They all seek diverse talent. They hire graduates from a variety of schools and colleges. Rumors that Alphabet, the parent company of Google, only hires from Stanford and the Ivy League are false. They hire more people from Berkeley, Michigan, Carnegie Mellon, Illinois, and Washington than from any Ivy League school. In fact, Alphabet hires more people from the University of Waterloo and Georgia Tech than all Ivies except Harvard and Cornell.⁶

Leading companies hire college graduates who major in diverse topics. Investment banks hire philosophers. Tech companies hire linguists. And pharmaceutical companies hire computer scientists.

Until recently, many of these efforts to hire diverse employees might have been classified more as experimental than strategic. The nascent field of people analytics, pioneered in Silicon Valley and on Wall Street, bring evidence to bear on hiring.

Increasingly, I find that companies are abandoning the use of standard rubrics to evaluate candidates. They realize that hiring by a common criterion results in homogenous employees. Organizations are learning that the best team does not consist of the people who score best on some test. What is happening in organizations is aligning with what was found in the labs: the best teams are diverse.⁷

The aforementioned widespread use of teams provides further evidence of the growing belief in cognitive diversity bonuses. Genentech makes decisions to push research forward using diverse teams. Google makes hiring decisions with teams. Government agencies and universities do as well. US attorney offices use teams to decide on the cases to file. The Federal Reserve relies on a committee to deliberate on interest rates. The University of Michigan uses multiple diverse teams to decide tenure cases. They all use teams because teams perform better than individuals.

ORGANIZATIONS AND IDENTITY DIVERSITY BONUSES

The business case for identity diversity bonuses depends on the general case of cognitive diversity bonuses. Achieving identity bonuses requires more effort. People must believe that these bonuses can exist. People must be willing to engage across identity groups. If not, they cannot achieve the bonuses. Identity-diverse groups must also overcome additional obstacles. Stereotype threat, implicit bias, and a host of other factors impede group success.⁸

Owing to these extra frictions and costs, organizations must make a strong case for identity diversity bonuses. Claiming that identity diversity improves outcomes does not make it so.

An organization can proceed from one or two standpoints. It can start from a position that identity can play no role and demand that advocates of identity diversity bonuses refute that position. Or it could take the opposite position and assume that identity diversity does matter and demand that opponents prove that it does not. My experience has been that most organizations find themselves somewhere near one of those two extreme positions. Most people either believe that identity is relevant or they believe that it, at most, has a marginal influence.

A more thoughtful and productive approach takes each task as it comes. Any organization faces a variety of challenges and opportunities. On some, identity diversity has the potential to produce bonuses. Effective leadership makes people aware of the potential for identity diversity bonuses so that managers consider identity when forming teams.

The intelligence community provides a useful starting point for contemplating the identity diversity bonuses, given its reliance on cognitive diversity.⁹ Within a few minutes of talking to an intelligence analyst, you hear about the necessity of diverse information sources and categorizations, the value of applying a variety of tools, and the usefulness of multiple models of human behavior.

To remind people of the potential of identity to produce bonuses, the United States’ intelligence community hands out silver-dollar-size medallions. One side of the medallion resembles a gold coin and features the familiar liberty eagle with an olive branch in one set of talons and arrows in the other. Around the circumference it reads, “Office of the Director of National Intelligence.” The flip side features a white-enamel background with a blue, orange, and periwinkle geometric design. Around the outer edge, written in gold print, is the statement, “Intelligence Community Equal Employment Opportunity and Diversity.”

The implicit claim could not be any clearer. National intelligence and identity diversity: two sides of the same coin. If everyone within the intelligence community saw identity diversity as contributing to germane cognitive diversity, the medallions would be unnecessary. To back up the medallion’s implicit claim involves showing that people from different identity groups acquire unique information and knowledge, create distinct categorizations of the world, or bring different analogies and models to bear that produce diversity bonuses.

Those arguments are easy to make for some problems, such as trying to understand or predict who becomes a terrorist. Members of underrepresented minority groups or religious minorities have experiences in feeling marginalized that may give them special insights. My impression has been that the default position within the intelligence community is to seek out identity-diverse people on these tasks.

That said, the intelligence community does not naïvely assume identity diversity to be a proxy for relevant cognitive diversity on all tasks. Identity diversity likely receives little weight for teams that study how to dismantle bombs.

The key takeaway is that as long as there exist some tasks for which identity diversity can produce bonuses, and clearly there do, the intelligence community needs identity diversity in house. It also needs to build a culture in which identity-diverse teams function well.

As with the intelligence community, businesses find that the magnitude and extent of identity-based cognitive diversity bonuses vary by task. Any task that involves selling or marketing products to consumers could have significant identity-based diversity bonuses. That claim will hold true if people possess finer or special knowledge of their own identity groups, making diversity bonuses possible.

Advertising may be the domain where the link to identity-based repertoires is clearest. To say that women better know their own preferences for cars, antiperspirants, or 401(k)s oversimplifies a bit. We must keep the cloud, the timber-framed house, and the icebergs in mind. For example, we cannot expect coverage through overlap. A team consisting of black women and white men would lack full understanding of how white women and black men might respond.

Evidence of the perceived value for identity diversity in advertising can be found in the actions firms take. In the fall of 2016, Verizon, General Mills, and HP pressured their advertising agencies to diversify their employees. Verizon’s chief marketing officer, Diego Scott, sent a letter to firms that manage the company’s advertising accounts that read in part, “Marketers are expected to have a deep understanding and insight about their markets.”¹⁰ Verizon took this action for business reasons. It wanted to maintain and build market share. It was not acting solely on social justice grounds.

Marketers believe that identity-based knowledge reduces the likelihood of culturally insensitive actions. The long list of corporate blunders resulting from demographic blindness supports that belief: the coffee company Beaner’s, whose name infuriated segments of the Latino community; Sprint, who ran a video clip featuring a consumer’s description of a competing firm as “ghetto”; IHOP, whose cash register receipts for egg-white omelets read “whites only”; and even Google, whose image search algorithm generated pictures of only middle-aged white men when asked to display CEOs.¹¹ While a middle-aged white male may find humor in the “whites only” receipt, someone who lived through the civil rights movement likely would not.

Identity-based knowledge can also contribute to product design. IDEO teaches storycentric design. Designers follow and observe consumers. If commissioned to design a popcorn popper, IDEO goes into people’s homes (with permission, of course) and watches them pop and eat popcorn. IDEO observers make note of where people store their poppers, how they clean them, and whether they use or ignore available features and settings. Close observation may reveal that people make popcorn in two batch sizes: either a small, personal bowl or a party size. IDEO then designs a minimal viable solution to meet those needs. To make rich observations, IDEO seeks out identity-diverse consumers. They hire identity-diverse employees to better classify observed behaviors as idiosyncratic or representative: Is a Japanese family’s decision not to refrigerate soy sauce unusual or typical?

Given how our identities influence how we construct and order our lives, identity-diverse teams may also be better able to provide services as well. Diverse medical practitioners provide more culturally aware health services to minority communities. Practitioners who know a community may make more accurate predictions about patient behaviors. Evidence shows that people share more medical information with health care professionals from the same identity group.¹²

Identity diversity may also help teams understand more fundamental behaviors. Evidence shows that women and men differ in their attitudes toward risk.¹³ Women who are certified financial analysts may have more accurate understandings of what drives those risk preferences. Relatedly, African Americans, Asian Americans, and Latinos differ in how they value education, family, and honor. We cannot expect ten smart white guys in a room to develop products, services, and technologies that meet those needs.¹⁴

Last, identity-based bonuses are not limited to tasks that require understanding or predicting the preferences or behavior of diverse people. Our identities correlate with our experiences and how we model problems. Think back to the example of the typical experiences of men and women who learn to scull and how that influences how they think about balance.

Overall, the argument that identity diversity correlates with relevant knowledge, categorizations, and models for advertising, product design, and the provision of services seems compelling. We might even summarize that case by reference to appeals made by political activists from underrepresented groups who chant, “Nothing about us without us.” The corporate version might be something like “Nothing sold to us without us.”

IDENTITY AND REPERTOIRES

To glimpse the full potential of identity diversity bonuses entails thinking beyond knowledge-based identity bonuses and considering individuals’ entire cognitive repertoires. While identity diversity surely correlates with information and knowledge about one’s own identity group, it also correlates with the categories and representations we construct for any product domain: books, apps, restaurants, movies, or music. Identity also correlates with the models we carry around in our heads about how people live their lives, respond to information, or react to incentives. Our identities also correlate with the heuristics and rules of them that we apply and the set of analogies and experiences we draw from. For those reasons, if we add two Latinas to a group of white men, the possible diversity bonuses extend far beyond the Latina market.

The expansion to full repertoires has significant consequences for inclusion as well. Limiting identity’s expected contributions to knowledge-based bonuses has the undesired effect of siloing diverse employees in identity- and diversity-related jobs.¹⁵ Thus, we find that minorities disproportionately take positions in charge of marketing to their own identity group, as chief diversity officers, and as professors of American culture. To assign people jobs limited to their own identity groups skates on the edge of exploitation: come tell us about your people so that we may sell them more soap. It also misallocates talent. A woman assigned to market cars to women may have greater potential to add value given her experiences in supply chain management.

NORMATIVE AND DEMOGRAPHIC ARGUMENTS

The diversity-bonus component of the business case rests on improving the bottom line. Normative arguments for diversity and inclusion rest on economic, social, and political disparities. Those disparities have been well documented: In 2014, the median African American household earned $43,000, compared to $71,000 for whites. Even among the college educated, a substantial gap remains. The median African American household earned $82,000. The median white household earned over $106,000. The median white household also had sixteen times the wealth of the median African American household and fourteen times the wealth of the median Latino household. Gender gaps also persist. In 2014, women earned 80 percent of what men earned in the United States.¹⁶

Racial and gender disparities in education and employment in technical fields contribute to these income disparities. African Americans earn degrees in engineering at one-half the rate of whites. Latinos and African Americans each make up only 4 percent of biomedical researchers and 6.5 percent of the STEM workforce, despite being, respectively, 10 percent and 15 percent of the total workforce.¹⁷ Some of the most prestigious STEM firms employ far less than representative numbers of minorities. As of 2015, Facebook and Twitter each employed fewer than one hundred African Americans. Only 2 percent of Google’s workforce and 3 percent of Yale’s faculty are African Americans, and an even smaller percentage work as executives in the financial services industry.

At the top of the business pyramid, the numbers are even less representative. Only fourteen African American men have ever served as CEO of a Fortune 500 company. In 2017, no African American women and only twenty-five women total served as Fortune 500 CEOs. The 114th Congress includes only twenty-one women US senators and only two African Americans and three Latinos.

The causes of these disparities are manifold. As noted, education is one. More than 80 percent of white students graduate from high school, as compared to fewer than 65 percent of African Americans and Latinos. Six-year college graduation rates for whites exceed 60 percent, while fewer than 50 percent of Latinos and 40 percent of African Americans graduate within that same time frame. The white students also attend more highly ranked colleges.

Even accounting for educational differences, in many jobs and in many professions women, African Americans, and Latinos enter at lower rates and leave with higher probability. Some who grasp the gold ring—who earn jobs at Google or Goldman Sachs—do not enjoy the ride and leave. Others are forced out, unable to overcome formal and informal barriers to success

Demographic changes amplify the potential effects of these disparities. Within thirty years, demographers predict that the majority of Americans will be nonwhite. To remain competitive in the labor market, organizations must appeal to diverse employees. Businesses must understand the needs of a diverse consumer base.

The diversification of the labor pool means that even firms in industries where we would not expect diversity bonuses to exist must seek diversity. Consider the canonical no-bonus team: a track-and-field relay team. The best team consists of the four fastest people, regardless of their race. Thus, the 1936 US men’s Olympic four-by-one-hundred-meter relay team consisted of the four fastest men. Two, Jesse Owens and Ralph Metcalfe, were African American. The other two, Foy Draper and Frank Wykoff, were Caucasian. That racial diversity produced no bonus.¹⁸

The same logic applies to firms that perform routine cognitive tasks. They too need to diversify the talent pool. In the introduction to this volume, Earl Lewis and Nancy Cantor refer to the movie Hidden Figures, which tells the story of how, when faced with a shortage of mathematicians during World War II, the National Advisory Committee for Aeronautics (now NASA) hired African American women to make scientific calculations.

The women profiled in the movie computed trajectories. Some of that, such as the development of heuristics to simplify calculations and identify errors, undoubtedly produced bonuses.¹⁹ Those bonuses were most likely not attributable to identity. However, by dipping into the large talent pool, the government found people who could produce bonuses. As the racial profile of America changes, these narratives will become the norm. Our workforce will include large numbers of Latino mathematicians, Arab American biostatisticians, and African American pilots. Given the growing diversity of the talent pool, in the long run, employers will need to hire diverse employees.

THE SPECIAL POWER OF DIVERSITY BONUSES

The three justifications for diversity and inclusion differ: normative arguments for diversity and inclusion policies seek to redress past wrongs or create a more equitable future; the demographic argument frames greater workforce diversity as a necessary market response; and the diversity-bonus logic shows that cognitively diverse teams perform better on complex tasks.²⁰

The demographic argument and the bonus logic rely on more pragmatic concerns. A claim that diverse perspectives create distinct sets of adjacent possibles and result in better solutions to complex problems lacks the rhetorical or moral force of normative appeals, such as the one offered by Franklin Delano Roosevelt in a 1932 speech in Detroit, Michigan: “We Americans everywhere must and shall choose the path of social justice, the path of faith, the path of hope, and the path of love toward our fellow man.”

Fortunately, the path to 1.2 percent higher returns on equity follows a similar route to the paths of social justice, faith, hope, and love. To return to the words of Wendell Berry, “What is good for the world will be good for us.” That is not to say that the two routes do not diverge in places. When they do, the choice of whether to paint the sign for the business case in bright colors or to adhere to normative principles may not be easy.

As noted earlier in the book, while diversity bonuses offer direct benefits, tying diversity and inclusion efforts to higher profits, better policies, more novel innovations, and more scientific breakthroughs, equity-based normative arguments imply a cost. In doing so, they frame inclusive efforts as a collective action problem. The collective (society) benefits from inclusion. The organization or individual pays a cost.

This tradeoff thinking—the idea that diversity harms performance—is widespread. In his dissenting opinion in the University of Michigan’s affirmative action case, Supreme Court Justice Antonin Scalia wrote that schools and employers face a choice. They can choose diversity, or they can choose to be “super duper.”²¹

Scalia makes an imprecise claim; he provides no conditions. On additive tasks, he is correct. Replacing a member of a relay team with a slower runner or hiring a data analyst who makes errors at a higher rate based on identity considerations sacrifices quality on the altar of social justice. In those cases, hiring based on diversity precludes becoming super-duper. On complex tasks, Scalia is wrong. The logic and evidence of the previous chapters shows that to be so.

Tradeoff framing contributes to why affirmative action policies lack broad support.²² Asking people to turn over income or accumulated wealth to others based on historical injustices and current disparities proves a tough sell. Efforts to create inclusive behaviors can suffer from a similar problem if framed only as the right thing to do. Engaging in civil discourse involves difficult conversations. We must confront biases. We must consider dimensions that we have previously ignored or contemplate novel adjacent possibles. Those activities come at a cost of time and mental effort. Inclusion can also be seen as a collective action problem. An individual may desire a trusting, multicultural society but find it easier to build a homogenous team, to heed the “siren call of sameness.”²³

Tradeoff framing also contributes to the lack of support for affirmative action in the courts, a forum in which normative considerations often rise above self-interested motivations. A sequence of rulings stretching from Fisher to Bakke have all but ruled out affirmative action based on historical injustice. In Grutter v. Bollinger, in which the court upheld affirmative action policies at the University of Michigan Law School, Sandra Day O’Connor, writing for the majority, argued that past discrimination was not sufficient justification for affirmative action. She based her support on a broader compelling interest in classroom diversity.

Bottom-Line Thinking

The special power of the diversity-bonus logic becomes evident if you place yourself in the shoes of the CEO of a large corporation like AB InBev, Boeing, Allstate, Bloomberg, or Ford, and then you ask yourself what you would do in the area of diversity and inclusion. Suppose that you adopt an entirely normative justification for diversity and inclusion. You recognize your company’s long-run interests in an integrated, robust society. For that reason alone, you want to promote social justice. However, your core mission is not advancing social justice. It is building the world’s best cars, brewing great beer to bring people together, or insuring lives, homes, and autos.

Also, keep in mind that advancing social justice lies outside your formal job description and contributes little, if anything, to your compensation, which is based on revenue, profits, stock price, and market share. Nor does it align with your fiduciary responsibility to its shareholders to generate profits.

This framing positions advancing social justice in opposition to your mission and your company’s bottom line, two goals that in an ideal market economy will align almost perfectly. That is the genius of markets: if Ford and GM make safe, efficient, stylish, high-quality cars at a good price point, they earn profits. If Gilead and Genentech develop antiviral drugs that cure diseases, they generate a positive return to their shareholders. Profits enable companies to survive and grow. Companies that fail to turn profits will not long survive.

The danger of normative thinking alone should be apparent. If policies that equalize opportunities for women and people of color reduce profits or market share, they will lack support. A failed business cannot advance any social causes. You know this as CEO, so your primary commitment will be to carry out the company’s mission. Thus, if you were the CEO of, say, Boeing, you would want the diverse, talented men and women who work with you to get up every morning thinking about how to design, engineer, and build the world’s best planes. Building a fair and just society will be secondary.

The evidence showing that teams that position inclusion efforts as normative goals produce worse outcomes only compounds the lack of alignment.²⁴ The prophecy becomes self-fulfilling: diverse teams perform worse because they are expected to do so. In sum, the normative argument alone lacks sufficient force within a market economy, where profits drive behavior, to be the lever on which you can stand as CEO.

Alternatively, you might adopt the demographic argument or some hybrid of the normative and demographic argument. In that case, hiring diverse employees and building an inclusive culture could be accepted as a long-term investment: a short-term loss that produces a higher return in the long run by creating access to a larger talent pool. That strategy could work, albeit at a rather slow pace.

Last, you might adopt an approach that seeks diversity bonuses. Now, to the extent to which identity diversity can generate bonuses, no tradeoff exists. You want diverse teams and you want to create an inclusive environment because you expect those teams to perform better. The signposts to achieving mission, generating profits, and creating a diverse and inclusive work environment all point in the same direction.

This almost-too-good-to-be-true alignment becomes problematized when we go more deeply into the workings of the organization and the nature of the mission, and begin to think with more care about the types and magnitudes of potential diversity bonuses. Before critiquing it, we should take a moment to appreciate the triple alignment.

Neoclassical economics shows that firms that perform best earn the highest profits, implying that efficient fulfillment of mission and maximal profits align. The diversity-bonus logic states that diverse teams can perform best on cognitive complex tasks. Thus, on those tasks, creating a diverse workforce, pursuit of mission, and profits align. Firms need not choose between being super-duper and being diverse.

People and Profits

In a knowledge economy, a firm’s long-term profits depend on its people. That is less true in a manufacturing economy, in which routine workers are often interchangeable. The same logic applies to universities, research centers, and government agents. The concern for long-term success implies an emphasis on attracting and retaining talented and diverse people.

Firms care about profits, to be sure, but those that maintain long-term success also care about developing future leaders. An executive remarked to me that it was not a coincidence that “succession management” embeds “success.” We see these in the actions executives take. In the first weeks of the Donald J. Trump administration, Tim Cook (Apple), Jeff Bezos (Amazon), Sheryl Sandberg (Facebook), and Larry Page (Google) all posed with President Trump in support of a proposed policy change that would allow US firms to repatriate monies held overseas.

At that time, American corporations held more than $2.5 trillion overseas and sought to reduce the 35 percent corporate tax rate to 10 percent. The result of that policy change would be over $500 billion extra in profits. Apple alone had more than $200 billion overseas at that time. Their $50 billion in savings would exceed their 2016 profits.

Less than a week after that photo was taken, the Trump administration issued an executive order limiting immigration and travel to and from the United States. Apple’s CEO, Tim Cook, spoke out against this policy. He did so because Apple employs people from all over the world and needs those people to be able to travel and communicate freely. Other CEOs made similar critical comments.

These CEOs took the expected positions on both policies. A concern for short-term profits led to their support for the proposed tax changes—what CEO would not want an extra $50 billion in profits? A concern for their long-term success and its dependence on a diverse, talented workforce led them to criticize the changes to immigration policy.

Two clear impressions emerge from visiting successful firms and organizations. First, they focus on their core mission, and second, they seek and value talented workers. These are not just my takeaways from visiting hundreds of corporations, universities, and organizations. They can also be found in any number of management and strategy books.

Given those impressions, if diversity and inclusion are framed as the right thing to do, they cannot have much force. In addition to a misalignment with the main goals, that framing positions diversity and inclusion as one of many do-good policies a corporation might pursue. This places diversity and inclusion initiatives in competition with other “oughts,” such as sustainability, charity work, and service to the local community.

Thus, as lofty as the normative goals may be, we cannot expect corporate leaders to make promoting a multicultural society or correcting social disparities their primary concern. Corporations look to the bottom line. As much as advocates might want corporations to privilege normative desires for shared understandings and social justice above base concerns for profits, that will be a hard sell. Normative-based inclusion efforts not linked to a business case run the risk of degenerating into halfhearted, symbolic, feel-good gestures. For corporations to take meaningful action, they must see diversity and inclusion in their self-interest. They must believe in the business case.

An idealist might dismiss these arguments as overly cynical and argue that we should work toward creating a world in which the normative arguments carry the day, in which individuals have climbed sufficiently far up Maslow’s hierarchy of needs to commit to economic reparations and affirmative action policies, and in which we all embrace and pursue inclusion and integration.

Let us suppose we get to that place, that we live in a world where people support affirmative action on normative grounds. I will argue that even in that world—in fact, especially in that world—the diversity-bonus logic is necessary, as it shows how to make inclusion successful.

If we do not understand how diversity produces bonuses, we cannot put our diverse repertoires to best use. We might even put them to improper use. Bonus logic informs emergency room doctors to put lots of eyeballs on novel and critical presentations and to apply checklists for sprained ankles. On the difficult problems, we should seek medical professionals with diverse training, case experiences, and identity attributes. Social justice logic offers no such guidance. If anything, normative logic argues for identity-representative panels of doctors on all cases. That would waste time, cost money, and result in worse health outcomes.

Diversity-bonus logic provides insights into how to constitute teams and how large those teams should be. How many doctors should we assign to a patient? How many economists, business people, and lawyers to a federal bailout program?

The diversity-bonus logic also points to useful behaviors. On creative teams, people must be willing to share their ideas, no matter how crazy. On predictive tasks, we need people with novel categorizations and causal models. When problem solving, people must take proposed solutions seriously and look to recombine them to create even better solutions. These behaviors require trust and personal validation, characteristics found in successful groups.²⁵

While trust and validation align with social justice thinking, other behaviors that can generate diversity bonuses need not. On critical decisions, asking someone to play the role of devil’s advocate and to challenge every idea can add value. That may not be seen as normatively inclusive.

Even worse, an overemphasis on normative concerns can result in satisficing, in which every decision or action must be approved by each individual. Thus, a team tasked with coming up with a new design or policy can wind up with an incoherent collection of parts meant to satisfy people with different goals. The saying that a camel is a horse designed by a committee is meant to capture this type of group failure. One person wants the horse to have long legs to go fast; another wants the horse to have big strong feet to be sturdy; and a third wants the horse to be able to travel long distances.

Set aside for the moment that these attributes make for an animal well suited to the desert, and focus on the fact that they make for a lousy horse. What we learn is that if people have different goals, diverse groups will not produce good outcomes. We need only look to Congress to see this to be true. Elected officials who must satisfy multiple constituencies to remain in office often fall victim to the camel problem. Diverse groups that evaluate solutions according to a shared set of criteria avoid the camel.²⁶

The contrast should be clear. The bonus logic promotes reasoned, outcome-focused, inclusive diversity, and that can require challenging people’s ideas and sometimes making choices that favor one person over another. The normative logic promotes representative diversity and fair, rather than efficient, outcomes.

Thus, to the extent that normative arguments offer incomplete and counterproductive guidance for how to achieve bonuses, they make inclusion appear to be less in our self-interest than it could be.²⁷ So while bonus-logic thinking may produce less immediate representativeness than normative thinking, evidence shows it generates better outcomes.²⁸ And if people experience direct benefits from diversity and inclusion, then those policies will have more support. Thus, paradoxically, a long-term goal of inclusion on normative grounds may be better attained by also promoting inclusion on pragmatic grounds.

Colleges and universities pursue this approach. Almost all university and college diversity and inclusion statements mention some form of diversity bonuses in addition to their normative interest. They emphasize how interactions among groups of diverse students produce deeper understandings (a bonus), better solutions to problems (a second bonus), and new areas of inquiry (a third bonus). These potentials for direct benefits, even for universities and colleges that have a strong normative commitment to inclusion, endow the bonus logic with a power that normative arguments lack.

THE BUSINESS CASE IN FULL

The diversity-bonus logic plays a powerful role in the business case by producing direct benefits. That does not mean that demographics do not matter or that social justice is not relevant. Any given organization will weigh the three parts of the business case—the nomative, the demographic, and the bonus logic—differently.

The talent pool part of the business case, as well as diversity bonuses, will be relevant for large employers that confront complex supply chain problems like Wal-Mart or McDonald’s. A small engineering firm in Duluth, Minnesota, will be less worried about the broader talent pool and may care more about diversity bonuses.

Large corporations see value in each of the three parts. Waste Management Corporation, a waste and environmental services company with 2016 revenue of $14 billion, serves more than twenty million consumers. We might think that the first part of the business case, diversity bonuses, would not exist at all for a company picking up and emptying dumpsters. That characterization ignores the part of their business related to operations. Waste Management Corporation hires thousands of analysts and engineers. The analysts measure costs, determine pricing strategies, determine routes, and solve general logistics problems. The engineers manage more than a dozen waste-to-energy plants and more than one hundred landfills. These are all difficult tasks on which diversity bonuses surely exist, though they may be more due to cognitive than identity diversity.

Waste Management Corporation also needs access to a large labor pool. At present, they employ over forty thousand employees, so they see value in the demographic arguments. While promoting social justice may be a concern, we would not expect it to be central. As might be expected, while Waste Management does include diversity and inclusion as a core value, they list it fifth on the company web page, after honesty, accountability, safety, and professionalism. That ordering is what we might expect.

Microsoft Corporation, as would be anticipated, gives diversity and inclusion higher billing, listing it third after growth mindset and customer obsession. Given the dynamism of the software and gaming industries, Microsoft’s primary emphasis on growth and customer services makes business sense. The justification for listing diversity and inclusion third on Microsoft’s site is as follows: “We don’t just value differences, we seek them out. We invite them in. Microsoft is a place where employees can be who they are. We value diverse perspectives. And as a result, we have better ideas, better products and happier customers.”²⁹ Their language summarizes the diversity-bonus logic in which inclusion is less about social justice than about performance.

The same differential weighting of the business case applies to board diversity. Boards of directors could see value in all three parts of the business case. Board diversity, particularly gender diversity, has become a political concern, with more than a dozen countries, including Germany, France, Australia, and Italy, following Norway’s lead and passing laws mandating quotas. In the United States, women do not hold representative numbers of seats on boards of directors or positions of leadership in Fortune 500 companies. A 2016 report by the United States General Accounting Office found that women held 16 percent of the seats on boards of directors of S&P 1500 firms. Those numbers represent a doubling from 1997.

Though women are underrepresented on boards, the distribution of women across industries does align with diversity-bonus thinking. It reveals more women on boards of companies that sell products to women and fewer women on boards of more technical companies. The boards of companies that sell household and personal products have over 20 percent women, as do food and beverage companies and retail companies. The boards of semiconductor and related companies and energy companies are 9 percent and 10 percent women, respectively.

The first two parts of the business case help us to make sense of the relative distribution of women on boards. We might expect the contributions of identity diversity bonuses to be larger for household and personal products than for the semiconductor industry. The available pool of talent in consumer goods may be less gender biased as well.

The normative part of the business case applies to boards as well. Boards that do not promote equity and social justice may lack full wind in their sails. Effective boards rely on active diverse members. Board members may give that little bit extra if they see the corporation as doing good as well as turning profits.

DIVERSITY AND INCLUSION ON WALL STREET

The most successful diversity and inclusion programs move beyond a check-the-box, get-the-numbers-right mentality. Forward-looking business leaders now construct their business cases around diversity bonuses, tapping into a larger talent pool and the contributions of an inclusive culture. The details of that business case depend on the industry. The business case for Wall Street differs from the business case for Wal-Mart.

Here, I consider the financial management sector, including large firms such as Credit Suisse, Goldman Sachs, and BlackRock that promote identity diversity. The scale of these firms can be mindblowing. BlackRock, which I use as an exemplar, manages $5 trillion in assets, an amount that exceeds the GDP of every country other than the United States and China.

At a July 2014 retreat, BlackRock CEO Larry Fink and the company’s global executive committee challenged their human resource department to increase minority and female representation in the leadership pipeline.³⁰ To understand why one of the most successful and technically savvy investment firms on Wall Street would push diversity and inclusion, we can look to the three components of the business case: diversity bonuses, demographics, and social justice.

Significant diversity bonuses can occur in two of the primary activities of a financial services firm: analytics and client services. Financial firms rely on teams of analysts to evaluate complex markets. On those teams they want cognitive and identity diversity: team-run funds outperform individuals and gender-mixed teams outperform all-male teams.³¹ Wall Street executives also look to the data from science and research. They see the growth and success of teams in cracking difficult problems. They know that long-term success requires having the smartest teams.

The bonuses in client services stem from the ability to understand a diverse set of investors. Pension funds for state employees and unions are some of the larger institutional investors. Both groups invest funds for identity-diverse people. Those people are more likely to trust their life savings to and ask questions and share opinions with people who resemble them.

The second component, access to a large diverse pool of talent, likely also contributed to BlackRock’s decision. BlackRock now employs over twelve thousand people, so it needs to be attractive to all identity groups. White men compose fewer than 30 percent of recent college graduates. In the long run, Wall Street needs to attract the 70 percent in the majority as well. The current situation offers ample space for improvement. At present fewer than 3 percent of Wall Street executives identify as underrepresented minorities, and fewer than one in five senior managers are women. Hiring more diverse employees is just a first step. The culture must change as well. Wall Street does not want to lose the diverse talent it hires.

BlackRock, Goldman Sachs, and Credit Suisse see themselves as meritocracies. They hire and promote top performers. If data show that only white men succeed, then the firms’ leaderships know that they are operating under a myth. In a true meritocracy, everyone has an opportunity to succeed, regardless of her background or identity. A lack of success for members of some identity groups can imply a less than fully inclusive culture, a bad omen if your business model depends on its people sharing information, ideas, models, and insights.

Thus, any company staking a claim to a meritocratic culture must promote equity. In his 2017 annual letter to CEOs, BlackRock chairman Larry Fink wrote, “Environmental, social, and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates.”³²

BlackRock’s assessments of a company’s value include evaluations of a company’s efforts on social dimensions such as diversity and inclusion efforts, worker training programs, and engagement in local communities because they provide a signal of that company’s prospects for long-term success. In his letter, Fink makes clear that he considers social factors crucial within a financially relevant window and not in some infinite long term. It represents the type of forward thinking that enabled BlackRock to attract $5 trillion in assets.

That same logic applies to BlackRock itself. Its efforts suggest that its leadership believes that a diverse, inclusive workplace offers the possibility of wiser investments, more compelling pitches to clients, and more informative analytic tools. An inclusive culture that promotes social factors, including community engagement, will continue to make BlackRock an attractive employer to the changing demographic of college graduates.

In seeing the full case based on diversity bonuses, demographics, and equity, BlackRock is not alone. The leadership at Credit Suisse, Ford, Boeing, Genentech, Gilead, Alphabet (Google), Microsoft, Cummins, PepsiCo, IBM, Caterpillar, and Bloomberg also see the potential bonuses, know the demographics, and share the normative values. They too seek diversity bonuses.

SUMMARY

In this chapter, I have demonstrated the importance of the diversity-bonus logic within the broader business case for diversity and inclusion. The diversity-bonus logic aligns efforts to increase diversity and create inclusive environments with an organization’s core mission. In contrast, normative arguments for inclusion can position diversity efforts as orthogonal to or even counter to mission. Demographic arguments as well can be seen as costly, at least in the short run.

I do not mean to imply that organizations should abandon the normative or demographic arguments. To the contrary, if more people accept the normative arguments and if the demographic argument proves compelling to the organization, diversity and inclusion initiatives roll out more smoothly, resulting in more equitable distributions of wealth, income, and opportunities.