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The Inclusion Initiative: Evidencing the Bottom Line

Speaker 1: Welcome to the Inclusive Growth Show with Toby Mildon, future-proofing your business by creating a diverse workplace.

Toby Mildon: Hello, welcome to this episode of the Inclusive Growth Show. I’m Toby Mildon, thank you for joining me, and I’m looking forward to spending the next few minutes with you. And on this episode, I’m joined by Freddie Herbert, who’s a senior researcher at the London School of Economics. Freddie, welcome to the show.

Freddie Herbert: It’s a pleasure to be here. Thanks, Toby.

Toby Mildon: Freddie, can you tell us a bit about your professional background and what you do as a senior researcher at the LSE?

Freddie Herbert: Sure. So I’m a member of a team at LSE called The Inclusion Initiative. So as the name suggests, it’s a research group who are focused on providing robust evidence about the impacts of inclusive teams on firm outcomes, and also about the kinds of tools, techniques, behaviours and cultures which need to be in place to build an appropriately inclusive work culture. My backgrounds prior to joining The Inclusion Initiative at LSE has seen lots of different hats, I guess, which I’ve worn. I’m also a civil servant, so I work part-time in the civil service on children’s social care issues. And prior to that, I’ve spent time in the marketing sector, strategic communication sector, behavioural change research. And also, many, many years ago now, as a teacher as well. And that’s taken me to Pakistan, Afghanistan, China and the UAE, as I’ve tried to broaden my scope and work in diverse different settings to broaden my skills.

Freddie Herbert: I think I’m really the real sort of the classic millennial prototype of the workplace, and I’ve embraced constant change and learning without a really clearly defined path, but I’ve always been focused on understanding behaviour. So my academic background is in economics and cognitive neuroscience. I’m most interested in how we can take an evidence-based approach to delivering social [0:02:14.6] ____. That’s how I really ended up working with LSE because their main role and their interest at The Inclusion Initiative is to try and build that evidence based around inclusive workplace cultures, and to harness behavioural science to do that. So yeah, I’m really passionate about the work with we do at TII and I’m so very privileged to have had these opportunities to work in quite a range of different industries and applying my passion really first of understanding and shaping pro-social behaviours.

Toby Mildon: That’s brilliant, and presumably your diverse background in terms of the jobs that you’ve done adds a lot of value to the research that you are doing for The Inclusion Initiative.

Freddie Herbert: Yeah, I think so. I think one thing we’re really aware of at TII is that we should practice what we preach, [chuckle] so I think we built a team which is really diverse and has lots of different skills and [0:03:17.0] ____ multi-disciplinary team. So we’ve got people who kind of are neuroscientists, economists, psychologists. We’ve got people who are from the business world, who are entrepreneurs. They all come together into this team and have something different to add to the team and a different perspective to take to our research, which I think will help us hopefully be more effective at spanning that bridge between academia and the practical applied world of diversity and inclusion.

Toby Mildon: So why did the London School of Economics set up The Inclusion Initiative and what is its remit?

Freddie Herbert: So it was set up by an academic at LSE called Dr. Grace Lordan, she’s a behavioural scientist, and also Karina Robinson, who is someone who’s lived and breathed the city and financial services throughout her career and is the chairman of a board recruitment search firm. And both of them from their differing perspectives are really passionate about finding ways to increase the diversity of financial services [0:04:25.1] ____, and ensure that teams are inclusive and there’s a space for everyone’s voice in those teams. There was a kind of agreement between them that there’s a role to play, as I mentioned before, in spanning the bridge between academia and practical applied world, and also there is a need for a more robust research that helps firms create these more inclusive cultures and ensures that so talent is maximised and that’s the pervasive impacts of bias and prejudice are removed.

Freddie Herbert: I think things like the recent impact or the recent changes in the government position on unconscious bias training is a really good example of that, where no matter what you think of their handling of that issue, it’s been clear that good intentions aren’t always enough and that what people think works isn’t always fully backed up by the research. And it’s a really hard space to work in because you’re working in a complex environment where every individual company, workplace and culture is different from the next. So, finding a system or approach which works in one sector or in one company might not always translate. So I think with that understanding that this is a really complex issue and that it’s really important to get things right, TII was set up to try and understand how we can really ensure that workplaces know what they have to do to leverage diversity, based on these series of master analyses which have shown that even though diversity clearly should be really beneficial to team performance and firm outcomes, that isn’t always the case. And that’s primarily because the inclusion of diverse voices is not always handled particularly well by firms and they don’t find a way to leverage that talent.

Freddie Herbert: So we think that in that space where there are these clear gaps where individuals with fantastic experience and fantastic perspectives are being marginalised within companies and not given the chance to put forth their ideas and develop the business, there’s a need for research which can provide companies with a clear sense of the tools they can take forward to make their workplaces more inclusive.

Toby Mildon: So I suppose more specifically, what are the aims and objectives of the research that you’re doing?

Freddie Herbert: There’s a kind of team of seven or eight of us at TII, and everyone’s focusing on slightly different aspects of the inclusion space. My specific research is, it’s in quite early days, so TII was only set up in autumn, but I’m focused on building an index of inclusivity which would allow for a comparative ranking across publicly listed firms. So I’m focusing on the 3,100 companies as a start point. And the idea is that we can find ways to rank and understand company culture from the outside. So a few organisations previously have released indexes of inclusivity in a similar kind of space, but previously, these have always been based on self-report data or questionnaires. And we think that those kind of metrics, while useful, can be quite vulnerable to gaming or they can be fairly unaudited. So companies can put forth a picture of themselves which doesn’t really represent their underlying culture. So we wanted to take an approach which was a bit different and straddled the gap between behavioural science and data science.

Freddie Herbert: So the kinds of sources we’re going to be using to build this index are what we call unobtrusive indicators of culture. That’s data points which companies release about themselves, which we can analyse to understand the company culture. That includes things like company annual reports, possibly Glassdoor reviews, maybe Twitter, and maybe wider scraping of data sources which are available on the Internet. We think we can use this to build this index to rank firms, which will, as a first point, provides insights and accountability which helps prospective candidates, people making decisions about how to engage with the firms to understand if these companies are living up to their pronouncements on inclusivity. Secondly, we can then use the index to see if there’s a strong relationship between their comparative and relative inclusion score that we give firms and their underlying firm profitability. So profit and loss, creativity, release of patents and innovation. I think that second bit is really important to not only validate our approach and our theory, but also to add to the evidence-base of the importance of inclusion and to motivate firms, to take action when they can see that there’s a genuine financial impact from not delivering on inclusion in the workplace.

Toby Mildon: Yeah. It’s interesting that you talked about profitability because I talk to my clients about the benefits of diversity and inclusion, and I talk about the things that are commonly understood and have been included in the likes of the McKinsey reports like better decision-making, increased profitability. I think a lot of my clients understand that on an intellectual level, but they struggle because it’s hard to get the evidence to demonstrate that greater diversity or inclusion has an impact on the bottom line. So why do you think it’s important that we explore the impact of inclusion on company profitability?

Freddie Herbert: I just think it is so, so important. And I think I’m in danger of sounding a bit like a cynic, but I think the underlying truth is that money just really talks. I think there was a representative survey of US CEOs a few years back, and it showed that only 16% of them believed that diversity and inclusion was profitable for their businesses. And I think that’s just strikingly low. I think that’s one of the contributing factors behind why change has been always slow and incremental, because the people who make decisions don’t fully buy into the benefits of diversity and inclusion. And I think it’s important to say that some friends of mine who have been at the sharp end of injustice and bias and looked over for things like promotion and recruitment based on their skin colour or their gender can find that value argument quite hard to swallow.

Freddie Herbert: And I think that’s understandable, because clearly, in an ideal world, the social justice argument of the value in and of itself of having equitable fair recruitment process and equitable fair teams should be enough to motivate firms. But I think the reality of human nature is that the fastest way to drive change is to show the benefits to people who otherwise may conceptualise or frame diversity and inclusion as a bit of a zero sum game where it’s like there’s winners and losers and they might be the losers. An analogy that I really like is the climate change analogy. So I think a few years ago, there was enough clear evidence to show that in order to get green technologies up to scale and efficient to compete with fossil fuels, there just needed to be a lot more investment in them, but the pension firms were very reluctant to divest money from the fossil fuel companies, even though there was a clear pro-social argument for why this was gonna be beneficial. A few years later when the governor of Bank of England at the time, Mark Carney, started to talk about stranded assets and how fossil fuels were going to effectively be on the fringes, and that would result in losses for firms, then suddenly, this big pension firm started to divest and move their money to new areas.

Freddie Herbert: So I think about any research which can show firms, just setting up a few networks, and then never really listening to them, isn’t enough. And that their failure to consider what really drives productive and effective culture change has lost the money, then they will really start to sit up and listen and make active changes to company culture, and the business case will be strong enough to drive that forward. And if they don’t respond, and there’s no clear evidence showing the impact it’s having on firm profitability, then shareholders and investors as well, and that will put those CEOs in some tenuous position. So, I think it’s just a way to motivate the people and the organisations who otherwise are slow and reluctant to embrace change to be proactive about it, and that can only be a good thing, I think.

Toby Mildon: Yeah, I’ve worked with organisations and they seem to find the one number that matters to them. So I worked in an organisation that they were starting out on diversity and inclusion. And they calculated the cost to the business of losing women from the organisation because of work-life balance reasons. And the number ran into the millions of pounds every year. And the owners of the company were like, “Oh, this is serious. This is costing the organisation a lot.” And then that was the number that helped really ramp up activity around creating a more respectful and inclusive culture in the organisation. How is your research going to handle those companies that, on the one hand, say positive things about diversity and inclusion, but on the other hand, not really truly representing that in the underlying culture?

Freddie Herbert: I think that’s a great challenge and something that we’re really aware of, because I think anyone who’s spent time working in the diversity and inclusion sector knows that cheap talk can be a real issue. And the first thing that firms tend to do is to talk about diversity and inclusion, and that doesn’t always mean that they are gonna follow up with genuine plans for building and embedding organisational change at a systemic level. So yeah, there’s evidence across behavioural science and organisational psychology that there’s this thing called the intention-action gap, which is that intentions and actions are often very different things, and they’re not always that closely related. And in general, the research suggests that intentions follow up to become actions less than a third of the time. So it’s like there’s multiple stages here, so companies talking about it might not even have any intention to change. Even if they do have an intention to change, they might not follow that through to actions which change things. We know it’s a journey, and we know that we have to be clever about how we filter between companies who are really embracing the diversity and inclusion initiative in space and those who are just waving the flag ’cause they think that’s what they should be doing at the moment.

Freddie Herbert: There’s a couple of ways that we want to approach that, and the first is to kind of look beyond the more explicit metrics that you might find from these data sources. Traditionally, I guess people would just say… They just look for basic numbers or counts like how often do they talk about diversity, or is there… How many networks do they have and things like that, which are important and these are a meaningful in many ways, but we think there’s a deeper way that we can try and understand company culture, which is to look at more implicit metrics, which is how do they really talk about diversity and inclusion, what kinds of language are they using, is conversation about diversity and inclusion embedded across the organisation. So for instance, in company reports, you will see firms who don’t seem to be so committed about diversity and inclusion having a section of the report, hidden away somewhere in the back where they have diversity and inclusion and they have their paragraph about it, but there are companies which have taken more proactive steps, and you can see that with some of the kind of targets they set themselves, that it’s embedded right across the organisation. So it’s in the CEO statement, it’s in their financial plan, it’s in their strategy, it’s in their values. So those kinda things could be really meaningful when you start to understand the embeddedness of diversity and inclusion in an organisation.

Freddie Herbert: And there’s also just some strong theory about how you can analyse the use of language to understand more about whether this is genuinely holds commitments and values or otherwise. So we will be looking to do some kind of sentiment analysis as well to get behind it. And the final thing that we really have to do is to validate it. So we know that taking our approach of looking at firms from the outside and picking through the data they release isn’t gonna give us a complete picture. So we know that to provide confidence in our metrics, we’ll have to find a way to kind of validate that with firms which have a way to look more at the inside of companies and company culture. So there are lots of firms now doing really interesting things where they collect data from employees and they try and understand from employees themselves what company culture is like and what it’s like to work there. And what we want to see is a strong relationship to those kind of metrics as well, and that that can help us know that we can apply this more broadly and take it forward to be meaningful to even those firms who won’t work with companies in that kind of way.

Toby Mildon: That’s brilliant. What have you learned from the initial analysis of your research that you’ve done so far?
Freddie Herbert: So it is early days still, so we’ve got kind of a fair way to go before we have some really strong, strong results which we’re ready to publish. But certainly at the moment, we’re doing a lot of analysis of these data sources. So we’re just really immersing ourself in the world of company reports and statements and Glassdoor reviews and things like that. I think there are some general trends and themes which I think are quite interesting. And one is that there has been a real change in tone and structure of company reports and the way they talk about diversity and inclusion over time. So there’s just a lot more reference to it in the last two or three years than there was five or six years ago. It does tend to be a lot more embedded, it tends to be a lot more bespoke. So rather than… When you look at reports from 2014-2016, often you’ll see that they’ve just copied and pasted what they put last year into the next year’s report, and there’s no really real effort to engage with what’s happening within the business and what the problems are. But in general, there’s a trend towards that even though it’s certainly not perfect, but I guess that’s encouraging to see.

Freddie Herbert: On a more negative side, the data is showing that there’s still an overwhelming focus on gender as the calling card for diversity and inclusion, which is so saddening to see that firms seem to be quite reactive in some ways in the way that they talk about diversity and inclusion. Certainly, after the pay gap reporting came in, then there’s been a lot more talk and a lot more consideration for the impacts of gender pay and non-inclusive working cultures for women, but there’s more work to do for them to be more proactive. And I think that again is one of the kinds of metrics that we’re interested in, is that reactive versus proactive.

Freddie Herbert: So in the last year, we might have seen a lot of firms thinking about things like the impact on ethically diverse employees on company culture and that’s in response to the Black Lives Matter Movement. But the firms who are really leading in the diversity and inclusion space aren’t reactive, they’re proactive, and they won’t just respond to things just ’cause they happen. Even though that is important, they should be responsive and dynamic, they’ll be really thinking about what’s it like for any different diverse group within our organisation to work here, what do they need to thrive in the organisation, and how can we build a plan which has clear targets and we will report on and disclose on over time and has a clear pathway to change, to make sure that all those groups are appropriately supported and valued within the organisation. So those proactive organisations are the ones who tend to perform better.

Freddie Herbert: The final thing I think we’ve really noticed is that firms which acknowledge they have a problem or they have a problem with their diversity or their inclusion tend to be the kind of firms which across other metrics perform better. So I think it’s a bit like the AA or something; The first step is acknowledging you have a problem and then you can build a plan for how to improve things from there. But firms which just like to say, “We know, we’ve got this, we do this,” and they don’t really specify and clearly state like, “These are the issues within the company and this is what we need to change,” those ones tend to have less convincing diversity and inclusion initiatives within the company.

Toby Mildon: That’s really, really interesting. So if the person listening to our chat today wants to just keep up-to-date with your research, what should they do?

Freddie Herbert: You can go on to our website. So if you do a Google for “LSE’s The Inclusion Initiative” then you’ll see our website. And I know on our web page, we’ve got an option to subscribe for updates, and then there’s also a People page where you can find all our emails, and we’re really interested in collaborating with practitioners in the D&I space and building strong links, as I mentioned earlier. So if you’re interested in getting in touch, please do email any one of us and we’ll be very keen to get in contact.

Toby Mildon: Fair and well. Thank you, Freddie, for joining me on today’s episode. I’ve really enjoyed our conversation, and I think your research is much needed. We need that evidence-based approach for diversity and inclusion and to link it back to the profitability and the performance of organisations. So I will definitely be keeping a keen eye on the research that you do. And thank you for tuning into this episode of The Inclusive Growth Show with myself and Freddie. I hope you found the conversation interesting as well, and I look forward to seeing you on one of the upcoming episodes coming out shortly. Thanks very much. Until then, take care.

Speaker 1: Thank you for listening to The Inclusive Growth Show. For further information and resources from Toby and his team, head on over to our website at mildon.co.uk.

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