The Inclusion Initiative Evidencing the Bottom Line

Freddie Herbert is a senior researcher for The Inclusion Initiative at the London School of Economics. This multi-disciplinary team was recently established to bridge the evidence gap between inclusive organisational culture and company performance.

To open our conversation, Freddie told me about his professional background and his current work as a senior researcher at the LSE.

‘I’m a member of a team at LSE called The Inclusion Initiative. As the name suggests, it’s a research group focused on providing robust evidence about the impacts of inclusive teams on firm outcomes. It also looks at the kinds of tools, techniques, behaviours and cultures which need to be in place to build an inclusive work culture.

Before joining The Inclusion Initiative at LSE, I wore a lot of different hats. I’m also a civil servant and still work part-time in the Civil Service on children’s social care issues. I’ve also spent time in the marketing sector, strategic communication and behavioural change research. Many years ago, I was a teacher which took me to Pakistan, Afghanistan, China and the UAE and enjoyed working in diverse settings to broaden my skills.

I’m the classic millennial prototype of the workplace, embracing constant change and learning without a clearly defined path. I’ve always been focused on understanding behaviour. My academic background is in economics and cognitive neuroscience. That’s how I ended up working with LSE with The Inclusion Initiative. We are trying to build an evidence base around inclusive workplace cultures, and harness behavioural science to do it. I’m passionate about the work we do at TII. I’m privileged to have had these opportunities to work in quite a range of different industries. Now I can apply my passion to understand and shape pro-social behaviours.’

Applying the Science

Freddie’s diverse career background adds a lot of value to his research at The Inclusion Initiative. He explained that ‘We practice what we preach. We have a multi-disciplinary team which is diverse with lots of different skills. We’ve got people who are neuroscientists, economists, psychologists and entrepreneurs. Together, the team members bring different perspectives to our research. I hope this will be effective in spanning that bridge between academia and the practical applied world of diversity and inclusion.

Dr. Grace Lordan, a behavioural scientist from LSE and Karina Robinson the chairperson of a recruitment search firm came together to set up The Inclusion Initiative.  Both of them are passionate about finding ways to increase the diversity of financial services and to ensure that teams are inclusive. As well as spanning the bridge between academia and the practical applied world, there is also a need for more robust research that helps firms create these more inclusive cultures. Such cultures ensure that talent is maximised and that the pervasive impacts of bias and prejudice are removed.

I think things like the recent changes in the government position on unconscious bias training is a good example of that. No matter what you think of their handling of that issue, it’s been clear that good intentions aren’t always enough. What people think works isn’t always fully backed up by the research either.

It’s a hard space to work in because you’re working in a complex environment. Every individual company, workplace, and culture is different from the next. Finding a system or approach which works in one sector or in one company might not always translate to another. TII was set up with the understanding that this is a complex issue.

We want to try and understand how we can ensure that workplaces know what they have to do to leverage diversity.  It’s based on a series of master analyses which have shown that even though diversity clearly should be beneficial to team performance and firm outcomes, that isn’t always the case. 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.

We think that in that space there are clear gaps. Individuals with fantastic experience and 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 use to make their workplaces more inclusive.’

Indicators of Culture

To drill down further into the work of The Inclusion Initiative, I asked Freddie what the aims and objectives of the research are?

TII was only set up in the autumn and everyone focuses on slightly different aspects of the inclusion space.  My focus is building an index of inclusivity, with a comparative ranking across publicly listed firms using 3,100 companies as the starting point. The idea is that we can find ways to rank and understand company cultures from the outside. A few organisations have released indexes of inclusivity before, but these were based on self-report data or questionnaires. We think that those kinds of metrics, while useful, can be quite vulnerable to gaming. They are unaudited meaning companies can paint a picture of themselves that doesn’t represent their underlying culture. We wanted to take an approach that was a bit different and straddled the gap between behavioural science and data science.

The sources we’re going to use to build this index are what we call unobtrusive indicators of culture. This means 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 a wider scraping of data sources available on the internet. We think we can use this to build this index to rank firms, which will, as a first point, provide insights and accountability. It could help prospective candidates and 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 scores that we give firms and their underlying firm profitability. This covers things like profit and loss, creativity, release of patents and innovation. I think that second bit is important to not only validate our approach and our theory, but also to add to the evidence-base of the importance of inclusion. This should motivate firms to take action when they can see that there’s a genuine financial impact from not delivering on inclusion in the workplace.’

Money Talks

It’s interesting that Freddie talked about profitability because I often talk to my clients about the benefits of diversity and inclusion. I cite things that are commonly understood like better decision-making and increased profitability. I think a lot of my clients understand on an intellectual level, but they struggle with implementation because it’s hard to get the evidence to demonstrate that greater diversity or inclusion has an impact on the bottom line. I was interested to hear more about why Freddie thinks it’s important that we explore the impact of inclusion on company profitability?

‘Despite the danger of sounding a bit like a cynic, I think the underlying truth is that money talks. There was a representative survey of American CEOs a few years back which showed that only 16% of them believed that diversity and inclusion was profitable for their businesses. That’s strikingly low. That’s something I think that has been a contributing factor behind why change has been always slow and incremental. The people who make decisions don’t fully buy into the benefits of diversity and inclusion. It’s important to say that some friends of mine who have been at the sharp end of injustice and bias and have been 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.

That’s understandable, because clearly, in an ideal world, the social justice argument of the intrinsic value of having equitable and fair recruitment processes and 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. Otherwise they may conceptualise or frame diversity and inclusion as a bit of a zero sum game, where there are winners and losers and they might be the losers.

An analogy I like is climate change. A few years ago, there was enough clear evidence to show that 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.  Yet pension firms were still reluctant to divest money from the fossil fuel companies. This was even though there was a clear pro-social argument for why this was going to be beneficial. A few years later Mark Carney, governor of Bank of England at the time, started to talk about stranded assets. How fossil fuels were going to effectively be on the fringes and the resulting losses for firms. Suddenly, this big pension firm started to divest and move their money to new areas.

Just setting up a few networks, and then never really listening to them, isn’t enough. It’s only when a firm’s failure to consider what really drives productive and effective culture change loses them money that they sit up and listen and start making active changes to company culture. Then the business case will be strong enough to drive that forward. If there’s no clear evidence showing the impact it’s having on firm profitability, then shareholders and investors will put some CEOs in a tenuous position. I think the business case is a way to motivate the people and the organisations who otherwise are slow and reluctant to embrace change to be proactive about it. That can only be a good thing, I think.’

I’ve worked with a few organisations that did seem to find a number that matters to them. One organisation that was starting out with diversity and inclusion calculated the cost to the business of losing women from the organisation because of work-life balance reasons. The number ran into the millions of pounds every year. The owners of the company were like, ‘Oh, this is serious. This is costing us a lot.’ That was the number that helped to ramp up activity around creating a more respectful and inclusive culture in the organisation.

Embedding Change

I asked Freddie how his research will handle those companies that, on the one hand, say positive things about diversity and inclusion, but on the other hand, are not truly representing that commitment in the underlying culture?

‘I think that’s a great challenge and something that we’re aware of. Anyone who’s spent time working in the diversity and inclusion sector knows that cheap talk can be a real issue. The first thing that firms tend to do is to talk about diversity and inclusion. That doesn’t always mean that they follow up with genuine plans for building and embedding organisational change at a systemic level.

There’s evidence across behavioural science and organisational psychology of something called the intention-action gap.  Intentions and actions are often very different things and they’re not always that closely related. In general, the research suggests that intentions become actions less than a third of the time. There are multiple stages. Companies talking about D&I might not have any intention of changing. 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. We know that we have to be clever about how we filter between companies. We know there are those who are embracing the diversity and inclusion initiative space and those who are just waving the flag because they think that’s what they should be doing at the moment.

We want to approach it in a couple of ways. Firstly to look beyond the more explicit metrics. Traditionally, people look at counts of basic numbers, so how many networks do they have and things like that. We think there’s a deeper way that we can try and understand company culture, which is to look at more implicit metrics like:  How do they really talk about diversity and inclusion? What kind of language are they using? Are conversations about diversity and inclusion embedded across the organisation?

For instance, in company reports, you will see firms that don’t seem to be so committed to diversity and inclusion. They might have a section of the report, hidden away somewhere in the back where they have diversity and inclusion or they just have a paragraph about it. Other companies take more proactive steps. You see that with 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, their strategy and their values. Those things are meaningful when trying to understand the embeddedness of diversity and inclusion in an organisation.

There’s also some strong theory about how you can analyse the use of language to understand whether a firm genuinely holds commitments and values. We will be looking to do some kind of sentiment analysis to get behind it. The final thing that we have to do is to validate all this. We know that our approach of looking at firms from the outside and picking through the data they release isn’t going to give us a complete picture. To provide confidence in our metrics, we’ll have to find a way to validate that with firms that have a way of looking inside companies and company culture.

There are lots of firms now doing interesting things where they collect data from employees to try and understand what company culture is like and what it’s like to work there. What we want to see is a strong relationship to those metrics as well. That can help us know that we can apply this more broadly.’

Where Are We on the Change Journey?

I was keen to hear from Freddie what’s been learned from the initial analysis of the research so far.‘It is early days still and we’ve got a fair way to go before we have some strong results which we’re ready to publish. But we’re doing a lot of analysis of these data sources. We’re immersing ourselves in the world of company reports and Glassdoor reviews and things like that. There are some general trends and themes which I think are quite interesting. One is that there has been a real change in the tone and structure of company reports and the way they talk about diversity and inclusion over time. There’s 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 and more bespoke now. When you look at reports from 2014-2016, you’ll see that they’ve often copied and pasted what they put last year. That there’s no effort to engage with what’s happening within the business and what the problems are.

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. It’s saddening to see that firms seem to be quite reactive in the way that they talk about diversity and inclusion. Certainly, after the pay gap reporting came in, 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. There’s more work to do for them to be more proactive. Again that’s one of the metrics that we’re interested in,  that reactive versus proactive.

In the last year, we have seen a lot of firms thinking about things like the impact of company culture on ethnically diverse employees. That’s in response to the Black Lives Matter movement. But the firms who are leading in the diversity and inclusion space aren’t reactive, they’re proactive. They don’t just respond to things when they happen, even though that is important. Proactive firms think about questions like: what’s it like for diverse groups within our organisation to work here? What do they need to thrive in the organisation? How can we build a plan which has clear targets and we will report on and disclose over time and has a clear pathway to change, to make sure that all those groups are appropriately supported and valued within the organisation? Those proactive organisations are the ones who tend to perform better.

The final thing we’ve noticed is that firms which acknowledge that they have a problem with their diversity or their inclusion tend to be the kind of firms that perform better across other metrics. 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.’

I think this research Freddie is doing with The Inclusion Initiative at the LSE is much needed and I will definitely be keeping a close eye on it. We need that evidence-based approach for diversity and inclusion and to link it back to the profitability and the performance of organisations.

To keep in touch with the work visit their pages on the LSE website where there is the option to subscribe for updates and a People page where you can find the team’s email addresses. They are interested in collaborating with practitioners in the D&I space, building strong links and welcome people to get in touch.

The Inclusion Initiative Evidencing the Bottom Line - Mildon