“Ignore DEI at Your Own Peril: Risk Management in the World of Diversity, Equity, and Inclusion”
As a seasoned HR professional and DEI thought leader, I have long recognized the transformative power of Diversity, Equity, and Inclusion (DEI) in organizations. For years, I have worked diligently to help companies assess their practices, mitigate risks, and embrace the principles of inclusivity.
Today, I want to dive deep into an unspoken truth that often goes unnoticed: Capitalism insists on Diversity, Equity, and Inclusion. It’s not just a moral imperative; it’s an economic one. To underscore this undeniable reality, I will present a framework for assessing risk, informed by data-based assessment tools like the ISO Diversity and Inclusion Standard (ISO 30415:2021) and the Global Diversity, Equity and Inclusion Benchmarks.
Brace yourself for a hard-hitting exploration of the financial risks tied to systemic and behavioral disparities in the workplace, including the often-overlooked fifth impact: Reputational Damage.
Some firms try to mitigate their risks by paying for Employment Practices Liability Insurance. Consider the following sobering statistics reported by insurance industry experts:
Employee lawsuits have risen approximately 400% over the last 20 years
Of these, wrongful termination suits have risen more than 260%
41.5% of these lawsuits were brought against private employers with fewer than 100 employees
The average cost to settle an employee lawsuit out of court is $75,000 (including legal fees)
The average amount awarded to employees in jury trials is $217,000
My Framework: Ten Areas of Risk Assessment
In my work, I’ve developed a comprehensive framework for organizations to evaluate their practices and behaviors, ensuring they are compliant, respectful, and legally sound. This framework encompasses ten key areas of risk assessment:
- Workforce Utilization: Are marginalized groups underrepresented in key positions?
- Governance and Compliance: Are there policies and practices in place to ensure compliance with anti-discrimination laws?
- Inclusive Climates: Is the workplace culture welcoming and inclusive for all employees?
- Participation Rate in HR Systems and Practices: Are all employees equally engaged in HR processes and activities?
- Rate of Rise of Women and People of Color: Are opportunities for growth and advancement distributed equitably?
- Personal Development Interests: Are employees from diverse backgrounds given equal opportunities for skill development and career advancement?
- DEI Education and Learning: Is there an ongoing commitment to educate employees on DEI issues?
- Outreach and Community Relations: Does the organization actively engage with diverse communities, suppliers and organizations?
- Values Alignment: Are DEI principles aligned with the company’s core values and mission? Are your DEI initiatives aligned with shared values and organizational strategies?
- Talent Management and Retention: How likely are risks to occur, and what would be the consequences in terms of monetary and reputational impacts?
The Financial Impact of Neglecting DEI
Now, let’s delve into the stark financial realities that organizations face when they fail to address systemic and behavioral elements of DEI.
According to a Bloomberg Law report, employment lawsuits have increased by more than 400% during the past 20 years. The publication shows that employees have a 16% chance of receiving more than $1 million from claims and a 70% chance of receiving $165,000. Source: Arroyo Insurance Services
A Forbes article provides crucial insights into the types and amounts of damages available in employment discrimination cases, and it’s eye-opening.
- Lost Pay Damages: These compensate employees for the money and fringe benefits they would have earned if their employer had not discriminated against them. The financial implications here can be substantial, potentially reaching millions of dollars.
- Compensatory and Emotional Distress Damages: Emotional distress damages can cover a range of harms, including diagnosed psychiatric conditions, sleeplessness, loss of enjoyment of life, and reputational harm. With some laws capping these damages at $300,000, organizations can still face significant financial burdens.
- Punitive Damages: Designed to punish employers for particularly appalling discrimination, punitive damages can be another heavy financial blow, especially when the discrimination is accompanied by “malice or reckless indifference.” In cases with no cap, the punitive damages can be considerable.
- Attorneys’ Fees and Costs: Winning employees are entitled to reasonable attorneys’ fees and costs, which can range from thousands to over seven figures. Organizations may find themselves bearing the financial burden of both their own legal defense and that of the employees.
By focusing on the full range of employment discrimination issues affecting today’s workers, EEOC’s suit filings demonstrate the significance of the agency’s recently updated Strategic Enforcement Plan.
EEOC Announced Year-End Litigation Round-Up for Fiscal Year 2023. According to preliminary data, the U.S. Equal Employment Opportunity Commission (EEOC) filed 143 new employment discrimination lawsuits in fiscal year 2023, representing more than a 50% increase over fiscal year 2022 suit filings. Source: EEOC
The Fifth Impact: Reputational Damage
In today’s fast-paced digital age, reputational damage is a fifth, often underestimated, impact of neglecting DEI. Prospective employees, particularly diverse candidates, consider an organization’s commitment to DEI when deciding where to work. Savvy consumers are becoming more cognizant of how brands show up and respect customers from all identity groups. With the internet as vibrant and fast-moving as it is today, brands can be easily tarnished by poor judgment and practice.
Reputational damage can lead to several adverse consequences:
- Talent Attraction and Retention: Prospective employees may opt for employers with stronger DEI commitments, leaving organizations with limited access to top talent.
- Consumer Loyalty: Discriminatory practices or insensitivity can lead to boycotts and lost customers, affecting revenue and long-term brand loyalty.
- Media Scrutiny: Negative stories about an organization’s DEI failures can spread rapidly, attracting media attention that further damages reputation.
- Investor Confidence: Investors increasingly consider DEI as an indicator of a company’s ethical and financial performance. Poor DEI practices can erode investor confidence.
Data-Informed Approach: ISO 30415:2021 and Global Diversity and Inclusion Benchmarks
My approach to DEI is not based on guesswork or intuition; it’s grounded in data-based assessment tools. Notably, the ISO Diversity and Inclusion Standard (ISO 30415:2021) provides comprehensive guidance on outcomes, metrics, and accountabilities. This standard goes beyond the workforce and workplace, extending to all facets of an organization’s mission, shared values, products, services, and external relationships. As a part of the working group that developed this groundbreaking standard, I can attest to its efficacy in guiding organizations toward meaningful DEI outcomes.
Additionally, I draw guidance from the Global Diversity, Equity and Inclusion Benchmarks, a set of practices and applications based on input from over 100 global subject matter experts. These benchmarks provide invaluable insights into best practices and strategies for achieving diversity, equity, and inclusion goals.
Connecting the Dots: DEI as part of a Risk Mitigation Strategy
It’s evident that employment discrimination cases have the potential to drain an organization’s finances and tarnish its reputation. The risk of not addressing systemic and behavioral elements of DEI becomes abundantly clear. But it doesn’t end here.
DEI isn’t just a safeguard against financial catastrophe; it’s a catalyst for growth and innovation. Diverse and inclusive organizations tend to outperform their counterparts, attracting delighted customers and fostering a culture of creativity. DEI isn’t just a checkbox; it’s a business imperative.
Conclusion: The Bottom Line
In my years as an HR professional and DEI advocate, I’ve witnessed the profound impact of DEI on an organization’s bottom line. The economic imperative of Diversity, Equity, and Inclusion is undeniable. It’s not just about avoiding litigation; it’s about thriving in a diverse world.
The risks of neglecting DEI are not only financial but also existential. Organizations that fail to embrace these principles risk falling behind in an increasingly diverse and socially aware marketplace. It’s time to recognize that capitalism insists on DEI, not as a burden but as a beacon of opportunity and prosperity. It’s time for transformative change, and the time is now. Reputational damage is just one more compelling reason to act swiftly and decisively.
When organizations push to kill DEI efforts, they plant the seeds for economic and reputational costs that far exceed the cost of a transformative, forward looking DEI strategy and lens.
“Forward-looking capitalism embraces a well-thought-out DEI strategic lens as a crucial aspect of its practices.” — Effenus Henderson
Effenus Henderson
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