How Better DEI Reduces Risk

Companies that only pay diversity, equity, and inclusion (DEI) lip service miss out on the wider rewards that fair treatment and full participation bring, such as improved risk management.

DEI should be taken seriously, yet for some businesses, these are merely buzzwords. Almost 10% of respondents to a  Workday survey said their organisation denied the importance of diversity, while nearly 20% said it was trivialised.

Key takeaways:

• DEI aims to create an equal, open and welcoming environment, regardless of gender, race, religion, sexual orientation, age or disability, where everyone is comfortable being themselves.
• Risk management is all about identifying, understanding, managing and mitigating potential events that threaten a firm’s objectives, capital and earnings, including legal, financial, strategic, security and operational.
• Inclusive and diverse workplaces lead to a better understanding of risk,  where organisations make better decisions.
• Research shows gender-diverse boards outperform their non-diverse counterparts in ESG activities, and women board directors are more likely to consider social issues as essential to strategy.
• A clear DEI strategy helps reduce risk and involves focus areas such as honestly assessing the current state of play and regularly monitoring progress.

Below, we examine the risks companies face, such as discrimination claims and reputational damage, and explore how DEI helps businesses make better decisions

• What does DEI look like in the workplace?
• What is risk management?
• How DEI plays a critical role in risk management
• What are the benefits of DEI in risk management?
• How businesses can improve DEI

What does DEI look like in the workplace?

An internet search brings up anything from three to 30 different diversity types. But typically, workplace diversity aims to create an equal, open and welcoming environment, regardless of gender, race, religion, sexual orientation, age or disability.

However, if businesses believe having a diverse mix of people on the payroll is job done, they need to think again. Equity and diversity are not a 'once and done' tick-box exercise. Organisations must also ensure they have an inclusive culture.

Inclusion is the catalyst that allows businesses to benefit from the rich blend of experiences and backgrounds offered by a diverse group of people.

To be truly inclusive, companies must ensure everyone is comfortable enough to be themselves, achieve their full potential, and empowered to speak out – and be listened to – without fear of reprisals, abuse or discrimination.

What is risk management?

Simply put, risk management is the process that ensures a business identifies, understands, manages and mitigates potential events that threaten a firm's objectives, capital and earnings – legal, financial, strategic, security and operational.

But risk management is more than that. It's equally about creating and maximising positive outcomes.

Are your risk management policies and processes up to date and still fit for purpose? Is the business expanding into new areas or transitioning internally? Your employees are potential consultants bursting with valuable insight, advice and expertise.

Organisations with a culture that encourages and invites people to actively contribute can learn from the wealth of experience and backgrounds a diverse workplace provides.

By listening to contrasting or different viewpoints and acting on their teachings, your business can ensure it is best equipped to face the expected – and the unexpected.

How DEI plays a critical role in risk management

Inclusive and diverse workplaces cultivate a better understanding of risk.  Subsequently, businesses make better decisions. Where teams comprise one group – such as older, white males –organisations run the risk of 'groupthink', where people who are largely alike make poor, unchallenged decisions based on their limited sphere of influence.

The more senior the groupthink team, the more likely these poor decisions filter down, impacting the business and its people.

A diverse range of backgrounds, expertise, experience and perspectives enables information to be run through a wider lens and all angles are considered.

Typically, an inclusive team also better manages conflict within the group and solves problems faster. The result is a natural and holistic blend of checks and balances that foster creativity and transparency.

What are the benefits of DEI in risk management?

Worldwide research collected by non-profit organisation Catalyst revealed gender-diverse boards outperformed their non-diverse counterparts in environmental, social and governance (ESG) activities.

Catalyst also found that women board directors are more likely than men to consider social issues like human rights, climate change and unequal pay as essential components of any corporate strategy. They're also more likely to embed practices designed to improve employee health, well-being and work/life balance.

According to research by Bupa, 43% of staff with a less visible disability haven't disclosed it to their employer. In addition, 39% of LGBTQ+ employees " still feel the need to hide the fact they are LGBTQ+ at work”. 

For all businesses, there is an inherent risk of losing expertise and experience, but people who feel uncomfortable or unwelcome – at all levels – will quickly move on and may well consider legal action for discrimination.

Furthermore, people talk. Sites like Glassdoor, where people share their company experiences, will soon flag a business where 'banter', abuse or discrimination is unchecked. In turn, companies run the risk of substantial reputational damage, reduced business and loss in profits.

When people feel safe to be themselves, they are more engaged, productive and loyal. And being seen as a company that cares helps not only to retain key talent but attract it. Additionally, businesses themselves, demand more of the organisations they partner with.

For many, a commitment to DEI is necessary – one that shows they are working with a company that shares their values, and enhancing (rather than diminishing) its reputation.

Read our Risk Management Roadmap

How businesses can improve DEI

DEI is key to reducing risks of all kinds. However, Workday's 2021 study across the UK and Europe revealed that around one-third of businesses (36%) don't have a strategic approach to DEI, and only a fifth had taken the first steps to create one.

A clear DEI strategy is the blueprint for success. It needs to:

• Candidly assess the current state of play. Dig into the data, such as staff demographics? Almost a fifth (17%) told Workday their organisation didn't monitor for any diversity characteristics.
• Identify the strategy's aims. Ensure these objectives and the timescales set to achieve them are realistic.
• Seek employee insight. No one understands the challenges of DEI better than those it directly affects, so ask staff for feedback on their workplace experiences, ensuring they can give it anonymously if they choose, honestly and without fear of reprisals. Act on the findings.
• Include training and education for all employees, including senior members .
• Carry out due diligence. Ensure your compliance and legal teams thoroughly review the strategy before it goes live so you're not open to discrimination claims. Once launched, promote it and ensure all employees know where to find it.
• Regularly monitor the strategy's progress. If areas aren't working, be prepared to make changes.

Diversity, equity and inclusion: FAQs

What does DEI mean?

Diversity refers to differences within a given setting, such as gender, race, age, disability and sexual orientation; equity involves identifying and removing barriers to full participation, focusing on ensuring fair treatment, access, opportunity and advancement for all people/employees; and inclusion revolves around creating environments where any individual or group feels welcomed, respected, supported and able to participate fully.

What are some examples of DEI initiatives?

Unconscious bias training, mentorship for underrepresented groups, salary equity audits, adjusting hiring practices, employee resource groups and inclusive workplace policies.

What metrics should a business use to measure DEI strategy progress?

Pay equity/compensation analyses, retention/turnover rates, employee engagement/inclusion scores, pipeline diversity, and representation in hiring, promotion and leadership across demographic groups. 

Want to learn more about Equality & Compliance?

Our Essentials Library contains e-learning content designed to help organisations meet fundamental compliance requirements. If you are looking for focused training, our DEI training package - Diversity & Equality Training Package offers a complete solution for your compliance programme. Courses in the libraries include:

• Equality and Diversity in the Workplace Training Course
• Equality and Diversity for Managers Training Course
• Diversity, Equity and Inclusion (DEI) Training Course
• Introduction to Risk Training Course

We've created a comprehensive Risk Management compliance roadmap to help you navigate the compliance landscape. If you would like to access leading insights and compliance tips, you can browse our free resources by topic to find guides, modules, compliance bites and more.