Today, the issues of diversity, equity and inclusion (DEI) are top of mind for many organizations throughout the United States.
Among the risks that organizations face by not focusing on DEI are failing to attract and retain talent, losing customers, and missing out on emerging opportunities and areas for innovation. More importantly, customers, employees and other stakeholders can suffer real, sometimes life-changing harm when companies fail in this area.
Alongside these specific risks, organizations also face risks to reputation, which can surface in a variety of ways. High-profile situations like employees assume that lingering customers of a different ethnicity are a threat, or employees mocking multicultural last names can lead to the kind of frenzied social media events that create a major reputational setback. Even seemingly accidental forms of exclusion, like selecting an unintentionally offensive image for a magazine cover or developing a biased algorithm that prevents a specific group from accessing technology can lead to outrage and reputational harm.
According to a Deloitte Risk Advisory, “A specific event can impact how stakeholders such as customers, regulators or investors perceive an organization. If stakeholders subsequently choose to change their behaviors it may ultimately impact on, for example, an organization’s sales, license to operate or market value.”
To mitigate the massive reputation risks associated with these events, organizations must make a meaningful commitment to advancing DEI. This starts with a better understanding of how DEI and reputation are related.
When it comes to reputation, DEI has become a C-suite priority that risk management professionals, human resources, legal counsel, and leadership at all levels of an organization must support. Beyond ethical and moral considerations, research shows that there are compelling business reasons to pursue DEI.
Research from the Peterson Institute for International Economics, Boston Consulting Group and McKinsey & Company shows that more diverse organizations outperform others. For instance, research indicated that greater gender balance among corporate leaders is associated with higher stock values and greater profitability.
In a study conducted by Weber Shandwick, 79% of diversity and inclusion executives in “well-aligned” companies meaning those with an effective and established D&I presence and connection within the organization agree that D&I is an essential driver of company reputation.
To manage the reputation risks associated with DEI, risk managers should start by assessing their stakeholders’ expectations. Then, looking at the business processes associated with those expectations, risk managers can help organizations systematically address these reputation risks