Diversity and the Future of Business

If business schools want to do right by their graduates, they must teach their students about diversity.
Diversity and the Future of Business

Priming the Pipeline 

By Peter Aranda

As CEO of an organization working to diversify the executive pipeline in the U.S., I am always looking for signs that the business world has finally seen diversity for what it is—not a problem that minorities need to solve, but a tremendous opportunity for all businesses. I have always assumed that once this happened, the job prospects for gifted business-minded minorities would greatly improve.

The Supreme Court’s groundbreaking 2003 decisions in Gratz v. Bollinger and Grutter v. Bollinger looked like just the signs I’d hoped for. The Court ruled that ethnically diverse enrollment is beneficial for all students, not just minorities, and that diversity is a compelling state interest.

Finally, there was an irrefutable endorsement of diversity’s inherent value to society! Finally, business leaders would no longer discuss whether diversity should be tolerated, valued, or embraced; instead, they would consider how diversity could benefit students, workers, consumers, and the overall economy. Finally, the corporate world would address the glaring disparity between demographics in the real world and demographics in office suites—and business schools would do the same.

There is a scant indication that case studies are being developed that will prepare American students to manage and lead multicultural workforces.

Unfortunately, that’s not what happened. More than eight years later, nonminority Caucasians still dominate the workplace. According to data from the U.S. Census and the Bureau of Labor Statistics, they take up 89 percent of the jobs, despite making up just 70 percent of the American population. Minority groups—Hispanic, Asian, African, and Native Americans—account for only 10.8 percent of the workforce, though they represent 30 percent of the population. (Specifically, African Americans represent 13 percent, Hispanic Americans 12 percent, Asian Americans 4 percent, and Native Americans 1 percent.)

But the tide is about to turn. Immigration patterns and changes in birthrates have resulted in growth among minority groups and decline among nonminorities. While Causcasians represent 70 percent of the total U.S. population, among children under five, the number drops to 53 percent. That signals huge changes in America’s population in the next few decades.

You wouldn’t know it to look at the enrollment statistics of the top 50 full-time MBA programs. The latest U.S. News & World Report research shows that nonminority Caucasians make up 72.4 percent of the student population at these schools, followed by Asian Americans at 15.9 percent, African Americans at 6.1 percent, Hispanic Americans at 5 percent, and Native Americans at 0.6 percent. The results are even more disturbing if you factor in international students, who represent 30.7 percent of the population. Among the rest, Caucasians comprise 50.1 percent. The remaining ethnic groups drop to only 11 percent, 4.3 percent, 3.4 percent, and 0.4 percent, respectively.

The picture for minority faculty and administrators is even worse. Minorities represent only 3.5 percent of the populations of both, says Bernie Milano, president of The PhD Project, which works to increase the pool of minorities in the corporate world. (See “Diversity and the Doctorate” on page 34.)

Apparently, business schools prefer to focus on school rankings rather than population trends.

There is scant indication that case studies are being developed that will prepare American students to manage and lead multicultural workforces and do business in a multicultural marketplace. Diversity efforts seem to spring primarily from affiliations with organizations like Management Leadership for Tomorrow, The PhD Project, and the one I lead, The Consortium for Graduate Study in Management. These affiliations are important, but insufficient.

The only academic forums in which diversity is explicitly discussed are one-off or annual events like the yearly diversity conferences held by Emory’s Goizueta Business School in Atlanta, Georgia, and Dartmouth’s Tuck School of Business in Hanover, New Hampshire. Yet even there the focus is on breaking down barriers among students rather than teaching them how to learn from and leverage their differences.

If diversity is discussed in the classroom at all, says Gregory Fairchild, associate professor of business administration at the University of Virginia’s Darden School of Business, “the bulk of the discourse takes an HR-compliance frame.” That is, the discussion focuses on how to fix interpersonal issues rather than on how to capitalize on the business opportunities created by diverse workforces and markets.

As for diversity scholarship, what little there is falls into predictable patterns, says Martin Davidson, Darden’s chief diversity officer. Most research on gender diversity is done by Caucasian women, while scholars of color investigate racial and ethnic diversity. Many organizations are wary of funding diversity research, adds Davidson, because they don’t have the necessary data, or because they fear being labeled exclusionary, or because they believe management journals are reluctant to include such studies. These impediments make it unlikely that diversity will be recognized as a legitimate field of study anytime soon.

As baby boomers inch toward retirement, they’ll take with them the majority of executives who comprise America’s corporate leadership. If their successors are ill-equipped to operate in a culturally diverse marketplace, individual businesses and the economy face an uncertain future. Business schools can reimagine that outcome by addressing problems in three key areas:

  • Enrollment. Even though successful 21st-century business leaders must be acutely sensitive to multiple cultures, MBA programs remain diversity-challenged. Schools can address this issue by making diversity one of the goals of their admissions processes. They can direct recruiters to seek out qualified students from multicultural backgrounds. They also can encourage the publications that produce school rankings to factor diversity into their formulas along with test scores and GPAs.
  • Curricula. Schools must make certain that their programs reflect the needs of globalized business. They should only graduate students who have learned how to recruit, retain, lead, and manage culturally diverse workforces and who understand how to market goods and services to a heterogeneous consumer base.
  • Research. Currently, there’s too little grant money and there are too few publication opportunities for faculty members who want to conduct research on diversity. Business schools not only need to educate grant-making organizations about the value of diversity, they should consider funding such research themselves. They might also consider launching new journals that promote scholarship on the topic.

The truth is, no organization will be able to compete for long in the globalized business environment if its top executives do not understand the multicultural marketplace. If business schools want to do right by their graduates, they must teach their students about diversity.

For 45 years, The Consortium for Graduate Study in Management has helped more than 6,000 outstanding diverse students access top business schools and broad professional opportunities. It is my fervent hope that we are sending our graduates into a business world that will soon see them for what they are—not minorities, but strategic assets who will play critical roles in helping companies adjust to a fast-changing world.

Defining Diversity

Five different forms of diversity mark the EU workplace—and businesses must be prepared to address them all.

By Richard Wynne

Europe is serious about the issue of diversity at work. Recent years have seen the EU Commission pass nationally binding directives that deal with racial equality and equality in employment, and currently there is discussion about a new directive aimed at combating discrimination.

Two important factors have made diversity hiring an imperative in Europe: The aging of the population has guaranteed that fewer young employees are entering the workforce every year; and the expansion of the European Union has brought a host of new populations into the economy. European businesses must learn how to hire and retain diverse employees or find themselves without enough workers to keep their operations running.

For many people, the word “diversity” is shorthand for “ethnic diversity,” but in fact, there are many ways that people differ from one another. And it is unfortunately true that people with both visible and invisible differences tend to be discriminated against in the workplace.

There are at least five major forms of diversity, and businesses that want diverse workforces must find ways to accommodate them all. For that to happen, business schools must train their future leaders to recognize workers from these five groups and understand how they can enrich the workplace.

1. Older workers. Despite ambitious targets agreed upon by EU

governments, only five countries—the Netherlands, Denmark, Sweden, Austria, and Luxembourg—had employment rates above the target of 70 percent for older workers in 2010. Employers sometimes hesitate to hire older individuals, fearing that they will be too slow, resistant to new technology, and frequently sidelined with health issues.

But these workers will become increasingly valuable to European businesses as birth rates change and fewer young people enter the workforce. Older workers are valuable employees because their long work history usually means they possess institutional knowledge and experience, they’re skilled at conflict resolution, and they are familiar with many different solutions for specific problems.

Companies can retain these workers by keeping them healthy, productive, motivated, and involved. One way to utilize their skills and keep them engaged is to turn them into coaches who share their fund of knowledge with others. Another is to give them tasks that are creative and meaningful. In the right kind of work environment, older workers can remain employed and useful for a very long time.

2. Members of ethnic minorities. Data from the 2008 Employment in Europe report shows that there are significantly lower levels of employment among immigrants than native populations. The gap varies from as little as 6 percent in Greece to as high as 15 percent in Denmark, and in many areas the situation has deteriorated since 2007.

There are many reasons for the disparity. Some employers don’t want to hire minorities because they’re uncomfortable with such workers or fear current employees will be; others don’t know how to retain these workers once they’re hired. But a major reason is that people in ethnic minorities often have to travel “a larger distance to the labor market.” That is, they’re held back because they don’t have the right educational background, might not speak the language, or they’re uncomfortable with the corporate culture.

European businesses must learn how to hire and retain diverse employees or find themselves without enough workers to keep their operations running.

Another key reason tends to be expectations: When majority employers interview minority applications, they sometimes see what they expect to see, which is someone less qualified for the job. When one set of researchers observed companies interviewing both black and white candidates, they noticed that the interviews with black applicants were shorter and included questions posed in a way that would make them more difficult to answer. As an experiment, the researchers trained the interviewers in the different techniques they used for white or black applicants. When candidates of either race were interviewed as if they were black, they did less well than candidates interviewed as if they were white. The researchers concluded that expectations influence the behavior of the interviewer and the performance of the applicant.

If companies fail to hire minorities, they miss out on promising candidates who could bring a great deal to their organizations—and they also shrink their own potential labor pool, which is already growing smaller due to demographic shifts. If governments don’t encourage organizations to hire minorities, they risk increasing social tensions that can lead to rage and violence. Therefore, it’s essential that companies find ways to incorporate ethnic minorities into the workplace.

3. Members of certain religions. Immigration, emigration, mobility, travel, and the expansion of the EU all have contributed to the diversity of religions in Europe. While religion in the workplace is rarely discussed, prejudices still exist. It is difficult to gather detailed information on how workplaces handle this issue because employers are not entitled to obtain information on the religious affiliation of their employees. However, anti-racism policies that are meant primarily to protect ethnic groups can be widened to include religious minorities as well.

4. Women. Different societies hold different beliefs about the roles and responsibilities of men and women, but too frequently the result is that women are considered inferior. Women suffer forms of discrimination that range from economic inequity to outright violence. In some communities, their work is unpaid but essential to the wellbeing of the family, so it is difficult to move them into paid positions. In other communities, discrimination is codified into law.

It’s not easy to overcome all these hurdles, but many international movements and organizations have addressed the task, from the 1979 U.N. Convention on the Elimination of All Forms of Discrimination Against Women to the 2000 Millennium Declaration. Economic empowerment is one of the surest, fastest ways toward gender equality.

Governments can encourage that empowerment. For instance, the European Union had set a target for its member states: a 60 percent employment rate among women of working age by the year 2010. Despite the recession, 16 of 27 member states reached this goal.

5. Workers with disabilities. While society has begun to recognize that it has a responsibility to care for people with disabilities, companies don’t always feel the need to offer them employment. For example, 78 percent of people with severe disabilities were out of the EU labor force in 2002, according to Eurostat, which compiles data about the European Union. In addition, people with chronic illnesses often are viewed as undesirable hires.

Research suggests that hiring people with disabilities and keeping them employed is a responsibility that lies with both governments and employers. Business executives and policy makers need to work together to develop coherent, coordinated strategies for preparing these workers for employment and giving them the support they need to retain their jobs.

Everyone Wins. How does it benefit business to promote diversity? A host of researchers have identified improvements in performance, productivity, problem solving, market penetration, staff morale, and job satisfaction when the workplace is diversified. The Society for Human Resource Management has determined that diversity initiatives can improve the quality of the organization’s workforce; spur a better return on its investment in human capital; allow companies to reach more diverse customer bases; attract the brightest employees; increase creativity; and increase flexibility. All of these benefits help increase a company’s chances of survival.

The Work Research Centre and its partners through the Diversity@ Work Web site are devoted to encouraging organizations to take proactive approaches to diversity. We have built a diversity management toolkit and a European Web site for diversity management; both are both aimed at training HR managers, trade unions, and policy makers who have the most impact on hiring people from marginalized groups.

We are committed to working with established businesses that want to and need to revise their policies so that minority groups are welcome. We know that business schools can address the situation from a different perspective: They can train future executives long before they set foot in their corner offices. They can make sure that tomorrow’s leaders understand that diversity isn’t simply a gesture or a feel-good measure. It’s an economic imperative for a healthy society.

Diversity and the Doctorate

By Bernard J. Milano

In corporate life, diversity is usually a given. The global marketplace is diverse, so the talent that serves and produces for it must be as well. But in the academic world, where business students learn to become business executives, diversity in front of the classroom is still an unrealized dream.

At U.S. business schools, fewer than 4 percent of the faculty are minorities—that is, African American, Hispanic American, or Native American. If business schools don’t have people of color teaching their classes, they will find it difficult to attract minority students to enroll in their courses.

 

Solid research suggests that when a person’s identity is different from the identity of others nearby, performance suffers. The environment feels uncomfortable, and the individual wonders if this place is a good fit. If there are no minority professors teaching business classes, students of color will not have role models or natural and approachable mentors. Nor will the majority students, usually Caucasian, have a chance to experience the diversity they will experience when they enter the workplace. If business schools want to succeed in their end goal of diversifying global management, they will have to start by diversifying their own faculties.

But first, they’ll have to debunk many myths concerning what it takes to become a business school professor. One of the biggest assumptions is that it costs too much for most minority students to afford, but this is simply untrue. Unlike undergraduate and graduate programs, most full-time doctoral programs at AACSB-accredited universities in the U.S. waive tuition and fees. In addition, almost all of these programs compensate their doctoral students for research and teaching assistantships, and these stipends can range from $15,000 to nearly $40,000 per year.

If business schools want to diversify global management, they will have to start by diversifying their own faculties.

Another myth is that students need an MBA before they can enter a PhD program. This is also false. No graduate degree is required for admission to doctoral programs, although most of them require a Graduate Management Admission Test as part of the application.

People who have been in the corporate workplace for quite a while often feel that their age will be another obstacle, but it’s rare for programs to turn away candidates because they’re too old. Doctoral students come in all ages, from recent college graduates to mid-career professionals. In fact, many doctoral students enroll after spending a significant period of time in other careers. They often find they’re even more in demand as professors once they obtain their degrees, because many universities value their ability to draw on practical experience as well as theory.

Once schools dispel these myths, they still might need to encourage minority students to apply for what is a long and rigorous academic undertaking. One way is to market a business doctorate as a “calling” for individuals who love learning, generating new ideas, and setting their own agendas. While all academicians can make their marks in a field, those in business can have an impact in both the educational and the corporate sectors. There are not many jobs with that kind of influence.

Additionally, PhD candidates who become business school professors will find that the salaries and benefits are substantial. First year compensation varies widely by discipline and hiring institution, but it can range from just below $100,000 to well over $150,000 for a nine-month salary. Teachers also have opportunities to supplement their incomes with summer research and teaching assignments.

There are many organizations devoted to promoting diversity in higher education, including The PhD Project. When it was founded in 1994, research showed that qualified minorities didn’t even consider academia as an option. At the time, there were only 294 doctorally qualified professors who were African American, Hispanic American, or Native American at U.S. colleges and universities.

Over the past 17 years, The PhD Project has aimed to help change that figure. The organization invites successful minority men and women to an annual conference where they learn about applying to doctoral business programs. Once they enroll in those programs, candidates become members of The PhD Project’s minority student associations that meet annually for peer and mentoring support. The PhD Project pays all of their expenses for them to attend both conference and association meetings.

Since The PhD Project was founded, fewer than 10 percent of its students have dropped out, and 99 percent of its graduates have taken careers in academia. By contrast, among all doctoral students, the dropout rate is 33 percent, and only 70 percent become business faculty. Because of the commitment and focus of these minority students, today there are 1,109 minority business professors in the U.S. Further, nearly 400 minorities are currently enrolled in doctoral programs and will take their places at the front of classrooms over the next few years.

Such gains are only possible when business schools commit to diversifying their student bases, faculty, and administrations. The first step is helping minority students see the great potential awaiting them if they pursue business degrees—and the next step is preparing them to exert their influence in both the business and academic worlds.

Peter J. Aranda III is chief executive officer of The Consortium for Graduate Study in Management, an alliance of American business schools and corporations devoted to promoting diversity and inclusion in American business. It is based in St. Louis, Missouri. More  information is available at cgsm.org

Richard Wynne is the co-founder of the Work Research Centre, which specializes in research and consultancy on key social issues, organizational change, and technological developments. He is also coordinator of the DiManT Project. He is based in Dublin, Ireland. More information is at wrc-research.ie/.

Bernard J. Milano is president and a trustee of the KPMG Foundation, president and trustee of the KPMG Disaster Relief Fund, and president and member of the board of directors for The PhD Project Association. He is based in Allendale, New Jersey. More information about The PhD Project can be found at www.phdproject.org.