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Abstract

and frequent expert witness in large-scale employment discrimination litigation. His research and consulting focus on public policies and employer practices enhancing the inclusion of individuals, businesses, and communities in the economic mainstream. Mary Lou Egan, Ph.D., is a Principal in Bendick and Egan Economic Consultants, Inc., Washington, DC (www.bendickegan.com; bendickegan@mindspring.com) and former professor of international business in the US and the EU. Her research and consulting focus on the role of private markets in addressing public policy issues in both industrialized and emerging markets. Louis Lanier, Ph.D., is a Managing Director in the Washington, DC office of Econ One Research, Inc. (www.econone.com; LLanier@econone.com). He is an applied micro-economist and frequent expert witness in employment discrimination litigation.
The business case for diversity and the perverse
practice of matching employees to customers
Marc Bendick, Jr.
Bendick and Egan Economic Consultants, Inc., Washington, DC USA
Mary Lou Egan
Bendick and Egan Economic Consultants, Inc., Washington, DC, USA
Louis Lanier
Econ One Research, Inc., Washington, DC, USA
This paper will appear in Personnel Review (2010). An earlier version
was presented at the 10th International Human Resource
Management Conference, Santa Fe, NM, June 2009.
Autobiographical Notes
Marc Bendick, Jr. Ph.D. is a Principal in Bendick and Egan Economic Consultants, Inc.,
Washington, DC (
www.bendickegan.com; bendickegan@mindspring.com) and frequent
expert witness in large-scale employment discrimination litigation. His research and
consulting focus on public policies and employer practices enhancing the inclusion of
individuals, businesses, and communities in the economic mainstream.
Mary Lou Egan, Ph.D., is a Principal in Bendick and Egan Economic Consultants, Inc.,
Washington, DC (
www.bendickegan.com; bendickegan@mindspring.com) and former
professor of international business in the US and the EU. Her research and consulting
focus on the role of private markets in addressing public policy issues in both
industrialized and emerging markets.
Louis Lanier, Ph.D., is a Managing Director in the Washington, DC office of Econ One
Research, Inc. (www.econone.com; LLanier@econone.com). He is an applied micro-
economist and frequent expert witness in employment discrimination litigation.
2
Abstract
Purpose - The typical “business case” for workforce diversity management in the USA
implies that matching the demographic characteristics of sellers to buyers increases
firms’ productivity and profitability. This paper explores the consequences for both
employers and employees of following that guidance.
Design/Methodology/Approach – The paper statistically analyzes employment data on
African Americans from one large US retailer and from the US advertising industry.
Findings – In both cases analyzed, a badly conceived business case for diversity
perversely translated into discriminatory employment practices, starting with stereotype-
based segregation in work assignments and spreading to consequent inequality in other
employment outcomes such as earnings and promotions. Such patterns illegally limit
employment opportunities for women and race/ethnic minorities. Simultaneously, they
fail to promote customer relationships and sales.
Practical Implications – To avoid negative effects on both business and societal
objectives, employers need to be guided by a business case promoting workplace
inclusion, not “diversity without inclusion,” which buyer-seller matching represents.
Originality/Value- The business case for diversity is often considered unimportant
“boilerplate.” This paper alerts employers to the importance of articulating, and then
following, a correct business case.
Article Type:
Research paper
Keywords:
Business case, diversity, inclusion, employment discrimination, segregation, market
segmentation, talent management, African Americans, advertising, retail
3
The evidence above documents two important points. First,
academics have only mixed evidence that customers prefer
to be served by similar others. Second, employers often act
as if customers have this preference.
-- Leonard, Levine, and Joshi (2004, p. 733)
I. Introduction
In the USA, the 1960’s Civil Rights Movement symbolized by the leadership of Dr.
Martin Luther King, Jr. established a moral imperative for ending workplace
discrimination. The keystone legal consequence of these efforts was Title VII of the
federal Civil Rights Act of 1964 which granted broad, enforceable rights to equal
employment opportunity regardless of race, color, religion, sex or national origin.
Over the ensuing 50 years, these moral and legal developments have secured
major reductions in workplace inequities for racial/ethnic minorities, women, and other
“out groups.” However, they have not eliminated all employment discrimination or
prevented employer backsliding (Smith and Welch, 1989; Reskin and Bielby, 2005;
Bendick, 2007). Remaining inequities in part reflect the choice of some employers to
meet legal requirements only when they are directly challenged by public enforcement or
private litigation, typically slow or unlikely events. This tendency to “wait it out” has
been reinforced by sometimes wavering commitments to equal employment opportunity
by some US courts and weak legal enforcement by some presidential administrations
(Kelly and Dobbin, 1998).
One response to these circumstances by diversity/anti-discrimination practitioners
within the human resource management community has been to articulate reasons
4
independent of moral concerns and legal requirements why employers should provide
equal employment opportunity. These rationales are commonly referred to as the
“business case for diversity” because they argue that workforce diversity advances
business objectives of productivity and profitability (Moran, 2006; Herring, 2009;
Dobbin, 2009, chapter 6)
Most observers agree that employer support for equal employment opportunity is
strengthened when these practices are viewed as promoting business’ own objectives
rather than solely responding to external legal or moral pressures (SHRM, 2005; Bendick,
Egan, and Lofhjelm, 1998). However, the content of the business case for diversity has
received little critical attention. This paper focuses such attention on one principal
component of the typical business case: the claim that employee diversity equips
businesses to deal with diverse customers.
Section II of this paper describes the typical business case’s articulation of this
argument and its potential mis-translation into discriminatory employment practices.
Sections III and IV illustrate such outcomes in the USA with empirical analyses of
African American managers and professional employees in one large retail firm and in
the advertising industry. Section V discusses how employers can avoid these perverse
results by avoiding a fundamental mistake common in diversity management today --
focusing on workforce diversity rather than workplace inclusion. Finally, Section VI
discusses the relevance of this analysis to workplaces outside the USA.
5
II. Linking Employee Diversity to Customer Diversity
When the “business case for diversity” is presented to a company, the arguments are most
persuasive when they are customized to that firm, its industry, competitive strategy,
history, and terminology. The public statement by one large employer, Chubb Insurance,
is presented in Figure One as a representative example of such company-specific
statements.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INSERT FIGURE ONE ABOUT HERE
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
As is typical in such statements, Chubb Insurance essentially argues that a diverse
workforce offers three advantages to employers:
First, access to a broader pool of potential employees. The native-born white
male workers who have traditionally dominated much of US employment --
particularly in well-paid, prestigious, influential positions -- are a decreasing
proportion of the available work force. Now and in the future, an increasing
proportion of trained and talented employees will be race/ethnic minorities,
women, and members of other “out groups.” (Johnston and Packer 1987; Bell,
2007, pp. 7-9).
Second, ability to relate to diverse customers. Many purchasers of goods and
services, both domestic and international, are different from the native-born white
males who have traditionally led efforts to develop and sell products to them.
Diverse employees bring differing life experiences, cultural backgrounds, and
6
ways of thinking that will assist their employer in relating to, understanding, and
meeting the needs of an increasingly broad range of customers.
Third, a more productive work force. Heterogeneous work groups are more
flexible, creative, and innovative than homogeneous groups, making their
employer more nimble in adapting to its constantly-changing business
environment (Kochan et al., 2003; Jackson, Joshi, and Erhardt, 2003; Jackson
and Joshi, 2004; Leonard, Levine, and Joshi, 2004; Mannix and Neale, 2005).
This paper focuses on the second of these reasons, concerning a business’s ability to
relate to diverse customers.
Figure One does not make explicit exactly how employee diversity is to translate
into enhanced relationships with customers, leaving managers to interpret the process
through their own business perspectives. To these mangers, the data on demographic
trends and purchasing power in Figure One tend to have obvious marketing implications:
If “diverse” consumer markets are large and growing, then our company needs to gear up
to serve these markets. Our company’s traditional ways to do so have involved tailoring
products and services to these customers’ preferences and targeting advertising messages
and marketing strategies to them. If the same data are being presented as a rationale for
our company’s commitment to workforce diversity, then the message must be that
another part of our strategy for serving these market segments is to provide staff tailored
to them. We are being directed to hire individuals from the “diverse” groups so that these
employees can be assigned to the demographic groups from which they are drawn.
In marketing, market segmentation is defined as the process of dividing a market
into identifiable submarkets having similar wants, needs, or demand characteristics, with
7
the objective of providing goods, services, and sales messages more precisely matching
the expectations and requirements of customers in each segment (McDonald and Dunbar,
2004; Wedel and Kamakura, 1999). Segmentation is a well-established, useful practice
in marketing science widely applied in many industries, and it is not in itself problematic
for equal employment opportunity.
The problem arises from assuming an automatic match between the average
characteristics of customers in a market segment and the characteristics of an individual
job candidate or employee based on a single demographic characteristic, such as race,
that the individual shares with the segment. According to this logic, that single
characteristic guarantees special insider knowledge of, and an ability to relate to, that set
of consumers.
The theory of market segmentation itself is careful to avoid such fallacies,
normally applying multiple characteristics to define a segment and noting that
segmentation reduces but does not eliminate variance among the large number of
individuals within the segment. Thus, although American companies commonly develop
marketing plans around categories such as “the urban market,” “the Hispanic market,” or
“the women’s market,” they remain aware that such single descriptors do not define
groups that are homogeneous and consistently different from individuals in other market
segments. However, when such segmentation is presented to line managers, these
refinements are often displaced by simpler reasoning, which then tends to drive the work
assignments given to customer-related employees such as sales representatives. This
simpler reasoning might assume, for example, that if all women are importantly alike in
certain respects and consistently different from men, then any woman employee
8
understands and can relate to any woman customer better than her male colleagues, and
that she cannot understand and relate to any male customers as well as any of her male
colleagues; a single demographic characteristic is used to predict the range of customers
with whom an individual employee can establish communication, credibility, and
comfort.
Some observers may question that managers commonly make such extreme
assumptions in interpreting their employer’s business case for diversity. However, the
tendency of managers to adopt this approach has been documented in many different
industries. In the USA, examples can readily be drawn from such diverse industries as
banking (Kearns, no date), real estate (Helper, 1969), legal services (ABA, 2006),
education (Valian, 1998, chapter 11), restaurants (Bendick, Rodriquez, and Jayaraman,
2009), and cosmetology (Losangelista, 2008). In addition, we perceive this logic
underlying the following fictional statements paraphrasing ones we have heard in actual
workplaces:
Auto Manufacturing: “Send me a ‘soccer mom’ for our minivan engineering
project because most minivans are bought by suburban women with young
children.”
Food Products Manufacturing: “Jose, your parents are from Puerto Rico. We
want you to pick a name for our new breakfast cereal that will work in our South
American market.”
Information technology: “Make sure everyone on the internet design team is
under 30; the web is a young person’s world.”
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Wholesale Distribution: “That’s a rough ghetto neighborhood. Let’s recruit
someone black for that sales route because it’s too dangerous for a white person.”
The next sections of this paper examine the employment effects of such logic in
two service industries.
III. Matching Retail Employees to Community Residents
Our first example involves “Neighborhood Stores Corporation,” a fictional name
disguising the identity of a real company in the Fortune 500. This nation-wide retailer is
a long-established, profitable, growing chain with more than 1,000 establishments and
tens of thousands of employees. The data we analyzed cover store managers during
2001-2005.
As a large employer and a federal government contractor, Neighborhood Stores is
subject to legal mandates for equal employment opportunity and affirmative action. In
response, the “careers” section of the firm’s website contains a short formal statement of
the firm’s commitment to ensure compliance with these requirements. In particular, as
with virtually all major employers in the USA, the company’s job application form
includes legally-mandated phrases such as “All job applicants and employees are
provided with equal employment opportunities regardless of race, color, religion, age,
national origin, disability, or veteran status.”
However, these perfunctory statements are far overshadowed by a multi-page
section of the firm’s careers website enthusiastically touting the company’s commitment
to diversity as a productive business practice. A banner at the top of each page in this
10
section announces, “Diversity is key to our corporate mission of serving our customers.”
The section also includes a video clip of the firm’s CEO stating:
Our company is a community retailer serving diverse customers all over
the nation, and we must reflect the diversity of those we serve….Diversity
provides us a powerful business advantage. The diverse employees
moving up through our company give us an understanding of the many
customer groups we serve. Their unique cultures and experiences are
essential to our future success.
The website then describes how this Neighborhood Stores’ commitment to
diversity is carried out through diversity-promoting policies and practices typical of many
major American corporations today. These initiatives include: a Corporate Director of
Diversity who reports directly to a top corporate executive; a diversity advisory council;
special recruitment efforts to encourage job applications from race/ethnic minorities and
other targeted groups; mentoring and training to prepare women and minorities for
promotions; and commitments to increase purchases from minority suppliers.
No doubt partially reflecting these efforts, Neighborhood Stores’ in-store
management workforce includes an unusually high proportion of African Americans --
12.9% of the company’s Store Managers, Assistant Managers, and Managers in Training.
This representation can be compared to the African American proportion of managers in
all large retail chains nation-wide in the same period, which was 7.6%
(
www.eeoc.gov/stats/jobpat; Bendick, 2000). In terms of this metric, Neighborhood
Stores’ diversity is 70% higher than its industry peers.
11
But where are these African American managers assigned? Is the “powerful
business advantage” cited by the CEO assumed by the company to arise from black store
managers’ presumed ability to generate more profits from stores in black neighborhoods
than white store managers could? That hypothesis led us to create Table One.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INSERT TABLE ONE ABOUT HERE
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
For purposes such as selecting which products to stock on store shelves,
Neighborhood Stores classifies each of its retail establishments by customers’ income
and racial background using categories simplified in Table One. The table documents
that the company extends its “tailoring” of store offerings beyond the merchandise mix to
include the mix of store personnel. Among stores in low-income and moderate-income
predominantly African American neighborhoods, the store manager was African
American 30% to 40% or more of the time. In neighborhoods which were more affluent,
more white, or both, that proportion always remained below 8.2%.
Is the company’s intention in making these assignments to provide retail staff to
whom African American customers can easily relate and with whom they can easily
communicate? Is it to provide store staff with local knowledge of their neighborhoods
and the background, language, or appearance to blend with their residents? If so, then
this intention is not widely fulfilled. On average, Neighborhood Stores’ African
American store managers during 2001-2005 had little in common with residents of the
neighborhoods to which they were disproportionately assigned:
12
The majority of Neighborhood Stores’ African American store managers were
college graduates, while the majority of residents of the lower-income
neighborhoods had only a secondary school education. They did not match in
“social class” terms.
The company’s African American store managers earned an average of $61,801
per year, and many earned $100,000 or more, while household incomes in the
neighborhoods where they were disproportionately assigned averaged under
$40,000. They did not match in income terms.
Only about 5% of Neighborhood Stores’ African American store managers lived
in the same postal zip code as their stores. The vast majority did not match local
residents in terms of daily life experiences or personal networks -- for example,
through having children attending the same schools.
Although residential racial segregation remains strong in many American
communities, it is seldom absolute. As many as 60% of the residents in the
neighborhoods the company labeled “African American” were non-African
Americans, often from other minority groups such as Latinos or Asians. Thus,
African American store managers did not even match many local residents in
terms of race and ethnicity.
Simply put, other than stereotypically assuming that “all minorities are alike,” it is
hard to understand how Neighborhood Stores would assume that disproportionate
assignment of African American managers to these neighborhoods would confer the
“powerful business advantage of diversity” which the CEO trumpeted. Nevertheless,
such thinking can reasonably be inferred from the combination of the assignment patterns
13
documented in Table One and the company’s rationales for valuing diversity stated so
emphatically on its website.
This lack of actual match between African American store managers and their
assigned customers is only half the flaw in such assignment policies. The other half
derives from the false assumption that Neighborhood Stores’ customers are significantly
influenced to patronize their stores by assigning staff of the customers’ own race. A
substantial body of empirical research covering both consumer sales and business-to-
business sales confirms that, in most circumstances, buyers are not particularly concerned
about the racial match between themselves and sales representatives, and sometimes are
even offended by it (Hekman, et al., 2009). Instead, customers report that the key to
sales effectiveness is a sales staff’s ability to understand, communicate with, and develop
trust with them, regardless of how that is achieved (Leonard, Levine, and Joshi, 2004;
Lictenthal and Tellefson, 2001; Sengupta, Krapfel, and Pusateri, 2000). The limited
importance consumers attach to simple race matching has also been documented for
single-dimension matching on other visible demographic characteristics such as gender
(Dwyer, Orlando, and Shepherd, 1998), age (Kang and Hillery, 1998), and ethnicity
(Comer and Nicholls, 2000).
The final irony in the pursuit of business advantage through racial matching is
that the store assignments described in Table One reduce the benefits Neighborhood
Stores derives from diversity in the other two forms in the typical business case. These
two elements both concern utilization of employee talent -- expanding the company’s
choice of job candidates by considering individuals from growing segments of the labor
14
force and enhancing organizational creativity/flexibility by mixing such employees with
employees of other backgrounds.
At Neighborhood Stores, these potential benefits are reduced in more ways than
by limiting the range of stores to which the company assigns African American
managers. They are also limited by the fact that the stores to which these managers are
disproportionately assigned are “career killers” in the sense of tarnishing the performance
records of employees working there and disproportionately exposing them to difficult and
stressful work environments. For example:
Neighborhood Stores’ establishments in lower-income African American
neighborhoods tend to have below-average square footage, which limits their total
sales. Store sales volume is an important factor in the chain’s formula for
computing managers’ bonuses, a major component of managers’ total yearly
earnings. In this formula, each $100,000 reduction in a store’s annual sales
resulted in an average $2,300 lower store manager’s annual bonus.
Stores in lower income neighborhoods tend to have higher rates of customer and
staff theft, and such “inventory shrinkage” is another major factor in the
company’s formula for computing managers’ annual bonuses. Each 1% increase
in inventory shrinkage resulted in an average $7,033 lower manager’s annual
bonus. Simultaneously, assignment to crime-prone stores exposes managers to
more personal danger and stress.
To be promoted to store manager, Neighborhood Stores’ assistant managers must
complete a number of specific training exercises. Assistant managers assigned to
older, smaller, low-income, “high shrink” stores tend to be overworked and
15
therefore have fewer opportunities to complete the required training to become
eligible for promotions.
Selected consequences of such effects on employees’ careers are displayed in
Table Two, which compares four employment outcomes for Neighborhood Stores’ white
and African American managers. According to the table, during 2001-2005, African
American managerial employees on average received lower performance ratings, earned
less, took longer to be promoted, and voluntarily quit the company sooner than their
white counterparts.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INSERT TABLE TWO ABOUT HERE
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Throughout five decades of employment discrimination litigation since the 1960s,
US courts have repeatedly held that “customer preferences” to be served by an employee
of a particular race does not provide a legal justification for employers to match
employees to customers. Some leading federal court cases promulgating this principle
include
Gerdom v. Continental Airlines, 692 F.2d 602, 609 (9
th
Cir., 1982)
(discrimination cannot be justified by customer preferences unrelated to ability to
perform the job); Lam v. University of Hawaii, 40 F.3d 1551, 1560 n. 13 (9
th
Cir. 1992)
(customer preferences based on discrimination does not justify discriminatory
employment practice); Collins v. Kilbort, 143 F.3d 331, 335-336 (7
th
Circ. 1998)
(employer’s discomfort with a black employee interacting with predominantly white
community was sufficient evidence for a jury to find that an employment decision was
based on race); and
Ferrill v. Parker Group, Inc., 168 F.3d 468, 474 (11
th
Circuit 1999)
16
(assigning black employees to black neighborhoods in a get-out-the-vote campaign
violated the employees’ rights). Thus, both the race matching pattern per se and the
earnings and promotion consequences of that race matching illustrated in Table Two
placed Neighborhood Stores in substantial legal jeopardy. In 2005, class action
employment discrimination litigation was initiated against Neighborhood Stores by a
prominent private civil rights law firm. When that occurred, potential economic damages
of many tens of millions of dollars, plus potential loss of customer goodwill from media
coverage of discrimination allegations, led Neighborhood Stores to a rapid litigation
settlement providing substantial compensation to African American employees and major
changes in company employment practices.
Although defendants in such litigation often resent such externally-mandated
changes in their employment practices, they should actually welcome the guidance
toward more appropriate workforce diversity management. Prior to litigation,
Neighborhood Stores was not drawing effectively from the labor pool of African
American potential employees in ways on which the two remaining components of the
typical business case depend:
As reported earlier, the company employed a higher proportion of African
Americans (12.9%) among its in-store managers than do other, comparable
retailers (7.6%). However, that outcome primarily reflected the firm’s aggressive
hiring of African American management trainees. As Table Two reports, these
trainees received lower performance ratings, were promoted more slowly to
responsible positions, experienced greater stress, and earned less than their white
counterparts, and consequently terminated their employment at a higher rate.
17
Thus, the company was losing a large number of entry-level managers before they
were in crucial decision-making positions such as store managers. This
unproductive pattern, which is common in many firms, is often referred to as the
diversity “revolving door” (Thomas, 2005, p. 67; see also Leonard, 2006).
This shortfall in the company’s promotion and retention of African American in-
store managers, in turn, generated an under-representation of African Americans
in key “above-store” leadership positions, such as among regional managers and
at corporate headquarters. In combination with the over-concentration of African
American store managers into districts where a disproportionate number of their
fellow managers were black, this shortfall limited interaction between African
American employees and employees of other backgrounds. They therefore had
fewer opportunities to share their “unique cultures and experiences” and enhance
the company’s flexibility, creativity, and innovation by providing heterogeneity in
company work teams.
IV. Matching Advertising Employees to Target Markets
The previous section discussed a retail chain selling tangible goods to individual
consumers. This section analyzes an industry in which firms providing intangible
services to business customers -- the American advertising industry.
African Americans have worked in advertising since the modern American
advertising industry emerged more than 100 years ago. Yet from that time to the present,
their role in the industry has remained sharply circumscribed and segregated. These
patterns are relevant to the present paper because they reflect industry leaders’
18
assumptions concerning the productive potential of African Americans in their industry.
Whether or not explicitly stated as a business case for diversity, this behavior and its
underlying assumptions constitute an implicit business case.
A recent analysis of the advertising industry estimated the expected representation
of African Americans among managerial and professional employees in the industry
today at 9.7%. Their current actual employment of 5.2% is only 55% -- roughly half --
that expected level. Moreover, this representation is increasing at less than one-tenth of
one percentage point per year, at which rate African American employment will not reach
today’s expected level of 9.7% for another 71 years (Bendick and Egan, 2009, pp. 21,
24, 42).
This persistent under-utilization of African Americans in advertising has occurred
in a period which saw substantial increases in African American managerial and
professional employment in other industries. According to EEO-1 data, in 1975, 2.3% of
managers and professionals in the advertising industry were black, a rate 0.8 percentage
points (one-third) lower than the comparable 3.1% figure for all US industries. Some 31
years later, in 2006, this gap between the advertising industry and the average of all
industries had more than doubled, from 0.8 percentage points to 1.9 percentage points
(Bendick and Egan, 9, pp. 36-37).
Concurrently with these numerical shortfalls of African American employees,
advertising firms persistently segregate and sidetrack those African Americans they do
employ. Among the 8,900 African American managers and professionals in the industry
today, at least 3,500 -- about 40% -- are disproportionately hemmed in behind the “glass
ceilings” or “glass walls” of occupational segregation (Bendick and Egan, 2009, p. 26).
19
Drawing on EEO-1 data and Census data for 2000, Table Three presents proxy
measures for three forms of this segregation.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INSERT TABLE THREE ABOUT HERE
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
The first line of the table reports that, compared to their white peers, African
American advertising managers and professionals disproportionately hold less powerful,
less-prestigious positions within their agencies, such as in media buying, accounting, or
human resources. Conversely, their white peers are disproportionately over-represented
in advertising creation and client relationship roles within their firms. These latter
positions are considered the “heart and soul” of advertising agencies, the “make or break”
functions crucial to agency success (Bendick and Egan 2009, p. 29).
The second line in Table Three reports that African Americans are under-
represented in senior positions within agencies which command high levels of earnings.
The table documents this pattern using race differences in the probability of holding a
position paying $100,000 or more per year. That probability is 11 percentage points
higher for whites than African Americans. Consistent with these findings, substantial
racial differences were documented through a multiple regression analysis of incomes
reported in the 2000 Census by college graduates holding full-time positions in
advertising. According to that analysis, African employees earned 23.3% less than white
colleagues with equal education, work experience, and other qualifications (Bendick and
Egan, 2009, pp. 35-36 and Table A-10). According to the same analysis, women college
graduates in advertising earned 19.6% less than their equally-qualified male colleagues.
20
Such substantial, widespread, and persistent racial differences strongly suggest
that the managers who control hiring and promotions in the advertising industry
consciously discriminate against African Americans and deliberately reserve high-level
positions for people who are demographically and socially like themselves. This
conclusion was reached, for example by the New York City Human Rights Commission
as long ago as 1978, which stated that persistent low levels of representation of African
Americans among advertising industry managers and professionals “…was not simply
the result of neutral forces, but emanated directly from discriminatory practices”
(Bendick and Egan, 2009, p. iii; see also Chambers, 2008).
For the present paper, such broad conclusions are less relevant than the ways in
which this discrimination reflects an assumption that African Americans can be useful in
advertising only in dealing with African American consumers and African American-
associated products. The final line in Table Three reports that African Americans in
advertising tend to work in agencies where their fellow employees are disproportionately
African Americans or other non-whites. Here, the demographic composition of an
advertising agency’s staff is a proxy measure of employee-to-customer matching because
many of these minority-dominated establishments are “ethnic specialty” agencies
targeting black customers, as distinguished from “general market” agencies serving
“mainstream” markets. About 1,500 black advertising professionals and managers are
currently disproportionately employed in such ethnic specialty firms (Bendick and Egan,
2009, p. 12).
Racially-specialized advertising agencies first developed during the second half of
the 19
th
Century, when “Jim Crow” segregation characterized many aspects of American
21
social and economic life (Chambers, 2008; Davis, 2002). When African Americans
tended to own, operate and patronize racially-separate retailers, churches, banks, and
newspapers, advertising messages and advertising communications channels tended to be
separated along the same racial lines. However, the economic potential of the African
American market was temptingly large for “mainstream” American manufacturing and
distribution firms, and as early as the 1920s, these firms were hiring black-owned
advertising agencies to reach African American consumers. Expanding beyond an initial
client base of African American-owned firms (such as Madam C.J. Walker’s pioneering
producer of black-oriented hair care products), these agencies increasingly found work as
conduits to black consumers for “mainstreamfirms such as auto manufacturers, soft
drink bottlers, and banks. The “golden age of black advertising” between 1965 and 1975
reflected the confluence of expanding attention to African American purchasing power
and lack of expertise in this market in “general market” advertising agencies.
Today, some black-targeted agencies remain African-American owned, while
others are subsidiaries of the huge globe-spanning advertising holding companies which
dominate the industry. In either case, their primary work is “ethnic specialist”
assignments such as adapting and delivering to African American consumers advertising
messages developed and controlled by other agencies.
In parallel, those rare African
American professionals or managers employed in creative or client contact positions in
“general market” advertising agencies find themselves repeatedly assigned to products
associated with African American consumers, such as basketball shoes, malt liquor or
fast cars (Bendick and Egan, 2009, pp. 11-13).
22
Underlying such assignments is a key assumption by industry managers making
hiring, promotion, and assignment decisions. In considering white job applicants or
employees, these managers appear willing to credit white individuals with flexible or
generic skills applicable in promoting a range of products to a range of market segments.
For these employees’ African American counterparts, however, managers typically
appear to discount such general skills, instead basing hiring, promotion, and assignment
decisions solely on these employees’ presumed understanding of their own racial group.
In parallel to what we observed in Section III concerning retail store managers,
the actual backgrounds of African American advertising managers and professionals
provide little basis for assuming strong cultural affinities between them and the “average”
African American consumer. African American candidates for professional and
managerial advertising positions consist primarily of college graduates and persons with
“communications and persuasion” skills and work experience -- for example, prior
professional employment in sales, marketing, journalism, editing, or art design (Bendick
and Egan, 2009, tables A-5 and A-6). Such backgrounds make them similar to their
white counterparts and different from the “average” African American consumer, who is
not a college graduate and not a managerial/professional worker. Of course, in that
mismatch, African Americans are no different from their white advertising colleagues,
whose education and income exceeds that of the average white consumer.
Employment decision-makers in advertising tend to ignore the availability of tens
of thousands of African Americans with educational and experience backgrounds
comparable to the whites routinely hired in their industry. Instead, they continue to
claim that the small number of black professionals and managers in advertising today
23
reflects a shortage of “qualified” African Americans (Bendick and Egan, 2009, Chapter
V). Thus, these employers are clearly not prepared to accept the first of the three
propositions in the typical business case for diversity discussed in Section II -- that the
changing demographics of the U.S. labor force means that an increasing proportion of
trained, talented employees are to be found among race/ethnic minorities and other “out
groups.”
Employment decision-makers in advertising seem equally unconvinced about the
third proposition in the typical business case for diversity -- that heterogeneous work
groups are more flexible, creative, and innovative than homogeneous groups. By
employing African American professionals and managers disproportionately in “ethnic
specialist” advertising agencies and their white colleagues disproportionately in “general
market” agencies, they appear to assume that the best ideas for promoting products to
African American customers will emerge from African Americans without input from
white colleagues, and the best ideas for promoting products to whites (and other non-
African Americans) will emerge from white employees working in similar isolation.
In short, in the advertising industry, the guiding mindset is: All blacks know
blacks, and they know nothing else. So long as that assumption remains unchallenged, a
business case for diversity along the lines of Figure One will be interpreted to support
race matching of employees to customers rather than eliminate it, with adverse
consequences for advertising agencies’ business performance and American society’s
striving for equal employment opportunity.
24
V. The “Business Case” for Inclusion, Not Diversity
We are not the first observers to raise concerns about employment practices employers
adopt in seeking the supposed business benefits of a diverse workforce. In pioneering
work more than a decade ago, Thomas and Ely (1996, pp.133-135) described what they
labeled an “access and legitimacy” paradigm for diversity:
Where this paradigm has taken hold, organizations have pushed for access
to -- and legitimacy with -- a more diverse clientele by matching the
demographics of the organization to those of critical consumer or
constituent groups. In some cases,…the paradigm has led to new
professional and managerial opportunities for women and people of
color….But…access-and-legitimacy leaders are too quick to push staff
with niche capabilities into differentiated pigeonholes without trying to
understand what those capabilities really are and how they could be
integrated into the company’s mainstream work….When a business
regards employees’ experience as useful only to gain access to narrow
markets, those employees may feel exploited.
Thomas and Ely recommended that employers instead adopt a “learning and
effectiveness paradigm.” This approach (Thomas and Ely, 1996, pp. 138-151):
…lets the organization internalize differences among employees so that it
learns and grows because of them….Leadership must understand that a
diverse workforce will embody different perspectives and approaches to
work, and must truly value variety of opinion and insight….[While
creating] high standards of performance from everyone,…[effective]
25
leaders…take responsibility for removing the barriers that block
employees from using the full range of their competencies, cultural and
otherwise, explicitly forbid…any kind of dominance and…test their own
assumptions about the competencies of all members of the workforce.
In applying Thomas and Ely’s advice, an important first step is to develop a
business case for diversity that steers employers in the right direction. Figure Two
rewrites the business case in Figure One into a prototype of such a statement. Although
Figure Two retains much of the wording of Figure One, it rearranges and realigns it to
support a profoundly different logic.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INSERT FIGURE TWO ABOUT HERE
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
The first difference in this logic is signaled by the title. While Figure One is a
“business case for diversity,” Figure Two is a “business case for inclusion.” Elsewhere,
we have argued that lack of diversity in an employer’s workforce is best understood not
as a problem in itself but as a symptom of an underlying problem: lack of inclusion in
the workplace’s organizational culture (Bendick and Egan, 2000; Bendick, Egan, and
Miller, 2008; Hulett, Bendick, Thomas, and Moccio, 2008). An inclusive workplace is
one in which all employees are treated fairly and with civility, have equal access to
resources and opportunities, and are able to contribute fully to their employers’ objectives
and thus their own success. Many employers attempt to increase diversity in their
workforce directly -- by simply hiring more “out group” employees -- without
simultaneously eliminating from their workplace cultures employment practices which
26
generated lack of diversity in the first place. This approach, which we label “diversity
without inclusion,” rapidly turns counterproductive, as the race matching illustrated in
Sections III and IV exemplifies.
A business case guiding employers away from “diversity without inclusion”
emphasizes that workforce diversity can be maintained and can function as a business
asset only by creating an inclusive workplace. In this spirit, the opening paragraph of
Figure Two states, “By offering an inclusive workplace, Bubb can attract, retain, and fully
utilize workforce diversity which generates competitive advantage and business
opportunity.”
A second difference between Figure One and Figure Two is that the latter
proactively explains the uses of diversity in a way inconsistent with employee-customer
matching. Figure Two eliminates Figure One’s data on the growth in minority population
and purchasing power to emphasize that inclusion is not directly about penetrating
specific market segments. Figure Two then emphasizes that individual employees are not
reducible to any single demographic characteristic, such as race, but instead are
“culturally complex” bundles of many different backgrounds. Instead of attempting to
predict which aspect of which individual’s background will be relevant to any particular
business challenge, the company needs to assign employees based on their full range of
job-relevant skills and abilities and be open to good ideas from wherever they arise.
A final difference between Figure One and Figure Two is that the latter identifies
“cultural competence” as a key skill for all employees in the complex, diverse, global
business environment described in the statement. Managers dealing with supervisees,
employees dealing with fellow employees, and staff dealing with customers and other
27
stakeholders all need “the behaviors, attitudes, and policies enabling them to work
effectively in a cross-cultural setting” (Egan and Bendick, 2008, p. 391). These skills are
not natural for many individuals (Comer, Nicholls, and Vermillion, 1998; Flaherty and
Pappas, 2000; Lopez and McMillan-Capehart, 2002; McNeilly and Russ, 2000, Marshall,
Stamps, and Moore, 1998). However, they can be taught (Bucher, 2004; Egan and
Bendick, 2008). Seeking to maintain an inclusive workplace, employers need to provide
training in these skills and then reward employees who apply them and sanction
employees who do not.
Providing training in cultural competence is one practical human resource
management practice by which employers can promote inclusion throughout their talent
management systems. Others include establishing transparent, rule-driven, performance-
related criteria to guide hiring, assignments, promotion, and compensation decisions, and
establishing monitoring systems to hold managers accountable for inclusion practices and
diversity outcomes (Bielby, 2008; Bendick, Egan, and Lofhjelm, 2001; Bendick, Egan
and Miller, 2008). Ensuring that employee-customer matching does not dictate employee
work assignments is one important function of these decision-making and monitoring
systems.
The lesson of the contrast between Figures One and Two -- and of this entire
paper -- is simple: A business case for diversity can either promote equal employment
opportunity or its opposite, depending on exactly what the case says and how it is
implemented. To ensure that the correct direction is signaled from the very beginning of
an employer’s diversity management efforts, specialists in diversity and discrimination
matters need to ensure that their companies’ statements of the business case reflect state-
28
of-the-art thinking on workplace inclusion. Strategic leaders in human resource
management and other senior corporate executives need to be critical readers of these
statements and not blindly accept them as unimportant “boilerplate.”
VI. Applying these Lessons Outside the USA
Because workforce diversity management is such a pervasive business practice in the
USA, that nation is the obvious first venue in which the lessons in this paper are relevant.
However, the USA is not the only nation where anti-discrimination efforts are a major
concern, nor the only one in which those efforts are importantly influenced by “business
case” considerations (Economist Intelligence Unit, 2009; Egan and Bendick, 2003).
Situations parallel to the United States are clearest in other industrial nations, such
as Canada and the members of the European Union, where social mores and legal rights
support equal employment opportunity in ways generally parallel to the USA. Similar
issues often arise when multinational corporations headquartered in the USA or operating
in the USA attempt to reconcile their American practices with those the company applies
in the legal and social contexts of other nations around the world.
In all these contexts, the same tendency toward customer matching is likely to
arise. For example, in a recent survey of 546 senior business executives from five
continents, 43% of respondents agreed that “we need to tap new sources of talent to
understand customers better and therefore to increase sales.” As the authors of that study
concluded, “Many companies hire employees from different backgrounds because they
personally represent the taste, sensibilities, and interests of a broad range of consumer
segments” (Economist Intelligence Unit, 2009, p. 16).
29
The US experience reviewed in this paper cautions that, if guided by such false
assumptions, workforce diversity management practices can easily move in the wrong
direction from both a societal and a business point of view. Not only in the USA but
around the world, human resource management strategies need to promote inclusion, not
the “diversity without inclusion” which employee-customer matching represents.
30
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Figure One
CHUBB INSURANCE’S BUSINESS CASE FOR DIVERSITY*
Those who perceive diversity as exclusively a moral imperative or societal goal are missing the
larger point. Workforce diversity needs to be viewed as a competitive advantage and a business
opportunity. That's why Chubb makes diversity a business priority and strives to achieve a fully
inclusive diverse workforce.
Defining Diversity
Diversity is about recognizing, respecting and valuing differences based on ethnicity, gender,
color, age, race, religion, disability, national origin and sexual orientation. It also includes an
infinite range of individual unique characteristics and experiences, such as communication style,
career path, life experience, educational background, geographic location, income level, marital
status, military experience, parental status and other variables that influence personal
perspectives.
These life experiences and personal perspectives make us react and think differently, approach
challenges and solve problems differently, make suggestions and decisions differently, and see
different opportunities. Diversity, then, is also about diversity of thought. And superior business
performance requires tapping into these unique perspectives.
Diverse Workforce
As our U.S. and global customer base becomes steadily more diverse, significant portions of
Chubb's future growth must come from tapping into these diverse markets. If we are to form
lasting business relationships with our customers and become a true global leader in the industry,
we must understand our customers' diverse cultures and decisional processes, not merely their
languages. To do so, we must begin with a diverse workplace.
It is well-proven that diverse, heterogeneous teams promote creativity, innovation and product
development. Only by fully embracing diversity and maximizing the well-being and contributions
of our people can we fully maximize the strength and competitiveness of our company. We must
encourage individuals to reach their full potential, in pursuit of organizational objectives, without
anyone being advantaged or disadvantaged by our differences.
Demographics
Once a largely homogeneous group, the faces of customers, claimants, producers, employees
and suppliers have been transformed into a dynamic mix of people comprised of various races,
cultures and backgrounds. In 2008, “minorities” are roughly one-third of the U.S. Population, by
2042 “minorities” will be the majority.
Clearly, the U.S. population -- and the world's -- is changing dramatically. Forward-looking
companies that recognize and understand the implications of these demographic
shifts accordingly alter their customer focus, employee base and business practices to better
manage the needs of current and future customers and employees.
37
Buying Power
If we disregard the data on changing demographics, we also disregard the substantial growth in
buying power of diverse markets. Not only are these diverse minority groups increasing as a
percentage of the U.S. population, but so too is the buying power they wield.
From 1990 to 2007, minority group market share and purchasing power doubled and in some
cases tripled. By 2012, that buying power will increase by another 30%. This economic clout is
not limited to minorities. Gay and lesbian consumers will control a 6.4% market share, or $835
billion. The present and future monetary power of diverse markets is more apparent each year.
Business Imperative
In order for Chubb to remain competitive for talent and for customers, it is imperative that we
attract and value diverse talent and enable that talent to attract and value diverse customers.
* Downloaded May 7, 2009 from http://www.chubb.com/diversity/chubb4450.html
38
Figure Two
BUBB INSURANCE’S BUSINESS CASE FOR INCLUSION*
Those who perceive inclusion as exclusively a moral imperative or societal goal are missing the
larger point. By offering an inclusive workplace, Bubb can attract, retain, and fully utilize
workforce diversity which generates competitive advantage and business opportunity. That’s why
Bubb makes inclusion a business priority.
Defining Inclusion
Diversity is about recognizing, respecting and valuing differences based on ethnicity, gender,
color, age, race, religion, disability, national origin and sexual orientation. Differences also include
an infinite range of individual unique characteristics and experiences, such as communication
style, career path, life experience, educational background, geographic location, income level,
marital status, military experience, parental status and other variables that influence personal
perspectives.
Bubb seeks to attract and retain a diverse workforce by maintaining a consistently inclusive
workplace – one in which one in which all employees are treated fairly and with civility, have
equal access to resources and opportunities, and are able to contribute fully to Bubb’s objectives
and thus their own success.
Diverse Workforce
Workforce diversity needs to be viewed as a competitive advantage and a business opportunity.
If we are to form lasting business relationships with our customers and become a truly global
leader in the industry, we must understand our customers’ diverse cultures and decisional
processes, not merely their languages. Each of our employees is a culturally complex individual
who brings to us a rich variety of backgrounds and perspectives. We cannot predict which
aspects of which employees will lead to ideas addressing the needs of any particular customer,
but a diverse workforce broadens the pool of perspectives from which we can draw. At Bubb, we
view employees’ differences as valuable assets and never a reason to limit their opportunities.
Our life experiences and personal perspectives make us react and think differently, approach
challenges and solve problems differently, make suggestions and decisions differently, and see
different opportunities. It is well-proven that diverse, heterogeneous teams promote creativity,
innovation and product development. Inclusion is about learning to take advantage of all that
diversity of thought. Superior business performance requires tapping into these unique
perspectives.
To work together with diverse fellow employees requires cultural competence to understand and
relate to individuals from many different backgrounds. These are the same skills we need to
handle the diversity we encounter in our customers, suppliers, and other corporate stakeholders,
form lasting business relationships with our customers and become a true global leader in the
industry.
39
Business Imperative
In order for Bubb to remain competitive for employees and for customers, it is imperative that we
maintain an inclusive workplace which attracts and values diverse talent.
* Because this statement was written by the authors and not Chubb, it is attributed to “Bubb
Insurance.”
40
Table One
Proportion of “Neighborhood Stores Corp.” Retail Establishments with an African
American Manager, by Customer’s Income Level and Race, 2001-2005 *
Customers’ Average Annual Household Income
Predominant Race
of Customers
< $40,000
$40,000 –
$60,000
$60,000 -
$80,000
African American 33.1% 42.1% 6.7%
Other Minorities or Mixed 6.8% 6.6% 8.2%
Whites 2.1% 3.1% 3.5%
*Chi-squared = 52.4, p < .0001.
Table Two
Selected Employment Outcomes for “Neighborhood Stores Corp.”
Store Managers, by Race, 2001-2005
Employment Outcome
African
Americans
Whites
Ratio of
Af. Am.
/White
Proba-
bility
Average Performance Rating 3.4 3.6 .95 < .0001
Average Earnings (Salary + Bonus) $61,023 $68,943 .88 < .0001
Annual Probability of Promotion to
Store Manager
9.6% 14.0% .69 < .0001
Average Years with the Company
Prior to Voluntary Termination
8.4 11.2 .75 .002
41
Table Three
Three Indicators of Occupational Segregation among Managers and
Professionals in the US Advertising Industry, 2000, by Race
Employment Outcome
African
Americans
Whites
Ratio of
White/
Af. Am.
Proba-
bility
% Working in Media Buying or
Administration
41.3% 33.4% .81 < .0001
% Earning < $100,000 per year 98.8% 87.8% .89 .022
% Working in Establishments
< 90% White
20.9% 41.7% .50 < .0001
42
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... When the workplace reflects the marketplace, organisations tend to be better disposed to understand and respond to diverse customer groups (Ely and Thomas, 2001). Clients, on the other hand, would also be more comfortable in dealing with organisations which value diversity (Bendick et al., 2010;Len-R ıos, 1998). ...
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