Do LGBT-supportive corporate policies enhance firm performance?

The adoption of policies to protect the lesbian, gay, bisexual and transgender (LGBT*) community from discrimination at work is considered to be a moral imperative for organisations. Research has found that fears of discrimination are linked to negative job attitudes and poorer emotional well-being for LGBT employees, which makes it important for organisations to ensure a safe workplace for all (King & Cortina, 2010).

However, there is also a business imperative to adopt LGBT-supportive policies. While public opinion remains controversial, studies suggest that the adoption of such policies is related to better performance on human resource KPIs such as turnover (Metcalf & Rolfe, 2011).

Do these employment statistics translate into tangible financial outcomes for organisations? A growing body of research suggests that LGBT-supportive policies may be a source of competitive advantage (Bell, Özbilgin, Beauregard, & Sürgevil, 2011). A recent study by Professors Pichler (California State University), Blazovich (University of St. Thomas), Cook (Texas Tech University), Huston (Arizona State University), and Strawser (University of Colorado Denver) examined the linkURL between Corporate Social Responsibility (CSR) theory and the business case for diversity, and found that organisations which operate in a socially responsible way regarding their LGBTI employees experience improved financial outcomes.  

Aim

 The study aimed to test the following hypothesis:

1. Organisations which adopt LGBT-supportive policies perform better in terms of firm value, productivity and profitability compared to non-adopters.
   
   The study also sought to understand the conditions that maximise the benefits of adopting LGBT-supportive policies. Thus, two additional hypotheses were tested:
   
   
2. The benefits of LGBT-supportive policies are more pronounced in organisations which engage in highly skilled, knowledge-based work (measured as engagement in research and development - R&D activities).
   
   
3. The benefits of LGBT-supportive policies are more pronounced in the absence of state level anti-discrimination laws.

Method

This study drew from a US database, which publishes annual CSR ratings of publicly traded companies. The sample consisted of 1,347 publicly traded firms from years 1996 through 2009 with ratings on ‘Gay & Lesbian Policies’. Statistical analyses (hierarchical linear modelling) were conducted to test the effect of LGBT supportive policies on firm financial performance, as influenced by organisational engagement in R&D activities and state anti-discrimination law.

Findings & implications for leaders

The study produced three key findings, all of which broadly supported the predictions:

Finding 1: Organisations that did not engage in R&D activities, but adopted LGBT-supportive policies, performed better in terms of productivity and profitability compared to nonadopters: For organisations without R&D activities, those which had LGBT-supportive policies experienced 2.7% higher average employee productivity and 25% higher average profitability compared to those without LGBT-supportive policies.

Finding 2: Organisations which engaged in R&D activities, and adopted LGBT-supportive policies, performed better in terms of firm value, productivity and profitability compared to non-adopters: For organisations engaging in R&D activities, those which had LGBT-supportive policies experienced 21.1% higher average firm value, 3.4% higher average employee productivity and 12.5% higher average profitability compared to those without LGBT-supportive policies. This indicates that the benefits of LGBT-supportive policies are more pronounced in organisations with R&D activities. 

Finding 3: The benefits of LGBT-supportive policies were muted in states with anti-discrimination laws, but there were benefits for productivity in the absence of state level anti-discrimination laws: The statistical interaction between organisations with LGBT policy and state law was negative and significant (p<.01) for productivity, indicating that the relationship between LGBT-supportive corporate policies and productivity exists only in states that permit LGBT discrimination.

In sum, organisations which adopted policies that encouraged LGBT employees to bring their whole selves to the workplace signalled that they were an employer of choice for ALL employees, thus enhancing firm value, productivity and profitability.

To close, leaders may consider three takeaways with regards to diversity and inclusion corporate policies more broadly:

1.   Adopting diversity and inclusion policies may increase your organisation’s competitive advantage: Research has found that both LGBT and heterosexual consumers are more likely to support businesses with LGBT-supportive policies. Gay couples are also found to have more disposable incomes compared to their heterosexual counterparts and are brand loyal (Deloitte, 2017). It therefore makes good strategic sense for organisations to tap into this market.  

2.   Leverage diversity and inclusion policies to attract potential talent: When CSR practices are tied to the ways in which organisations compete, these practices can be a source of competitive advantage. In particular, for organisations that want to be seen as an employer of choice for technical expertise, LGBT-supportive policies may widen the pool of prospective employees from which companies may hire.

3.   Be the first movers in adopting diversity and inclusion policies:  Voluntary adoption signals a genuine commitment to social responsibility and employee wellbeing. This may increase employee, customer and investor perception of the organisation regardless whether they are LGBT, which may translate into tangible financial gains.

For more information about this article, contact Jim Yeow

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References:

Bell, M. P., Özbilgin, M. F., Beauregard, T. A., & Sürgevil, O. (2011). Voice, silence, and diversity in 21st century organizations: Strategies for inclusion of gay, lesbian, bisexual, and transgender employees. Human Resource Management, 50(1), 131-146. Retrieved from https://eprints.mdx.ac.uk/19110/1/HRM_voice_final%20-%20Word%20version.pdf

Deloitte (2017). Missing out: The business case for customer diversity. Retrieved from: https://www2.deloitte.com/au/en/pages/human-capital/articles/business-case-customer-diversity.html

King, E. B., & Cortina, J. M. (2010). The social and economic imperative of lesbian, gay, bisexual, and transgendered supportive organizational policies. Industrial and Organizational Psychology, 3(1), 69–78. Retrieved from https://www.semanticscholar.org/paper/The-Social-and-Economic-Imperative-of-Lesbian%2C-Gay%2C-King-Corti%C3%B1a/fe04ea6c15405e005f72438f6b4b7675de83d2ba

Metcalf, H., & Rolfe, H. (2011). Barriers to employers in developing lesbian, gay, bisexual and transgender-friendly workplaces. National Institute of Economic and Social Research. Retrieved from https://pdfs.semanticscholar.org/aeb4/6c100cbb85b05d85ec104285ffb6eb5e7236.pdf

*Note: The term ‘LGBT’ was used in the original research paper to refer to Lesbian, Gay, Bisexual and Transgender. The research did not address broader Queer, Intersex or Asexual organisational policies.