Four approaches to accounting for diversity in global organisations

Case studies

Four approaches to accounting for diversity in global organisations

Global research, June 2015

Measuring the impacts of diversity is a key step in securing organisational commitment to diversity. While there is an expanse of literature focusing on the impact of diversity on shareholders and stakeholders, there is much to be gained from also considering the impact of diversity on regulatory and global value chain outcomes.

Current academic literature and practices in global organisations suggest that shareholder and stakeholder outcomes continue to dominate the conversation when it comes to building a business case for diversity management.  An additional focus on the regulatory context and the impact of diversity on global value chains has the capacity to provide a more well-rounded view of the business case, and one relevant to both local and global organisations.  A well rounded business case not only assists in accessing organisational funding to address diversity, it can help to identify structural inequalities beyond the workplace. 

The research of Professor Mustafa Ozbilgin (Brunei University), Dr Ahu Tatli and Gulce Ipek (Queen Mary University of London) and Mohammad Sameer (University of Bedfordshire) explores four distinct approaches that are used to account for diversity outcomes; shareholder, stakeholder, regulation and the global value chain.  

Shareholder accounting refers to the measurable relationship between workplace diversity and profit/return on investment.  Stakeholder impact refers to the relationship between diversity and people (current and future employees, consumers, the community, suppliers), profit (shareholder value) and planet (environmental impact).  A regulatory accounting focus attends to both voluntary and coercive measures (peer pressure, legislation) and brings in notions of fairness and structural inequality to diversity outcomes.  The global value chain considers local approaches to diversity against global or universal aspirations of equality.

Published in the journal of Critical Perspectives on Accounting, the authors emphasise the need to move from a narrow framing of diversity’s impact (based around shareholder and stakeholder considerations) towards a more comprehensive framework which also includes regulation and the global value chain if one is to truly “account” for diversity.

Aim
The research aims to explore how organisations measure diversity in order to pinpoint diversity interventions and access organisational funding. 

The authors hypothesised that organisations account for diversity narrowly, and a broader understanding (beyond shareholder and stakeholder interests) to include regulatory pressures and the global value change would more appropriately “account” for diversity outcomes and thus access organisational funding to address structural inequality.

Method
The authors conducted semi-structured interviews with heads of diversity or finance and accounting leaders in 22 globally significant organisations. The interviews were designed to elicit comprehensive evidence on how their organisation account for diversity outcomes.

Findings
Findings were grouped into the four distinct approaches to accounting, the effectiveness of which were considered in terms of accessing organisational funding and addressing structural inequalities.

Shareholder impact

This approach considers the impact of workforce diversity on shareholder value, including profitability and return on investment. It was observed amongst the majority of interviewees that their organisations use this measure to achieve buy-in for diversity management. Some interviewees observed the difficulties in identifying causal links between profit and a more diverse workplace. This may be because there are too many factors that account for and impact the performance of organisations. For example, one interviewee reported that it would be difficult to prove that an increase in return would have been brought about by having an equally balanced ratio of men and women in the workforce.

Presenting a business case for diversity with only narrow reference to shareholder impact leaves diversity and finance managers open to challenge, and the authors noted that the shareholder case for diversity is usually coupled with a stakeholder approach. 

Stakeholder approach

The stakeholder approach focuses on how workforce diversity can impact an organisation’s employees, consumers, suppliers and the general public.  Interviewees reported this approach allowed diversity in the workplace to be driven by a desire to develop a positive reputation amongst the community that it serves.

However, the authors argue that this approach does not challenge structures of power and privilege in the workplace, where a workforce comprises groups of people that maintain their domination (and therefore have privilege) over others. One interviewee illustrates how this can manifest;

 “…in our workforce here we really don’t have anybody that has any noted disabilities. In [country name withheld]… it’s very difficult for people with disabilities to get into colleges and universities just because of economic opportunities. And as a result of that, we don’t have many people in the workforce with any notable disability…”

The authors found that accounting for diversity in terms of stakeholders may miss the underlying issues of entrenched forms of inequality, unfairness and discrimination that may be present in the community the organisation seeks to serve.

Regulatory context

This approach measures how market, industry, social and legal regulations (i.e. both coercive and voluntary regulation) can impact notions of fairness, legitimacy and compliance.  Some interviewees noted that it was difficult for their organisations to achieve buy-in for the development of diversity management policies in the absence of strong regulations, and this absence meant that they focussed on shareholder and stakeholder impacts. 

Other organisations reported using compliance with regulations and social norms as a way to measure the impact of their diversity programs and drive diversity management. For example, one interviewee supported the use of quotas to compel decision makers to view deserving candidates who had been previously overlooked. It was also noted that using the regulatory approach forced organisations to look at issues such as gender pay discrimination or award wages.

Accounting for diversity through a regulatory lens can limit the value of diversity management given the narrowness of the regulatory focus (eg specific demographic groups) and this approach has its limitations where the use of national or local regulations are inconsistent across countries. Global value chain considerations may address these shortfalls.

Global value chain

Accounting for diversity in terms of an organisation’s global value chain helps to bring an international dimension to the discussion, drawing links between workforce diversity and organisational performance beyond the limits of a nation state. This approach helps organisations to situate their economic performance against the diversity of their whole value chain (eg manufacture, supply, distribution), and the elements that are within their direct and indirect control.  In this way, focussing on the global value chain highlights the impact of country based inequities on global performance. 

Taking a transnational lens to organisational practices, some interviewees discussed their adoption of universal standards and values, even when those conflicted with the espoused beliefs of a region. For example one organisation had a number of female managers in their Saudi practice and actively promoted men and women to present together on the same platform.

Focussing on the global value chain enables diversity managers to rebuff the effect of local environments which have narrow diversity regulations or stakeholder expectations.  Notwithstanding its promise, the authors found that few organisations accounted for the impact of diversity programmes by reference to the global value chain, with most stymied by the focus on local issues rather than transnational fairness.

Implications
It has become clear that the social, cultural, political and economic context plays a critical role in how an organisation measures the impact of workplace diversity on organisational outcomes. The authors have tried to take a new approach to “accounting” for diversity outcomes, broadening it from traditional approaches which focus on shareholder and stakeholder value to incorporate regulatory compliance and the global value chain.  In this way, the authors commend a more holistic analysis of workplace diversity drivers and outcomes, with a view to garnering more of the organisational budget for diversity management.

To read the full article, see O¨zbilgin, M., Tatli, A., Ipek, G and Sameer, M., (2015) Four approaches to accounting for diversity in global organisations.Critical Perspectives in Accounting Article in press: http://dx.doi.org/10.1016/j.cpa.2015.05.006

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