Diversity, Equity, and Inclusion

Diversity, Equity, and Inclusion (“DEI”) is a challenging topic for many people. In particular, groups that represent the majority often feel like the “best” candidate is not selected or that a person who “represents” diversity slows a team down.

However, research suggests that diverse teams make better decisions than do homogenous teams.  Moreover, teams with women often perform higher than teams without women.  This growing field of study continues to provide strong examples, objective research, and case studies reinforcing the belief that teams are better when they are diverse.

This is the primary reason that the Nebraska Tech Collaborative, a workforce development initiative of the Aksarben Foundation, is focusing on improving diversity across the state. One of the stated goals of NTC is to increase women in technology by ensuring that 40% of Nebraska new hires in technology are women.  Moreover, the organization is pushing for 20% of new hires to come from under-represented groups.  This blog post is intended to explain the logic behind this goal.

If diversity is better for teams, than it is better for teams, not just in Omaha, but in the entire state.  Too often diversity in this state is a word that is intended to mean representation for representation’s sake – rather than a true focus on improving outcomes by using the best practice. Diversity, Equity, and Inclusion is the best practice for decision making, not just something that is politically correct.

In his excellent book, Range, David Epstein describes two groups of people – hedgehogs and foxes. Hedgehogs are deep experts in a specific field. Foxes are generalists with wide ranging interests.  In Chapter 10, Epstein describes the conventional wisdom that experts are better predictors of events.  In fact, over and over, teams of foxes prove better at predicting events rather than teams of hedgehogs.  Here is an excellent excerpt from page 221-223 of the text:

Hedgehog experts were deep but narrow.  Some had spent their careers studying a single problem.  Like Ehrlich and Simon, they fashioned tidy theories of how the world works through the single lens of their specialty, and then bent every event to fit them.  The hedgehogs according to [Phil] Tetlock, “toil devotedly” within one tradition of their specialty, “and reach for formulaic solutions to ill-defined problems.”  Outcomes did not matter; they were proven right by both successes and failures, and burrowed further into their ideas.  It made them outstanding at predicting the past, but dart-throwing chimps at predicting the future.  The foxes, meanwhile, “draw from an eclectic array of traditions and accept ambiguity and contradiction,” Tetlock wrote.  Where hedgehogs represented narrowness, foxes ranged outside a single discipline or theory and embodied breadth…Not only were the best forecasters foxy as individuals they had qualities that made them particularly effective collaborators – partners in sharing information and discussing predictions.

The key to this passage and to DEI in general is that foxes work in diverse teams that fundamentally view the world broadly and differently.  This diversity of viewpoint is a core means for teams of foxes to make better predictions.  This idea is at the core of why diverse teams – not just of racial diversity or gender diversity – but of thought process and knowledge are critical to better decision making.  Age, race, experience, gender, etc. are mechanisms to build-in different viewpoints that help the team ensure a broad array of information, knowledge, and aptitude towards solving hard problems and making predictions about the future.[1]

In multiple studies by McKinsey and Company[2] from the mid-2010s diverse teams outperformed those that were made up of a single race or gender.  For example, in a 2015 study called Why Diversity Matters, McKinsey found that “companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians.”[3]  Moreover, beyond just racial diversity, gender diversity was also shown to have similar results. “Companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.”[4]  This research strongly suggests that public companies benefit from executive management that is diverse.

Beyond executive management, Boards of Directors benefit from diversity.  This is a particularly acute issue in Nebraska where many Boards overlap membership. In fact this is not unusual, across major Fortune 500 companies, the average number of directorships that a Board member sits on – is three.[5]  The cited paper by Bouwman suggests that this is actually a good thing because it leads to common governance practices being used across boards.  He describes it as a contagion, which to me, also illustrates why it may be a negative as well. 

Personally, I have witnessed multiple board searches where two separate activities occur.  The first is that the Board seeks a person to sit in a certain “role” on the Board.  So, for example, a Board member is

[1] https://www.npr.org/2019/07/08/739502013/the-fox-and-the-hedgehog-a-story-of-triumphs-and-tragedy. To listen to more foxes and hedgehogs with Phil Tetlock, try this podcast episode.

[2] https://hbr.org/2016/11/why-diverse-teams-are-smarter

[3] https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters

[4] https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters

[5] https://web.mit.edu/cbouwman/www/downloads/BouwmanCorpGovContagion.pdf

selected because they have an academic background or an accounting background.  Certainly, there is value associated with finding a person that has a diverse viewpoint, including technical viewpoints that may be necessary.  This is the logic behind the parable of the foxes and hedgehogs. 

But, once a role for a seat is determined, the second issue arises.  Many organizations do not hire a headhunter or professional “fox” hunter. Thus, they no longer are just looking for an academic, accountant, lawyer, etc., they are looking for one that somebody knows.  Often, the language of the discussion goes something like this – “Oh I have worked with X on board Y, he is really good.”  In other words, the fact that the person was selected previously leads to another board opportunity. Also, notice the pronoun “he”, often the beneficiary is a man.  Being intentional about seeking alternative candidates is hard, but the research suggests necessary for optimal Board decision making.

Instead, my firm suggests that companies and non-profits create a list of forty people that would make good advisors, advocates, and directors.  It pushes the onus to the organization to build a relationship or instill engagement with this group of forty people before an ask to formally participate.  It allows long-term vetting and relationship building so that a new board member can start fresh and fast – rather than spend a year learning the ropes of the organization and the dynamics of the Board. It also allows for the long-term intentional creation of diverse networks.

When we work with organizations in building management or board relationships, our recommendations often fall into four categories of diversity:

  1. Social Network.  Many of our clients have relatively insular social networks.  The leadership of firms knows people in their industry and in their geography.  They do not know people in tangential industries, potential innovators, or people from another locality.  For example, a high growth technology business will need to sell across industries (often) and into all geographies.  Thus, by being intentional about relationship building the company benefits from a diverse network, even if they never call upon their list of forty to serve in a formal way.
  2. Racial Diversity. Particularly in venture backed startups and technology companies, it is rare to have racial diversity on one’s team, much less one’s board. But, many companies benefit significantly by building relationships with people of diverse backgrounds.  In Nebraska, the technology companies are particularly homogenous, in other markets this is not necessarily true. So, in addition, to building a more diverse team to help identify with diverse clients, Nebraska teams can benefit from these networks to find diverse leaders and individual contributors.
  3. Expertise. Nebraska lacks expertise in many areas.  One example that regularly presents itself in my work is industrial innovation expertise.  It is not that we have none – but we often lack a specific skill set. For example, we do not have robust venture capital connections. This mechanism may only feed 1% of companies, but when it is necessary, it is critical that timely, efficient connections can be made. Nebraska companies often languish in venture raises because they lack connections to key markets and experts. 
  4. Women.  In Nebraska and most of the Midwest, there is still a significant gap between women and men in key roles across organizations, in leadership roles, in pay and prestige, and on Boards of Directors. So, being intentional about building relationships with women leaders is critical to adding a different viewpoint and voice to Boards of Directors or executive management.

Being intentional about team building includes many elements and intentionality.  Diversity is a critical one that cannot be added at the end of the process.  It must be intentional and baked in throughout the organization, culture, and hiring processes. Diversity, equity, and inclusion is not simply about being politically correct.  When NTC puts forward a desire to have 40% of new hires be women and 20% be under-represented groups, the goal is not just to diversity some teams or places, the goal is to build organizations that win in the global marketplace.  Diverse organizations outperform those that are not diverse.  Thus, building a pipeline of people – both from education and from intentional relationship building – is an essential long-term strategy for Nebraska to build the best possible organizations.