Diversity Efficiencies and Synergies in Your Accounting Firm

I just submitted this as my monthly (March) column in AICPA Career Insider. 

Diversity Efficiencies and Synergies in Your Accounting Firm

Mitchell Langbert, Ph.D.

Associate Professor, Brooklyn College

Prejudice, stereotyping and intolerance are patterns out of place in today's commercial society.  In prehistory tribal suspicion of outsiders may have been necessary.  One of the messages of the prisoner's dilemma, a foundation of game theory, is that where information cannot be shared there will be a tendency for players to minimize maximum losses.  During the Ice Age, access to food supply may have been a zero sum game: one tribe's killing and capturing the woolly mammoth meant that other tribes went without supper.  The strategy of minimizing maximum losses may have led to inter-tribal violence and conquest.   The primitive, zero sum mentality carried forward through antiquity and the Middle Ages, when aristocrats' wealth depended on conquest and serfdom.  In assuming that profit is possible only through exploitation of workers, Marxism makes related assumptions.   

In the 18th century the world changed with the Enlightenment's development of science and of a commercial society that depended not on tribe or on ethnicity but on contract.  The win-win, profit maximizing society began to replace the tribal, zero sum society.   One result is the reduction of discrimination over time.  Gary Becker's Economics of Discrimination[i] shows why.  Discrimination inhibits the allocation of human resources to their best uses and so reduces profit.  Justice and rationality coincide, and firms that discriminate pay an economic penalty.

Given the long term progress toward greater rationality we see increasing diversity in the workplace.  The gains have taken two centuries to materialize because of tribalism's atavistic remnants: nationalism, racism, slavery, Imperialism and National Socialism.  But rationality and justice seem to be winning with respect to diversity.  A 2010 Society for Human Resource Management Survey (SHRM) found that 68% of survey respondents have diversity practices.  This was down from 76% in 2005 when the economy was more robust.

The SHRM survey also found that 71% of respondents provide diversity training but only 36% measure its impact.  HR has lagged other business disciplines in adopting metrics and performance measures.  Donald L. Kirkpatrick has argued that any training program should be measured in four ways: participant reaction, behavioral change, on-the-job performance and results. [ii] Any diversity intervention, including training, ought to be evaluated following those steps.   Too often they are not, especially in the most important way: long term results.

Moreover, the diversity training in most firms may fail to penetrate the most sensitive issues.  Only 32% of the respondents to the SHRM survey feel that their organization is diverse at all levels and just 29% say that senior management is committed to workplace diversity.  But a sound diversity program does not require hoopla or even enthusiasm.  The extent of a firm's commitment to diversity ought to depend on the extent to which diversity contributes to efficiency and justice.

In particular, it is possible that an intentional increase in diversity beyond mere non-discrimination with respect to hiring for the firm's specific jobs yields better profitability than a nondiscriminatory but homogenous firm would experience.  If this is true, then reverse discrimination may be justified with respect to specific hiring decisions. 

This claim is grounded in findings about group dynamics.  Solomon Asch, a Swarthmore College psychologist, found that when individual test subjects were placed among a group of seven of Asch's confederates and the group was shown cards with three lines, one of which was shorter than the others, if the seven confederates said that one of the longer lines was the shorter one, then 32% of the test subjects agreed that the longer line was shorter. [iii]  Arguably, diversity can counteract organizational conformity and groupthink.  Diverse backgrounds potentially contribute to one of the chief advantages of group decision making: they broaden the available information pool.  Diversity may have benefits above and beyond the absence of discrimination. These can be called diversity synergies.  Whether diversity synergies exist is an empirical question, a matter of fact.

If there are no diversity synergies, or if firms have already exploited diversity synergies, and if firms have not systematically discriminated, then we would not expect to find consistent results showing that diversity increases productivity or profit.  The reason is that if firms match the best candidates to the best jobs then they are efficient whether or not they are diverse.  If firms have discriminated, then less diversity would be correlated with lower profitability whether or not diversity synergies exist.  If firms have not discriminated then finding that there are returns to diversity would suggest diversity synergies.

In the December 2003 issue of Journal of Management Susan E. Jackson, Aparna Joshi and Niclas L. Erhardt reviewed research on team and organizational diversity.[iv]  They write:

                Our examination of these studies yielded few discernible patterns in the results. For most

                diversity dimensions, the findings across studies were mixed… studies of sex diversity have found its

                effects on performance are sometimes positive… sometimes negative… and sometimes not significant…  

                Findings regarding age diversity were also mixed... the evidence that supports the often-made claim that

              racio-ethnic diversity improves performance is limited.

This finding suggests either that firms have not discriminated or that there are no diversity synergies beyond any that firms already have exploited.  As a result, if chief executives are not focused on diversity issues the reason may be that they have already addressed the problem.

At the same time, firms must emphasize diversity.  In their textbook on human resources, Managing Human Resources 10th Edition, Susan E.Jackson, Randall S. Schuler and Steve Werner argue that there are three kinds of justice, distributive, procedural and interactional, and all three are relevant to diversity. [v] Employees who feel mistreated are likely to retaliate or become demotivated.  Therefore, even if equity is a matter of perception a sound diversity program is essential to human resource management.  

Despite the considerable gains that have been made, individuals still often stereotype and prejudge others. We can all stand to eliminate biases and prejudices.  In establishing organizational values, top management's commitment to just dealing is essential. This includes explicit, senior level commitments to diversity and inclusion. 

Two good approaches are mentoring and training. Mentoring programs can facilitate the promotion of employees who belong to groups that have been excluded from higher level jobs.   As well, diversity can be viewed as a broadening learning experience.  For example, encouraging support for employees who celebrate different holidays and learning about others' cultures and religions can be enjoyable learning experiences that build bonds among employees.

In short, progress with respect to diversity has been made.  The issue will not disappear, but rational strategic thinking, economic analysis and program evaluation should take precedence over slogans and clichés. 

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[i] Gary S. Becker. The Economics of Discrimination. Chicago: University of Chicago Press, 1957.

[ii] Donald L. Kirkpatrick. Evaluating Training Programs Fourth Edition. San Francisco: Berrett-Koehler Publishers,, 2006.

[iii]Solomon E. Asch, S. E. Studies of independence and conformity: A minority of one against a unanimous majority. Psychological Monographs, 70 (416), 1956.

[iv] Susan E. Jackson, Aparna Joshi and NIclas L. Erhardt. "Recent Research on Team and Organizational Diversity: SWOT Analysis and Implications."  Journal of Management 2003:29: 801-830.

[v]Susan E. Jackson, Randall S. Schuler, Steve Werner. Managing Human Resources. Mason, Ohio: South-Western Cengage Learning, 2009.