Businesses with racial equity achieve 58% higher revenues

Companies with a proactive stance on diversity achieve higher creativity, job satisfaction, revenues, finds Henley Business School.
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Businesses that actively confront racism with practical measures usually see an improvement in employee job satisfaction, loyalty, creativity and value.

According to the wide-ranging report (the Equity Effect) of the effects of racism in UK businesses by HR, ethics and organisational specialists, companies that took positive action to achieve equity recorded an average revenue 58% higher than those that did not.

Researchers for Henley Business School at the University of Reading surveyed more than 500 business leaders and 1,000 employees, as well as carrying out qualitative interviews with 22 business leaders and employees from a broad range of industries. Further research was conducted to gather specific business performance and diversity data points from companies listed on the FTSE 350.

Despite revenues being higher in businesses encouraging equity, racial discrimination, said researchers, was still rife within UK business. Black employees were found to be worst off and were more than twice as likely to experience racial discrimination compared with Asians and mixed ethnic minorities (19% as opposed to 9% and 8%).

In terms of how discrimination revealed itself, the leading form cited by ethnic minorities was discrimination in work allocation (41%). Verbal abuse came second (33%), marginally higher than the inappropriate and unfair application of work policies or rules (29%).

Racial inequity was driven primarily by perceived cultural differences (cited by 56% of employees and 52% of business leaders) and a lack of diversity in leadership (33% of employees).

When it comes to barriers to achieving racial equity, 25% of white business leaders identified fears of being accused of positive discrimination and lack of understanding as key barriers. However, minority ethnic business leaders felt a lack of empathy was the most significant barrier (34%). Business leaders of large organisations said denial among the leadership teams was the primary challenge (43%). A significant number of business leaders of all backgrounds feared misusing terminology when discussing race issues.

Businesses which actively confronted inequity and racism with practical measures, said researchers, could expect to see an improvement in their employees’ job satisfaction, loyalty, creativity and, ultimately, value, achieving revenue 58% higher than those which did not.

This finding came from an analysis of a sample of 100 companies from the FTSE 350, looking at their reported market capitalisation, revenue and targeted racial equity measures. For those companies with targeted racial equity measures, their average market capitalisation was £4.3bn higher than the average market capitalisation of companies that did not report targeted equity activities.

Unsurprisingly, white business leaders were seen as significantly less likely to recognise discrimination in their workplace than ethnic minority leaders.

Other priorities were also seen as more important to business leaders with racial equity being rated as the least important challenge to overcome in the next year. Only one in 20 business leaders (7%) considered achieving racial equity the primary challenge to overcome, with 16% rating staff training and 15% rating staff engagement as more important challenges to tackle.

On a positive note, Henley’s team found that British businesses were increasingly supporting ethnic minority employees to bring them to an equal footing to their white counterparts and achieve racial equity; defined as striving to promote fairness by treating people differently depending on their need.

Lead researcher, Dr Naeema Pasha, director of equity, diversity and inclusion at Henley Business School, said: “Racial equity and business success should not be separate conversations. It is critical to any organisation wanting to achieve its aims and ambitions in this challenging world of work. Of course, we all want to say that racism has no place in business, education or society. But the experience of the pandemic and social movements like Black Lives Matter have shown us that we need to shift our organisational, cultural thinking to ensure we work on racial equity –
not just because it is a good thing or seen as worthy, but because it is valuable and essential to organisational success.”

In her foreword to the Equity Effect, Pasah wrote how racial prejudice and discrimination could creep into organisations and create division, “causing feelings of disempowerment, which leads to disengagement – not just from black and ethnic minorities, but people of all races who witness such acts.”

She added: “By letting these issues and negative behaviours fester, an organisation may defocus people and alienate staff, which could then affect productivity and creativity.”

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