Should Diversity Pay the Price in an Unstable Economy?

By Rebecca R. Hastings, SPHR January 2, 2009

An unsettled economic climate might cause some organizations to eye their diversity initiatives for cost-saving opportunities. A bit of belt-tightening is natural, but experts say it’s important not to cut back too much on employee-focused efforts when an organization needs to do more with less.

“I’ve been doing this for 25 years and I’ve never seen an economic downturn yet that hasn’t reduced some investment in external resources for diversity,” says Howard Ross, founder and chief learning officer for Cook Ross Inc. For example, he says, people ask how they can justify fees for consultants when they have to lay people off.

But Ross says economic challenges are a bad time to scale back on diversity and inclusion efforts. “In times of stress our tendency is to cut back on people-oriented services in favor of revenue generating activities,” he says. “But we shouldn’t be so shortsighted.”

“Its amazing how some diversity initiatives are so important during good economic times but drop off during bad times,” says Frank J. McCloskey, vice president of diversity for Georgia Power. He says he knows of many diversity professionals whose organizations have cut diversity staff or reorganized to minimize the diversity function.

This is where the rubber meets the road, according to McCloskey.

“This is the time—during the next 18 months—when we are all going to have to take an honest look at our diversity initiatives,” McCloskey told SHRM Online. “Are they built to last, or are they just nice, but not really required?”

“It’s a true sign of the commitment of the organization [to diversity and inclusion] when the economy starts to take a dip,” says Doug Harris, owner of The Kaleidoscope Group, a Chicago-based diversity consulting firm. “Some organizations will just stop the process entirely because they’ve seen it as an add-on. Others will maintain the commitment in some way and keep some things going in order to be seen as doing something.”

Budget Basics

“Organizations that are doing well understand that diversity and inclusion enables them to meet their business goals,” says Erika Walker, vice president and senior engagement leader at The Kaleidoscope Group. “Because of that, it’s a corporate or centralized budget item—just like anything else.”

Walker says funds might be designated for things such as:

  • Visioning/strategic planning.
  • Surveys, focus groups and one-on-one interviews to assess how included employees feel.
  • A review of HR practices to see how they align with diversity goals.
  • The development of a communication strategy and accompanying products like posters, brochures and web sites.
  • Basic awareness and skills training.
  • Diversity-related celebrations.
  • Executive education.

The cost of diversity activities that meet the needs of the organization as a whole, such as affinity groups and diversity councils, might be folded into a centralized budget under an office of diversity or human resources, Walker says, while other costs, such as training for marketing staff to understand how culture impacts customer behavior, might be included in department budgets.

Diversity expenditures at the law firm Nixon Peabody LLP are centralized in a diversity initiative budget, according to Elizabeth D. Moore, partner and co-chair of the diversity action committee at the firm’s New York City office. The committee is required to submit a diversity initiative business plan—similar to other business plans used by the firm—describing the funding that will be needed.

The economic impact on the firm’s budget has been “fairly minimal,” Moore told SHRM Online, and has taken the form of reduced travel and conference participation. But funding for core activities, such as affinity groups, recruiting events and marketing of the initiative, has continued, she said.

“All organizations have to keep their eyes on the ball and recruit, retain and address the increasingly global world,” Moore says. It’s not the amount that is spent on diversity that is the issue, she says, it’s whether the diversity activities support the organization’s ability to compete.

At Georgia Power the overall budget for diversity is centralized, McCloskey says, but the cost of training individuals is assigned to departments. “That helps institutionalize how we develop people in this company,” he says, and is one reason why his diversity initiative had not been affected by the economic downturn at the time of this writing. “We are being asked to closely monitor our travel expenses,” he said, “But that’s true for everybody in the company, not just diversity.”

SHRM Data Reveal Some Reductions

Nearly half (46 percent) of respondents to an Oct. 21, 2008, Society for Human Resource Management (SHRM) poll on discretionary HR spending said their budgets had decreased over the previous 12 months. Spending on morale and team building activities was reduced by 57 percent of respondents, and 39 percent said they had cut spending on training not directly related to the core business, such as anti-harassment and diversity training.

One in 10 respondents said they had decreased spending on recruitment initiatives targeted at increasing the diversity of their workforce.

When asked to project spending cuts, respondents said cuts would most likely occur in the areas of morale and team building (reported by 60 percent), professional development (48 percent), and training on topics such as harassment and diversity (42 percent).

Twelve percent predicted that diversity-related recruitment efforts would be cut.

Three-quarters of the 452 HR professionals responding to the SHRM poll work for organizations with less than 500 employees, which are less likely to have well-developed diversity initiatives.

Ways to Cut Back

“When things get tight it seems like development gets cut right away,” Walker told SHRM Online. “But if we’re in this position, then doing things the way we’ve always done them doesn’t seem like the smartest thing to do.

“If there’s any time when we need development and innovation it’s now,” Walker says.

But that doesn’t mean plans and budgets can’t be adjusted to reflect reductions in revenue.

Walker says organizations are most likely to allocate funds for services and tools that address specific problems in an organization and help them meet specific diversity-related goals. For example, she says, an organization might target its training efforts on high-impact groups—those who will get more business, drive costs down, increase engagement and minimize the risk of employee relations problems, she says, such as marketing, customer service, sales and human resources.

“People are going to be more discerning and will look to get more for less,” Ross says. Companies might be less likely to bring in outside providers, he says, and might reduce the amount of time employees will be allowed to take off to attend training and events.

Harris, who has spent nearly two decades in the diversity profession, says some organizations will use such downturns as an opportunity to build internal capacity. “You may not have the dollars to spend on external consulting, but you can build the team internally by having HR and managers do things,” he says.

Walker says some organizations are choosing to delay their plans: “Things that were to happen this year have been postponed until early next year.”

Silver Lining

A shaky economic environment might feel uncomfortable, but it can have a positive impact, according to Walker: “It will force us all to get really serious, succinct and focused on how diversity and inclusion enables us to reach goals.

“I think some organizations can articulate the business case for diversity but they haven’t really married their head and heart,” she adds. “This economy is going to force a different kind of conversation.”

When times get tight, Harris says, employees might let their fears get the best of them: “During those times it’s even more important for them to feel valued and feel important.”

This is particularly crucial when it comes to top talent, he says. “If they feel the organization is not committed to diversity, those are the people you are more likely to lose.”

Georgia Power wants every employee to feel valued, respected and productive in good times and bad, McCloskey said. But if there are issues of mistrust and fear during good times, they are compounded during tough times, McCloskey says.

During times of crisis there is a natural tendency for managers to just go out and do things and forget about the people, McCloskey says. He suggests that managers devote more time getting closer to employees. For example, he suggests that they ask themselves these questions:

  • Do I have a trusting relationship with those who report to me—from their perspective?
  • Am I doing a good job of giving the reasons why I make certain decisions?
  • If the person doesn’t understand the why, am I able to manage conflict?
  • Am I able to give and receive performance and career feedback?

“We are trying to build capacity for dealing with a more complex culture and workforce,” McCloskey says. “Our belief is that you need to teach managers to get business results in ways that were not critically important in the past, such as through collaboration and partnership.”

Harris suggests that companies emphasize the role employees have in helping an organization survive economic changes “rather than having them sit on the sidelines waiting to see what the company will do.”

As for 2009, Harris predicts that many organizations will tighten diversity budgets and be more strategic about their efforts. Companies might scrutinize the qualifications of diversity consultants to be sure that they have the skills the company needs, he says.

Walker’s outlook for the future is optimistic: “I think around March people will start spending again.”

In the meantime, she offers this advice: “Don’t look at what you budgeted last year and just cut it,” she says. “If it means being creative about how to do it or cutting something, that’s fine. But this is not something you can just cut without real analysis around what you’re going to do this year and why.”

Rebecca R. Hastings, SPHR, is online editor/manager for SHRM.

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