The arguments for a diversified workforce are clear. But more research is needed to capture the benefits of diversity for organisational performance. Ken Mayhew writes that if diversity is to enhance the performance of organisations, giving agency and voice to all employees is what matters. A key question is how widespread and strong voice and agency actually are in the modern labour market.

I recently joined the Academic Advisory Board of the new ESRC Centre on Diversity and Productivity from Education to Work (DaPEW). It involves researchers at a number of English universities and is run from LSE’s The Inclusion Initiative. As a labour economist, I have spent quite some time over the years thinking and publishing about the UK’s productivity problem, but not, I confess, about the role of diversity. Encouraged to fill this gap in my knowledge, I delved into the literature. The general nature of the argument is clear. Diversity in a workforce brings different perspectives, attitudes, experiences, talents, skills, and values. If appropriately harnessed by the employer, this will bring better strategic thinking, better implementation of strategy, greater flexibility, more imaginative problem solving, and better relationships with customers.

As I searched the literature, there seemed to be a multitude of exhortational and aspirational articles but fewer papers that assembled convincing evidence of precisely how impact on productivity and organisational performance was to be achieved. Furthermore, these papers dealt largely with gender and ethnicity. Clearly there are many other dimensions of diversity. Even with regard to gender and ethnicity there are significant gaps in the evidence – not least because most of it relies on cross section analysis with the attendant problems of attributing causality. This is why the research programme of DaPEW is so important.

Most of the more compelling pieces of evidence that I could find relate to managerial and professional workers. For example, a McKinsey report found that “companies in the top-quartile for gender diversity on executive teams were 21 per cent more likely to outperform on profitability and 27 per cent more likely to have superior value creation,” and that “companies in the top-quartile for ethnic/cultural diversity on executive teams were 33 per cent more likely to have industry-leading profitability.” Similarly, a Boston Consulting Group study, covering eight countries and 1700 companies, found that “increasing the diversity of leadership teams leads to more and better innovation and improved financial performance”. There are some, but fewer, studies of non-professional or non-managerial employees, mainly relating to working in teams.

Whatever the merits of any individual piece of research, it is clear that the presence of a diverse workforce does not, in and of itself, guarantee an improvement in organisational performance or productivity. Indeed, diversity could have just the opposite effect if it leads to tensions between different groups. While it may be that management has to take steps to ensure inclusivity so that particular groups are not the objects of discrimination or hostility, achieving inclusivity is unlikely, on its own, to be enough.

An organisation that encouraged individual task discretion, different approaches to solving a problem or dealing with customers might well benefit from diversity. Put more generally, an organisation needs to give individuals an effective voice; and this should be for all employees, and not just those from identifiable groups.

An individual employee needs to have agency – that is the ability to influence events – whatever the group to which they belong. In the post Second War years in the UK, this agency was often achieved through the membership of an effective trade union. Building on the work of Hirschman on exit, voice, and loyalty, Freeman and Medoff developed the idea of the union providing a collective voice.

Individuals experiencing dissatisfaction, discontent, or frustration with aspects of their working lives could react in several ways. They could live with it, with obvious consequences for their well-being and, in all probability, for the fortunes of the organisations employing them. Or, to use the wonderful phraseology of psychologists, they could attempt to achieve a “dynamic transition from cognitive dissonance to cognitive consonance”. This could be done by adjusting expectations after the fact, so that they match the reality of the situation – “it’s not the job I thought it would be, but I was expecting too much.” Or they could use the “exit mechanism” – they could quit the situation that was causing distress and leave their employer. Or they could stand and argue their corner – that is use the voice mechanism.

Freeman and Medoff argued that the collective voice would be more powerful and effective than the individual voice. And it was the trade union that provided this collective voice. It led them to talk of the “two faces” of unionism. They contrasted this “collective voice – institutional response” with the “monopoly” face of unions. The latter involved a zero-sum game between employer and union – one side wins (for example a wage increase) at the expense of the other. The former could be a non-zero-sum game. A bargain could be struck from which both sides benefit – for example a change in working practices that increases productivity, the gains from which are shared between the organisation and its employees.

In the last four decades, union presence has diminished in the UK and many other countries, and so, therefore, has this means of exercising the voice. What mechanisms have replaced it and what are the implications for harnessing benefits from diversity? In their excellent, recently published textbook, Michael Gold and Chris Smith distinguish between direct participation and representative participation. They list several forms of direct participation: suggestion schemes, newsletters/email; staff surveys; use of company intranet; focus groups; workplace meetings and team briefings; problem-solving groups and quality circles; teamwork and task-based involvement; financial participation. As for representative participation, in addition to collective bargaining they mention: works councils; joint consultative committees; health and safety committees; board-level employee representation.

Mirroring the decline of unions, the incidence of representative participation has declined over the years. At the same time, there has been an increase in the various forms of direct participation. It would be hard to find an organisation that did not have at least one of the items on the list. The key question is how effective they are in giving people agency. It will vary dramatically from organisation to organisation. Much depends on management philosophy and style, work organisation and job design. Agency, for example, is likely to be low on a traditional production line or in a fully scripted call centre. It is probably safe to say that it will be greater for managerial and professional staff, but even here there will be great variability.

A vital distinction emphasised in the literature is the one between anti-discrimination policies and diversity management. With regard to the former, organisations obviously need to comply with legal requirements concerning protected groups – it being illegal to discriminate against anyone because of age, gender reassignment, being married or in a civil partnership, being pregnant or on maternity leave, disability, race including colour, ethnic or national origin, religion or belief, and sex. It is up to the organisation how far it goes beyond compliance, whether through various forms of affirmative action or, where the law allows, positive discrimination. But on its own, this does not necessarily amount to diversity management. At a minimum this involves attempting to create an inclusive environment.

However, as I have indicated, more is needed to capture the benefits of diversity for organisational performance. It involves explicitly understanding and utilising differences in talents, capabilities, and attitudes.  And this is where there could be a clash between this and associating diversity simply with the protected groups. One can think of the problem in terms of the analysis of variance. Take a particular trait. There will be a spectrum – ranging from some employees who possess it in abundance, to others who possess much less. Think of its total variance across all the employees of an organisation and divide the employees into two groups by (say) sex. A proportion of the total variance will be accounted for by the difference between the averages of each group. The rest will represent variance within the two groups. Depending on the trait involved, there will be cases where the greater proportion of the variance will be accounted for by within group differences. In other words, concentrating on differences between the groups misses the bulk of diversity of this trait.

However important it might be to ensure that defined protected groups receive the protection to which they are entitled, if diversity is to enhance the performance of organisations it is essential to take a subtle view of the phenomenon. Giving agency and voice to ALL employees is what matters. A key question is how widespread and strong voice and agency actually are in the modern labour market.

• This blog post represents the views of its authors, not the position of LSE Business Review or the London School of Economics.
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