It is with no little trepidation that I wade into this potentially explosive subject during the early innings of Trump II. TL;DR:  It remains in the long-run interest of companies to foster a talented and diverse workforce.

I have long believed that there are two principal reasons to support a diverse workforce. First, it is the the right ethical thing to do in the societal context in which most companies operate.  Second, it makes fundamental business sense.

Since many may disagree with my belief in what business ethics require, and individual attitudes vary over time and place, for the rest of this post I will limit my arguments in favor of diversity to the core business case.

Let’s start by considering the case of a typical Fortune 500 publicly traded corporation. In his oft-cited 1970 article on the role of the corporation, the Nobel laureate, free-market champion,   Milton Friedman, argued:  “[T]here is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits…”  See  Milton Friedman on the Social Responsibilities of the Corporation.

Even Friedman explicitly recognized in this article that there could be business contexts in which it makes sense to take into account community or similar factors (“…that may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects”).  Friedman was adamant that these were in fact profit motives and not some socialist “subversive doctrine.” 

I agree with Friedman that there is often a strong,  purely profit-advancing reason for company leaders to advance seemingly social responsibility goals, including diversity.  Where I may differ is in the length of the relevant profit measuring period. This often arises in the activist context where a given investor argues in favor of drastic cost cuts or restructuring moves that may boost the short-term profitability of the corporation at the cost of long-term shareholder value.  Thus, supporting local community charities, investing to reduce polluting discharges and, as I argue below, attracting and retaining a diverse workforce are core “Friedman-friendly” profit goals for companies that are “built to last.”  (See Collins, J. C., & Porras, J. I. (1994) Built to Last)

Now I turn to the economic case for diversity.  If I as the leader of a public company want to increase my share price I need to care about increasing the profits of my enterprise.  In the short-run, I could probably do this by reducing costs, but the market is smart and understands that cost cuts are not infinitely repeatable (“you can’t cut your way to greatness”).  This is why revenue growth, and repeatable organic revenue growth, attracts a higher multiple. This in turn requires delighting customers, anticipating their needs and developing and scaling innovative products and services.

As much as I would like to believe that a company full of white, balding 65-year old men like me will deliver the required innovation, I know first hand that a motivated staff who come from and represent different communities, exhibit different skin colors, pray to different gods (or none at all), identify as different genders and respect the difference of others, produce the best business results.

At this critical moment in US history, it is understandable that many companies will want to lower their social responsibility profile and not “lead with their chins.” Nonetheless, just quietly continue to go about your business of maximizing long-term profits by attracting the best, diverse talent to your company.

Originally posted on Substack at https://open.substack.com/pub/tomglocer/p/diversity-is-not-dead