Diversity, Inclusion, and Money.

Reading Time: 7 minutes

Does hiring women or people of color affect a tech company’s bottom line?

According to some data, yes.

But so what?

Numbers like these  are uplifting, but they don’t convince companies to change.

So why not?

Let’s talk about two reasons:

  1. We don’t definitively know why diverse leadership improves a company’s financial performance. So we can’t draw a causal link that captures leadership’s attention.
  2. Metrics for overall company financial performance don’t motivate lower level managers and directors. Those lower-level positions, more than the C-Suite, influence the office practices that affect company diversity numbers. But those positions don’t get individual rewards when the whole company does well.

Let’s talk about both of these.

Then we’ll talk about a more focused metric that you can use to argue for, and measure the effectiveness of, inclusion-related efforts at your company.

Bonus: our new metric will help office leadership focus on retention of women and people of color, rather than only lamenting the pipeline problem.


1. We don’t know why diverse leadership improves a company’s financial performance.

We think it happens, in part, because a more diverse group makes folks more willing to surface disagreement without fear of confrontation. As a result, groupthink declines and the group makes better decisions. So more money comes in.

We hope it happens, in part, because diverse leadership helps companies to avoid pitfalls and capitalize on market opportunities to capture parts of the market that a homogeneous leadership might not consider. So more money comes in.

But it could also happen, in part, because women and people of color are held to a higher standard of achievement to get into leadership roles, so their presence brings up the overall calibre of leadership by preselecting for the ultra-exceptional.

It could also happen, in part, because women and people of color get paid less than white men, so having more of them means less money goes out.

But at any rate, we don’t know, so we can’t tell a compelling story that galvanizes leaders to action.

2. Metrics for overall company financial performance don’t motivate managers and directors below the C-suite. 

These leaders get rewarded for the success of their region/office/reports relative to others. They get more stock money if a company does well (if it’s public), but that’s a small incentive compared to the individual recognition, raises, promotions, and resumé fodder they get for outcomes that connect to them specifically rather than the whole company. So numbers that correlate diversity and inclusion efforts with overall profit do not individually motivate the most involved champions and gatekeepers of a company’s diversity and inclusion efforts.

Oh, and one more thing.

There’s the argument that our metric for a company’s success vis-à-vis diversity and inclusion should not be money. What about the experience of working at the company? What about the moral argument for diversity and inclusion?

Yes, those are important.

So let’s find a metric that works with them.

And that’s also specific enough to motivate middle-level leadership.

And that’s also measurable within a given region, office, or group of reports. 

A metric that has to do with retention and turnover.

When top leadership in tech companies look at the lack of women and people of color in their leadership and staff, they typically lament the pipeline: there just aren’t enough qualified people in those groups for them to hire and promote! Why are there so few female senior engineers? Why can’t we find people of color to place in the C-suite?

Once again, let’s look at two reasons:

  1. Women and POC have to be more qualified and experienced than their white male peers to be hired and promoted to the same jobs, so it takes them longer to rise in the ranks.
  2. Women and POC work in an environment that systematically underestimates their contributions and saddles them with responsibilities that are not levied on their peers. Then they leave: either the company or, if they’re really fed up, the industry.

There are fewer senior female engineers, for example, because fewer women who start as software engineers are still software engineers 5 years later, compared to men. They’re leaving tech. And it’s not just because they’re having babies. This study out of MIT discusses some of the reasons that they leave.

How much does it cost your company when someone leaves?

Quite a lot, and a great deal more for specialized jobs than their lower-paying counterparts.  This summary gives us a range that might work for employees of tech companies from about $10,000 (for a $50k/year employee) to $213,000 (for a $100k/year CEO). People in the United States with the title of software engineer make an average annual salary of $79,357. So for that job, we’re looking at a numbers somewhere between $15,800 and $168,000 to hire each employee.

That’s a big range; we don’t have an exact number. But we can look to tech industry veteran Michael Lopp for some guidance. Michael has served as senior manager/director/head/VP of Engineering at Apple, Palantir, Pinterest, and Slack, respectively. He has been around this block, people. And in his blog post called “Shields Down,” he explains what makes him cranky about engineers who leave:

The reason I’m cranky is I’m doing the math. I’m placing a cost on the departure of a wanted human leaving and comparing that cost with whatever usually minor situation existed in the past that led to a shields-down situation. The departure cost is always exponentially higher.

Exponentially, he said, people.

Why so much higher? In order to replace a person who is leaving, a company must source, recruit, screen,  and interview candidates—usually several candidates. That takes time and resources from several different departments. Then the company must negotiate an offer and onboard a new person. Companies must also orient and train that person, and they must deal with lower productivity from that person as the person ramps up. This all adds up to a large expenditure.

Given the immense cost of replacing an employee, retaining employees has a pretty attractive return on investment. But tech companies aren’t retaining employees from underrepresented groups. For example, women leave tech companies at twice the rate that men do, generally after putting in 18-36 months. So that’s your turnaround time to figure out if your company’s retention efforts are paying off.

These are numbers your middle-level leaders can take for their regions, offices, and reports. How many people left last year? What were the demographics of the group that left?

How much money did the company have to spend to replace those people?

Often, young companies or offices that haven’t historically had women or POC on staff won’t realize they have a retention problem until that 18-36 month mark hits. Then people are leaving, and suddenly it’s a disaster.

By making efforts to retain this group early, companies can benefit from the high ROI of high retention—and eventually the profit benefits of promoting women and POC, too. That effort includes diversity and inclusion work.

So let’s think about it this way: if a company’s diversity and inclusion-related efforts succeed in getting one person to choose not to leave each year, how much can the company spend and still break even?

Remember that word Michael Lopp used—exponentially. So, for a left-field, conservative estimate, let’s say $60k.

Many companies with, say, 50 employees would consider $60k a year an exorbitant amount to spend on D&I efforts. Heck, I know companies with thousands of employees that balk at a number like that.

But what’s funny is, if a company were to spend it and retain one developer as a result, they would likely come out ahead, financially.

If you were to bring an argument like this to your directors and middle managers and successfully anchor their brains at a number like $60k, your ask for a $1200 ally skills workshop might not sound so farfetched.

Mind you, they may not take your argument seriously at first (especially if you’re a woman or POC bringing it to them, unfortunately), so you may have to make it several times and bring them around over the course of a few months. And even when they do buy it, they still have to source the money from somewhere. So this isn’t going to be an immediate solution to your company’s dismissal of a comprehensive diversity and inclusion effort.

But maybe, just maybe, it could be effective.

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