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4 CHAPTER 2 Introduction: The Case for Diversity The Growing Relevance race, age, sex, ethnicity, and gender to secondary influences of Workplace Diversity such as culture, education, religion, socio-political beliefs, management and communications styles, and a variety of Globalization has changed the organizational fabric of intangible factors that create the mixture in the workplace” companies and industries worldwide. The way businesses (SHRM, 2009). After IBM’s success in its diversity initiatives, operate, create economic value, address customer demands, many companies began viewing the collaboration of cultures, recruit and manage human capital, and contribute civically ideas, and different perspectives as organizational assets. and socially to the communities they represent has completely In any organization, human capital and workforce relation- changed over the last several decades. One significant change ships are the keys to success. As Carr-Ruffino states, “The flow is the recognition of the need for workplace diversity to reflect of information between colleagues, work teams, customers, the miscellany of global, national, and regional markets. As the and suppliers . . . depends on the quality of relationships and Society for Human Resource Management (SHRM) reported, talent in the workplace” (1999). Consequently, workforce “Diversity and inclusion continue to be the next frontier for diversity continues to be seen by businesses as essential to an organization’s competitive advantage” (2009). their competitiveness and a “tool for improving organiza- Industries around the globe recognize that increasing diver- tional performance” (Jayne and Dipboye, 2004, p 410). sity increases both innovation and market share. As early as 1997, 400 business executives at a Conference Board Sympo- Linking Diversity sium agreed that “diversity programs help to ensure the cre- to Organizational Performance ation, management, valuing, and leveraging of a diverse workforce that will lead to organizational effectiveness and Companies that tie workplace diversity to their organiza- sustained competitiveness” (Hart, 1997). Lou Gerstner, for- tional strategic goals and objectives exhibit greater flexibility mer CEO of IBM, was one of the first national leaders to tout and adaptability in fast changing marketplaces than compa- the importance of diversity and to implement a structure that nies that do not. They also attract and retain great talent and, positioned diversity as an area of strategic focus. Gerstner said, therefore, reduce the risk management costs associated with “the success of the program was achieved because the com- turnover, absenteeism, and low productivity. The return pany made diversity a market-based issue” (Thomas, 2004). on investment (ROI) can be seen in business initiatives, poli- “Big Blue,” as IBM was affectionately called, created a philo- cies and procedures that assist with gaining market share, sophical shift in the mindsets of businesses that remains strong expanding customer and client bases, and—ultimately— today. That emphasis on diversity has expanded beyond race increasing sales and profits. and sexual orientation to employee abilities and broad-based The connection between workplace diversity and organiza- tional performance can be direct or indirect. DuPont, for exam- relationship management. ple, learned how one small change could directly translate into As predicted in the landmark study Workforce 2020 (Judy significant profits. After finding that the sales of an anticoagu- and D’Amico, 1997), “rapid technological change, globaliza- lant drug were low in Hispanic markets, a Hispanic manager tion, the demand for skills and education, an aging work- noticed that the drug instructions were not in Spanish. Now the force, and greater ethnic diversification in the labor market educational materials for the drug are translated into 15 lan- have forever redesigned the workplace and marketplace.” guages and bring in millions of dollars in new business. Today’s definition of diversity covers “visible dimensions of

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5 Digh (2005) argues “HR leaders can better measure the Nortel experienced a less direct, but just as persuasive, cor- return on investment of diversity by looking at the following: relation between diversity and performance. Because their average cost of replacing an employee is $55,000, Nortel views • accessing and retaining talent from a worldwide diverse labor Demographics, • pool key to gaining a competitive edge in today’s global work- Organizational culture, • place (Martino, 1999). Accountability, • Positive community relations are another argument for Productivity, • workplace diversity. When employees are proud of their Profitability, • organization for its connections to the community, they are Benchmarking, and • likely to communicate that pride to friends and family. This Other pragmatic measures.” goodwill can lead to a company’s reputation as an “employer of choice” (Richard and Johnson, 2001). Figure 2-1 shows Hubbard’s example of typical intangible Similarly, the shift in purchasing power in the United States variables linked with diversity (2004). attests to the importance of workplace diversity. According to Although many intangible variables are associated with the Selig Center for Economic Growth, the purchasing power diversity results, monetary values can be established. Diversity of minorities in the United States will outpace that of whites return on investment (DROI) is calculated by using the diver- in the next 5 years. In 2009, the center reported the combined sity initiative cost and benefits to get the benefit/cost ratio buying power of African Americans, Hispanics, Asian Amer- (BCR). BCR equals diversity initiatives benefits divided by icans, and Native Americans to be approximately $1.1 trillion diversity initiative costs. This ratio also is referred to as a cost- out of a total of $11.1 trillion (www.terry.uga.edu, 2005). One to-benefit ratio. Specifically, the DROI calculation is the net of the most effective ways of reaching minority communities benefit of the diversity initiative divided by the initiative costs: and markets is to employ representatives of minority groups to sell the company’s story. These representatives can establish DROI% = (net diversity initiative benefits ÷ initiative costs) × 100. trust in their communities because of their common language and experiences. The result of minority outreach can be seen in increased company profits. One also can derive monetary values through the follow- ing steps: Measuring the ROI for Diversity • Identify a unit of measure that represents a unit of Working in the evolving field of human capital metrics, improvement, • business leaders are continuing to explore ways to validate Determine the value of each unit, • diversity initiatives (Gates, 2005). Perhaps because they feel Calculate the change in performance data, • they do not have tangible results to measure, many organiza- Determine an annual amount of the change, and • tions do not collect data on diversity initiatives. In the past, Calculate the total value of the improvement. some organizations have explored climate surveys, cultural audits, employee attitude surveys, focus groups, customer This method is similar to others used to calculate ROI for surveys, and equal employment and affirmative action met- other monetary programs. rics. Performance evaluations, training and education evalu- Major corporations are involved in diversity measure- ations, and incentive assessments also have been used as an ment because of its importance for creating diversity training attempt to measure the ROI of diversity. Some researchers are programs and corporate objectives. Businesses see these calling for metrics outside of these traditional boundaries. methods as ways to validate the success of employee retention, Attitude Survey Data....................................................Employee Transfers Organizational Commitment........................................Customer Satisfaction Survey Data Climate Survey Data....................................................Customer Complaints Employee Complaints..................................................Customer Response Time Grievances...................................................................Teamwork Discrimination Complaints...........................................Cooperation Stress Reduction.........................................................Conflict Employee Turnover.....................................................Decisiveness Source: The Diversity Scorecard: Evaluating the Impact of Diversity on Organizational Performance, 2004. Figure 2-1. Typical intangible variables linked with diversity.

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6 were American Express, IBM, JP Morgan Chase, Merck & Co., satisfaction, and productivity goals. The results are translated Sodexo, Time Warner, Novartis Pharmaceuticals Corpora- into low employee turnover, market gain, market branding, tion, and PricewaterhouseCoopers (Zoppo, 2010). and the applicants’ perceptions of a company’s employer-of- Despite these examples of success, workplace diversity may choice characteristics. In 2004, L’Oréal received the Diversity be suffering, along with other programs, from cutbacks Best Practices Global Leadership Award for the work of Ed resulting from the recent economic decline. Janet Smith, a Bullock, chief diversity officer (Global Cosmetic Industry, consultant specializing in recruiting diverse candidates for 2005). Bullock tracks, monitors, and benchmarks the progress Fortune 500 companies, believes that without a concentrated of the company’s U.S. diversity programs, focusing on areas focus on the recruitment and promotion of minority candi- such as recruitment, retention, supplier relationships, com- dates fewer minorities will find their way to the C-Suite. She munity relationships, and support groups to create a culture states that “For most recruiters or even hiring managers, of inclusion. Similarly, Nextel Communications developed things are relationship based—if you don’t have diverse rela- scorecards to measure employee retention, diversity training, tionships, you can’t hire different types of people” (Castro, and employee satisfaction. The company determined that for 2010). The unprecedented budget cuts of the recession have every dollar spent on diversity training, it realized a $1.63 net negatively impacted the recruitment of minorities. In her case benefit (Kirkpatrick, Phillips, and Phillips, 2003). for diversity, Melissa Castro reported, “In 2009, the unem- ployment rate for African Americans hit 16% and for His- Diversity Recruitment panics 13%, as compared to 9% for whites, according to the Center for American Progress.” Although Fortune 500 companies continue to recruit Smith cites companies such as Marriott International and diverse candidates, diversity at the CEO level (the “C-Suite”) Capital One Financial Corporation as examples of companies is lagging. Blacks and Hispanics face a disproportionate continuing to increase their recruitment, retention, and promo- challenge to employment, specifically in recessionary econo- tion of minorities even during tough times. Xerox also made an mies. Minorities who graduate from Ivy League colleges with investment in diversity, and minorities were able to reach the C- advanced degrees are quickly hired and taken out of the market- Suite as a result of their senior-level experiences there. A. Barry place. Minorities who are looking for someone like them in Rand, for example, a Washington-based African American middle management to emulate and follow will see few minori- salesman with Xerox, became AARP’s CEO in 2009 (Castro, ties in the hierarchies. 2010). Ironically, Rand was passed over for CEO at Xerox, Asian Pacific Americans represent 5% of the U.S. popula- which later hired Ursula Burns, an African American woman. tion; their education level is nearly double that of the general Xerox’s investment in diversity became the subject of a population. Approximately 2.2% held Fortune 100 board Harvard Business Case Review. In a letter to its managers, seats in 2009 (Zoppo, 2010). The Asia Society 2010 survey Xerox presented a rationale for inclusiveness and creating found that Asian Pacific Americans tended to be hired in two opportunities for minorities: “It will also mean the creation primary fields across industries, finance and technology, and of an enormous and affluent market for new products and often Asians become siloed in these occupations. services, and of an equally enormous pool of manpower to The EEOC reports, “of the companies in The Diversity Inc. help meet the critical shortages of manpower predicted for Top 10 Companies for Asian Americans, 13.5% of promo- the future” (Castro, 2010). Harvard found that between 1964 tions in management go to Asians, versus 4.5% of all U.S. and 1974, the percentage of minorities in leadership positions managers.” Statistics for Asian representation were higher for grew from 1% to 6.9%. More importantly, Harvard found the top 10 companies than in national statistics. Boardroom that the percent of revenue grew more than tenfold, from representation in the top 10 companies reached 6% for Asians $318 million to $3.6 billion. versus 1% nationally. Generally, workforces were 9.6% in Today, companies such as the New York Times, pay execu- these companies and new hires were 13.8% versus 5.5% nation- tives to hire women and minorities, despite widespread crit- ally. Asian women represented 11.6% of the workforce and icism of the practice. In a March 18, 2010, speech, Lawrence 14% of new hires compared with 2.5% identified by the EEOC. Watkins stated, “the Compensation Committee of the New CEOs in the top 10 companies were 8.6% Asian compared to York Times retained their discretion to increase or decrease 3.7% identified by the EEOC (Zoppo, 2010). the individual component of the total bonus paid to each The Asia Society survey identified the five best practices that executive by up to 10% based upon the continuing develop- helped Asians reach the C-Suite, as well as how well the sur- ment of a diverse workforce, including the inclusion of veyed companies organized and implemented the programs. diverse candidates in hiring processes and the demonstration The survey cited KPMG as the best company for promoting of personal commitment to diversity through participation in Asians to the C-Suite. Other companies cited for their best diversity-related activities.” practices relative to recruitment and promotion of Asians

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7 Watkins noted that, although the Times is succeeding in its (Flander, 2008). By 1998, that number had increased to 150, efforts to diversify, Google is ranked as the Number 1 com- and by 2003, more than 575 black executives were in Amer- pany in America for minorities, according to Forbes Maga- ica’s workplaces. As a result of the economic recession and zine. Minorities make up 36% of Google’s employee business mergers, that pace has slowed and now stands at 720 population. Watkins believes that, by making a commitment executives (Flander, 2008). to diversity, all companies can duplicate this success. Wesley In 2007, there were seven black CEOs at Fortune 500 com- Poriotis of Wesley, Brown and Bartle (W, B & B) a 4-decade- panies, the most ever, according to Williams. Since then, old executive search firm, echoes this point, “until a CEO three of those have retired, and today, in 2010, four black mandates a balanced slate of candidates for every staffing CEOs head Fortune 500 companies. The numbers for His- engagement, hidden talent pools have little chance to com- panics are even lower. In 2009, Hispanic Magazine sent a sur- pete for unadvertised positions” (www.prnewswire.com, vey to Fortune 500 companies. Only 70 companies reported 2009). data and of those the magazine chose the Top 60 companies Poriotis notes that his own industry is at fault because for Hispanics. Of those 60 companies, 63% reported they did many executive search firms have perpetuated the myth that not have any Hispanics among their 10 highest paid execu- qualified black and Hispanic executives cannot be found. To tives (Flander, 2008). help resolve this issue W, B & B devised “an innovative strate- Minorities still find a glass ceiling when trying to ascend to gic pipelining system external to a corporate client’s succes- the C-Suite. Many minorities occupy staff functions but do sion plan whereby the firm creates a proprietary bank of not have responsibility for profit/loss, which typically catego- qualified diverse executives for positions across multi- rizes a position for the C-Suite. Many experts cite the lack of functions and multi-levels before they open.” The corporate experience in this arena as a primary reason for companies to leaders and talented professionals socialize to simulate the ignore otherwise well-qualified candidates. Without this kind traditional networking way to forge relationships. According of experience early in their careers, the path to the C-Suite to W, B & B, this “informal and confidential ice-breaking becomes more difficult for minority employees. method has helped negate the myths that qualified minorities Hiring practices are another reason for the discouraging don’t exist, they can’t perform like their counterparts, or they statistics regarding workplace diversity. Not having experi- are just not a cultural fit” (www.prnewswire.com, 2009). ence with people of diverse cultures makes it difficult for In the global economy, industries are constantly searching companies to accept candidates who do not mirror their cul- for candidates who can manage communications and exer- ture and values. Many companies do not have any diversity cise leadership qualities across cultures. To climb the corpo- programs or initiatives, and the idea of spending revenue in rate ladder, minorities have always had to shift between two an economic recession for something outside of the normal cultures, the corporate white male culture and that of their box of revenue generating programs is foreign to corporate native culture. Some claim, “this fluid, back and forth move- decisionmakers. ment allows minorities to think outside their cultural norms and more clearly understand how others see the world” Transportation Social (Flander, 2008). and Demographic Trends In conjunction with organizational leaders, HR executives must implement mentoring and succession plans to ensure America’s transportation systems are overly dependent on their workplace cultures welcome inclusion and believe in foreign oil and are strongly affected by a volatile economy, diversity. The CEO and HR executive must make the busi- deteriorating environments, and climate changes. U.S. trans- ness case for diversity in the C-Suite. Stephanie Smith, sen- portation systems have been unable to provide true competi- ior vice president of HR for Kraft North America states, tion to the automobile, despite the growing need for public “HR’s role is to ensure that managers understand that diver- transportation. Public transit agencies are not poised to handle sity should be the equivalent of other revenue generating the increased needs from aging adults, a growing population of ideas” (Flander, 2008). individuals with disabilities, rural populations with limited transportation options, and an increase in transit-dependent ridership. The recognition that public transportation is severely Diversity Statistics for the C-Suite underfunded has not occurred within the general public. These circumstances mean that public transportation has Diversity efforts have progressed since the mid-1980s, at an opportunity to revolutionize America and become an which time less than 40 African Americans were CEOs or increasingly important player in confronting the economic within three levels of that rank at Fortune 500 companies and and demographic challenges of the future. The rise of minor- global equivalents, according to Damon Williams of the ity populations and ridership continues, especially in urban Alexandria, Virginia-based Executive Leadership Council

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8 and mega regions. Transit Vision 2050 reports, “It has been include the fact that 60% of the industry’s workforce at the estimated that by 2050, more than 70% of the nation’s pop- technical and managerial levels is reaching retirement age ulation will be concentrated in 10 extended metropolitan over the next 5 years. Rapidly changing technology, electronic regions” (Federal Transportation Advisory Group, 2010). communications, and new energy-efficient systems are becom- The demand for public transportation services will increase ing pervasive. with each decade. In 2007, America’s transit systems had more Although programs and groups such as Leadership APTA, than 10 billion passenger trips for the first time since 1957. NTI Training, CTAA Training, and the Eno Foundation are all Between 1995 and 2008, public transportation ridership designed to develop transportation’s future leadership, the increased by 38%. Simultaneously, increases in minority pop- reality is that these programs have only touched the surface. ulations occurred throughout the country. In its June 10, 2010, Transit organizations need CEOs who can understand business article “U.S. Minority Population Could be Majority by Mid- goals and translate them for customers. Markets boom and Century Census,” the Huffington Post reported that the minor- bust; however, transportation service is on the rise as a result of ity population was 107.2 million compared to 199.9 million both phenomena, providing service to the transit dependent whites. One in ten counties in America has minority popula- and working poor, assisting with traffic management in areas tions of 50% or greater. By 2050, minority populations will of congestion, and serving as a good alternative to the auto- become the majority in America. mobile by decreasing America’s dependence on oil. With these impending demographic changes, mirror- ing the diversity of their ridership in their managerial ranks Diversity Models becomes a strategic imperative for transit systems. The busi- and Strategic Alignment ness case for diversity has been made in two previous TCRP studies: TCRP Synthesis 46: Diversity Training Initiatives Diversity models help companies tie inclusion strategies to (Simpson, 2003), and TCRP Report 77: Managing Transit’s revenue generation and, therefore, enhance business perform- Workforce in the New Millennium (Davis, 2004). Both studies ance by aligning goals throughout all levels of an organization. cite the need for workplace diversity in transportation and the Using a diversity model, an organization can identify the best importance of CEO advocacy for understanding the link employees, retain them, and—in turn—reap the benefits of between the community’s transit services and the system’s the products and services they produce. employee base. This linkage will strengthen the transporta- When implemented correctly, diversity models engage tion customer base and will develop the regional oversight for employees, positively impact recruitment, and strengthen connectivity between urban, suburban, and rural communi- the knowledge transference within an organization. When ties in the future. an organization is strategically aligned, it performs better. In Service industries are established through a foundation of a 2009 organizational survey where employees were engaged customer and employee relationship management. Trans- and business units aligned, “83% of the companies respond- portation will continue to expand where these relationships ing report outperforming the company median when it came are viewed as important to a system’s profit and loss financial to retention measures, customer loyalty, profitability, turnover, statement. A model for expanding minority leadership in the safety, absenteeism and quality” (Gallup, 2009). transportation industry is an organizational tool that will Harvard Business School looked at characteristics of organ- tighten the gap between the profit/loss ratio and increase rid- izations that are strategically aligned and identified the follow- ership statistics in the future. It is a methodology that will ing attributes: enable transportation organizations to connect diversity to • their business goals. Positive branding, • Low turnover, • Fiscal stewardship, Transportation CEOs • High discretionary effort, • Not only has transportation, like other industries, experi- Effective communication, • enced a decline in C-Suite employees, it has historically strug- Trust/loyalty/security, • gled with workforce development. Over the last 2 years, APTA Labor management unity, • has concentrated on workforce development in concert with Clarity of mission/values, • TRB. Workforce development committees have responded Breakthroughs, • to the challenge of creating avenues for recruiting, retaining, Possibility culture, • and sustaining qualified senior-level employees. Principal High-performance teams, and • drivers of the workforce development crisis in transportation Shared sense of vision.

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9 Harvard identified Southwest Airlines as the Number 1 2003) was that diversity was viewed as having played a major transportation organization with high levels of diversity and role in the governance structures of transit organizations. functional attributes. The strength of Southwest’s diversity This suggests that ensuring a methodology for preparing and model is that it sustains on-time performance, shareholder developing minority CEOs for the next generation of trans- investment, and employee engagement, while providing safe portation leaders is a national transportation imperative. transportation and creating a collective culture that fosters In the past, transit systems were viewed as a vehicle for the support for organizational goals laterally and vertically. The transit dependent. In today’s modern environment of escalat- model of diversity has allowed the airline to continue to pros- ing oil prices, recessionary economies, political uncertainty, per in slow economic times (Harvard School of Business, 2006). and transportation comparators in other countries, the Amer- ican public views public transportation as a mobility choice. It is valued by an increasingly diverse population that includes Conclusion all levels of workers, all classes of people, persons with disabil- ities, and individuals preparing for primary, secondary, and Public transit agencies are proactively addressing the bene- higher education. fits of workplace diversity and the impending talent and lead- Developing a model to increase minority CEO leadership in ership gap. The industry provides a number of avenues for the transportation is not only timely but a touted business neces- development of minority CEOs such as Leadership APTA, sity correlating to the industry’s general ledger. It is perceived Conference of Minority Transportation Officials (COMTO), to be one of the foundations for sustained “livable” communi- NTI, the Eno Foundation, Women’s Transportation Seminar, ties, emerging mega regions, and expanded rural communities. Transit Labor Exchange, and the Transportation Learning Managing diversity begins at the top and is about compre- Center. These initiatives, in conjunction with programs spon- hending that America’s melting pot continues to change with sored by FTA and conducted by TCRP, are continuing to put each generation. CEOs who appreciate diversity and are able the case for diversity at the forefront of the industry. to ascertain the creative advantage that comes with managing Despite the lack of a model, transit systems have invested employee and customer relationships effectively will be suc- in diversity training initiatives and found those to be valuable cessful in expanding the industry points of service to improve in creating diverse workplace cultures and workforce reten- financial resources. tion. One of the key findings in TCRP Synthesis 46 (Simpson,