Reading the CEO's Mind on Diversity

CEOs have powerful leverage to drive organizational change around diversity and inclusion—if they choose to use it. So far, it has been a mixed bag. Even for leaders out front on the issue, it’s a challenge to convert good intentions to new realities in offices and on shop floors. Too often, responses are short term and reactive to explosive events rather than long term and systemic.

Following these trends closely is Eddy Ng, Professor of Equity and Inclusion at Smith School of Business. Ng has researched how CEOs signal their priorities and mobilize staff to implement diversity management. In this conversation with Smith Business Insight, he discusses what he has learned. 

On issues relating to diversity and inclusion, there seems to be a disconnect between words coming out of the C-suite and actions within organizations. What explains this disconnect?

In organizations, the people charged with implementing diversity, or any HR policy, are managers, not senior executives. But CEOs are important for substantive and symbolic reasons. They set the corporate agenda, they devote time and resources. At the CEO level, they hear far more noise from the environment. They can’t deal with everything, so they classify issues into opportunities and threats. Things that are not opportunities or threats, they ignore.

Managers have a lot of discretion on whether and how to implement organizational policies and practices. They may hear their CEO say something [about diversity] but conclude that the CEO didn’t really mean it, that public affairs wrote the script. Or they can say, Wait, the CEO is taking this seriously, and we have to take it seriously as well. Managers have a lot on their plate; they pick and choose what’s important.

Our study looked at what CEOs say versus what they do. We surveyed their direct reports—VPs and directors—and asked them to assess their CEOs’ commitment to diversity. Not just what they hear but what they see the CEOs do. And then we studied the outcomes—the amount of diversity policies and practices being implemented.

We found that when HR managers perceived the CEOs to be committed to concrete actions in workplace diversity, it was a stronger predictor of implementation of diversity initiatives. What the CEO says is important, but HR managers have to perceive that the CEO is serious before they implement any of those policies. And CEOs must sustain that effort for HR managers to continue to be committed to diversity. 

So CEOs have to buy into the value of diversity or be really good actors.

Some believe in workplace diversity and some don’t. But for CEOs who don’t believe in the business case for diversity, our study found that if they have strong moral values, which can come from their religion or other places, they are much more likely to display pro-diversity behaviour.

The other part is that younger CEOs may feel they have to prove themselves, so they’re more focused on bottom-line issues. More established CEOs have proven themselves to the board and shareholders, and that’s when their legacy becomes important. There was a study, for example, that found CEOs with daughters tended to act in a much more socially responsible manner. It’s not so much having offspring that matters. It’s more about thinking about the future and making sure their children have equal opportunities. This type of thinking can act as a potential moderator when the belief in the business case for diversity is weak. 

How can CEOs signal they are serious about diversity and inclusion in a way that compels managers to actually follow through?

The only thing that really catches people’s attention is when you hold them accountable, when job performance and compensation are tied to diversity goals. Otherwise, everything is on a best-effort basis.

The most common argument we hear is that there aren’t qualified candidates, or that there’s no one in the pipeline. Managers absolve themselves: Well, we advertised. We hired consulting firms to help us but unfortunately couldn’t find anyone. When their year-end merit bonus is tied to diversity goals, managers expend the effort to make sure those goals are met.

If it’s good to tie managers’ compensation to diversity-related goals, why don’t boards do the same for executive compensation?  

Fair comment, and a lot of boards are starting to do that. But we also have a problem of interlocking boards, where members are CEOs or senior executives from other corporations. It’s a very clubby community. They hang out at the National Club. They avoid these issues because—guess what?—they’re difficult to achieve.

Boards are still generally very white and very male, but there’s institutional and legislative pressure for greater diversity. As we gain a critical mass on boards, it will improve. What’s that critical mass? Not one or two; that’s tokenism. Some studies suggest the magic number is three or four women or other underrepresented groups on the board. That’s when you have greater legitimacy. 

Do you sense a greater willingness from senior executives to take the lead on this issue? 

Historically, diversity never really sat within the umbrella of corporate social responsibility (CSR). When we talked about CSR, it was about safety standards, environmental records, child labour. Now, diversity is part of that rubric. Still, very few Canadian organizations issue a social impact or community report. And it concerns me because diversity and inclusion is still instrumental. Organizations like to put diverse faces on the cover of annual reports, but what does that mean? 

What’s really critical is political leadership. I remember Paul Martin, who was prime minister for a short time, tried to make an impact on Indigenous issues. Had he been in office longer, we would have seen better outcomes. All of us care, but not many of us can have a big impact. To be effective you need resources. Who has those resources? The government and multinationals. They’re the most critical groups.