Tuesday, April 15, 2008

News: No Simple Business Case for Equal Opportunities

A report published last week by the Department of Work and Pensions has poured cold water on one of the most popular arguments for promoting equality at work.

The Business Case for Equal Opportunities: An Econometric Investigation” was researched and prepared for the DWP by a team at the National Institute of Economic and Social Research, and is based on original data from the 2004 Workplace Employment Relations Survey.

The report concludes that whilst there are some statistically significant relationships between subjective business performance and Equal Opportunities Policies, these are unlikely to be cause and effect related.

In other words, it’s not possible to say that better business performance, where is occurs, is a definite result of applying Equal Opportunities Policies.

The researchers also say that the evidence in the data for either a large or widespread impact of such policies – good or bad – is not strong.

Again, in other words, there’s no evidence to suggest that Equal Opportunities policy has a bad effect on business, but there’s no obvious case that it has a positive effect either.

Public bodies in Britain now have a significant raft of responsibilities in terms of reviewing policies and overhauling services to be more Equality focussed. This is especially the case in the areas covered by the three public sector equality duties – gender, race and disability. 

Government has so far steered clear of imposing the same kind of statutory responsibilities on private sector employers and providers.

Private business representatives have always said such provisions would be too expensive or onerous. The Government has instead focussed on indirect encouragement – placing its’ faith in the power of public sector procurement to encourage private companies to voluntarily adopt Equal Opportunities approaches.

It’s possible that DWP hoped that funding this kind of research might help sweeten the pill. The value of cultivating workplace diversity has long been justified through this kind of business case approach. It’s been loosely inferred that Equal Opportunities would have the same effect.

The results of the study don’t say that Equal Opportunities cost profits, or that such policies have any other kind of negative effect. They just make the point that there’s no statistical case, in the data they studied, to claim a definite cause and effect benefit.

The researchers make the point that the relationships are extremely complicated. They cite four main factors:

Firstly, they say that policies and practices vary in the degree to which they are implemented and are able to affect equality of opportunity. In turn, they say, this would affect the extent to which they might affect business performance.

Secondly, they acknowledge that policies and practices incur costs, as well as benefits. This means that the net benefit to an organisation may be positive or negative, depending on the particular Equal Opportunities practice, the organisation’s characteristics, and its circumstances. It could be good for one company but have no benefit to another.

Next, they say that the route by which an Equal Opportunities policy or practice in an organisation might affect business performance may be direct or indirect – affecting a set of intermediate outcomes en route. In other words they are saying that tracing the line of cause and effect could be like connecting a butterfly’s wing beat in the Amazon with a cold shower in Bradford.

Lastly, they say that there is no reason to assume that different types of Equal Opportunities policies and practices have the same effects on business performance, or even that the same type of Equal Opportunities policy has the same effect in different business and organisational contexts. In other words you can’t say whether family friendly policies have the same degree of outcome as, say, recuiting more disabled people – or which of those two would have the biggest impact in two different companies.

These all seem intuitively reasonable observations.

The researchers also address the question of cause and effect. They say:

“It cannot be assumed that if establishments with Equal Opportunities policies and practices have higher productivity or profits, that the former causes the latter.”

They continue,

“It is feasible that causality goes in the opposite direction – in other words that higher productivity or profits enable establishments to introduce Equal Opportunities policies and practices”.

They add,

“It is also possible that some other factor results in both better business performance and the take-up of Equal Opportunities policies and practices.”

The researchers’ conclusions are not all gloomy though.

Firstly they say that there are some statistically significant relationships between subjective business performance and Equal Opportunities policies. Companies that are doing well have comprehensive Equal Opportunities policies. What they stress, however, is that these are unlikely to reflect simple cause and effect.

They say that the evidence in the data for either a large or widespread impact of Equal Opportunities monitoring and reviewing practices on business productivity or profits is not strong – but they stress that this cuts both ways. In other words there’s no evidence that there is a direct benefit, but there’s also no cause and effect evidence to show any harm either.

Perhaps significantly, the researchers comment that any positive effects on productivity or profits from monitoring and review are more likely to arise in larger establishments.

But they stress too that there is some limited evidence to suggest that there are positive effects of some family-friendly practices.

The report says that positive productivity benefits seem more likely to arise in smaller establishments, whereas profit increases are more likely to be seen in larger ones.

With an eye on the political implications, the report states categorically that there’s no evidence to support the notion that Equal Opportunities policies and practices place disproportionate burdens on business.

In other words, they say that Equal Opportunities policies and practices do not appear to cost the private sector profits. Similarly they say that there is no evidence that Equal Opportunities policies and practices result in a net cost to employers on average.

However, they add that it’s likely that some employers will derive net benefits from implementing Equal Opportunities policies and practices, while others will see a net cost.

The report will be a disappointment to anyone who hoped for direct and incontrovertible evidence that equal opportunities practice was some kind of magic bullet, which could be justified to private business on a simple profit case. Anyone who understands the complexity of business organisation will always have known that such arguments are hopelessly naive.

However, the report also dispenses with the simplistic claim that equal opportunities are simply a burden, with always a negative effect on the bottom line.

When looking at this report it’s important to remember that the call for Equal Opportunities in the workplace has seldom (if ever) originated from a business looking at its’ profits or performance and saying “we need more equality”. They may say it indirectly, as in “we need to reduce our staff turnover and recruitment costs” – or even, “we need customers to identify more with who we are”.

But the big push for both equality and diversity in the workplace comes from social and political forces. It would be short term and naive for any organisation to think these are irrelevant to its operations. Organisations operate within society. If society fails then so does business.

It’s better to be honest – and not to think that business leaders can be swung by unsubstantiated assertions designed to appeal to their pockets. The message in this report is that all sides need to ditch simple assertions and take a more sophisticated view of a complex topic.

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