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The Rise of the Chief Diversity Officer Pays Dividends across the Board

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The push for greater diversity at the highest levels of organizations received a boost in March, when the United States Agency for International Development appointed its first Chief Diversity Officer. The appointment of a diversity, equity, and inclusion (DEI) leader follows similar moves within a wide array of organizations and industries over the past several years.

That’s great news for investors wanting to make an impact in DEI, as appointing DEI officers signals a newfound commitment to addressing widespread societal disparities. Furthermore, it may also increase returns—data increasingly demonstrates that diversity in executive teams boosts performance and profitability.

An Explosion of Officers

Over the past five years, the number of individuals with the title “Head of Diversity” increased a whopping 107% worldwide; those with the title “Chief Diversity Officer” increased 68%. A look at just a few hires from across the past year underscores the trend: the Philadelphia Art Museum in June 2021, finance giant Fannie Mae last February, and the Philadelphia Police Department two months later. The list goes on.

Although trends were already moving in that direction, the murder of George Floyd in May 2020 and the outrage that followed motivated organizations to seek more active ways to address racial disparities. That realization led to not only a new understanding of DEI as a core business function but also the necessity of installing executives able to drive those efforts. An organization’s workplace diversity strategy has also become an increasingly important consideration among employees and job hunters.

Hiring trends that embrace DEI send a signal that organizations may be open to taking action on a host of interconnected issues.

Challenges for Progress

DEI officers and other executives with a similar title are responsible for overseeing a diversity and inclusion strategy that ensures equal opportunity across such areas as gender, race, and disability. Their duties are as likely to include developing in-house initiatives as increasing the diversity within an organization’s supply chain.

As part of their remit, these executives must regularly have difficult conversations about race and other matters related to DEI policies. “You’re dealing with polarizing topics,” says Joy Fitzgerald, Eli Lilly’s chief diversity officer. “There are not a lot of best practices you can point to that are easy or quick.”

What’s more, departments are often under-resourced or lack strong support from top leadership. Additionally, the very fact that a person is in charge of diversity and inclusion risks inadvertently suggesting that the rest of the organization is off the hook. People may also regard DEI as a human resources silo.

Importance for Impact Investors

For impact investors seeking to address racial disparities in the workplace and society, hiring trends that embrace DEI send a signal that organizations may be open to taking action on a host of interconnected issues.

When organizations have a Chief Diversity Officer, they are more likely to implement DEI policies that require a strong champion, such as adopting a holistic approach to an organization’s operations rather than making a few tweaks here and there. A growing body of evidence also points to the relationship between a diverse workforce and an increase in factors such as rising sales and stock price. Some also highlight diversity as an important driver of creativity.

The bottom line is that having an executive in charge of diversity, equity, and inclusion strategy contributes to equality at multiple levels—and it can be crucial to an organization’s ability to maintain a competitive advantage.

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