Diversity & Inclusion Series, Part 1: Why Behavioral Science for Diversity?

With great privilege, the BVA Nudge Consulting partners with global companies in the area of diversity and inclusion. What makes our consulting practice unique is our approach, as it is rooted in the emerging field of applied behavioral science.

In our Diversity and Inclusion Series, we embark on a journey to answer the most commonly asked questions related to the topic – everything from how this approach works in the context of diversity, to some of our favorite nudges in action.

Q:  To begin, for those of us that are less familiar with the practice of behavioral science, can you explain a little bit about it? 

A:  Behavioral science is a field of study that brings together several disciplines, among them cognitive science, social psychology and behavioral economics.  In very simple terms, behavioral science seeks to understand the true drivers of human behavior. 

As a consulting practice it’s a relatively new field, but has really taken off, as more and more people see its value for solving problems.  Multiple Nobel Prizes have been awarded to people for their work in behavioral science, the most famous being Daniel Kahneman – known for his work on cognitive biases, prospect theory and happiness; Richard Thaler – known as the “father of Nudge theory”; and Esther Duflo, known for her work in applying behavioral science to fight poverty.

Specifically, as a practice, it uncovers the cognitive biases, emotional and social influences, and the impact of context on our behavior to drive informed strategies to resolve what are otherwise intractable problems. 

Q:  And in terms of diversity, is there a business case to be made that a diverse workforce is important?

A:  Multiple observations from large organizations highlight the correlation between diversity and company performance. For example, it is widely known that companies that are in the top quartile regarding diversity have on average EBITs that are higher than 15% versus companies that are in the lower quartile regarding diversity[1].  And diverse companies are also 45% more likely to report that their firm’s market share grew over the previous year and 70% more likely to report that their firm captured a new market[2].

Multiple other studies have been published with similar results, looking at inclusion. For example, research from Bersin by Deloitte showed that inclusive companies are 1.7 times more innovative[3].   And other studies have shown that employee satisfaction is boosted if the representation of their minority group exceeds 15%.

More recently, researchers are now focusing on understanding the causality effect between diversity and performance, including studies[4] that look at the impact of diversity on psychological safety.  Psychological safety is a concept created by Harvard Business School Leadership and Management Professor Amy Edmondson and refers to the shared belief held by team members that the team is safe for interpersonal risk taking[5].  It has been proven that teams with psychological safety perform better because it encourages risk-taking behaviors, creativity and innovation.  And more so it has been proven that team diversity mitigated one important element that limits psychological safety: status conflict.

Q:  As we have all seen, there are already a lot happening in this space, why come in with a new approach at this time? 

A:  Yes, you’re right. We have seen everything from public movements to law-based actions, such as gender quotas set by numerous countries related to women on corporate boards. We have also seen companies and organizations create diversity departments, led by Heads of Diversity, with defined and measurable diversity goals and supporting communication and trainings programs.

However, the results have been poor. Diversity actions started in US companies during the 1950’s, well over 60 years ago. And what has been the result? In the US, the unemployment rate for persons with disabilities rose to 8% in 2018, more than the double of that of people without a disability.   Staying with the US, where ethnic stats are published, the unemployment rate for black or African American people was 6.5% in 2018, more than 1.5 times the average rate of 3.8%.

In 2019, only 7 women were heads of FTSE 100 companies, and only 5 of FTSE 250[6], and only 33 women were heads of Fortune 500 companies[7] (a ratio of 6.6%, for 50.8% of the US working population[8]).  Additionally, the majority of women in the workforce feel excluded from decision making, do not feel comfortable expressing their opinions, and do not feel as though they can succeed[9].

And what we have personally noticed with the companies that we work with is that even when leaders, including CEOs, are fully committed[10] and put in place all the above-described actions, it is not enough to have a dramatic impact on diversity and inclusion.

Q:  Why do you feel these current approaches are ineffective at driving the diversity goals we seek?

A:  If you think about diversity, or about culture more generally, in the end it is about how people behave. For example: Do people actually promote as many competent women as men? Does the company culture lead to inclusive behaviors in the day-to-day work, for all religions, different ethnicities, etc.?

We talk about KPIs and quotas, but in the end, it comes down to behaviors.  And what behavioral science tells us is that there is often a gap from information to intention to action.  This is due to the cognitive biases which we have been referring to:  these small distortions in the decisions and behaviors made by humans compared to that which we might observe from an entirely rational person.  To date, based on over 50 years of research in behavioral economics, close to 200 cognitive biases have been identified.

At the BVA Nudge Consulting, we have identified some biases that are the key drivers behind the lack of significant change in diversity and inclusion.  The first set belongs to the category of “stereotypes”: in-group bias, out-group homogeneity bias, halo effect and ultimate attribution error.  As humans we tend to use stereotypes, rely on generalities and make decisions based on memories of prior history (itself influenced by stereotypes).  And we also tend to think that people we know well, or people we like, are better than others.   So what ends up happening is that when people make decisions on hiring someone, on promoting others, on taking risks, all these stereotypes are likely to be at play, in favor of the dominant group in place.  And of course, auto stereotypes are also present, for example where women apply less often for senior management positions or where women negotiate less on salary.

It feels straightforward that these biases can result in inequalities and discrimination.  But these biases are not enough to explain the tremendous gap between what is fair and the actual state of diversity and inclusion in large organizations.  Multiple other biases are also at play.   For example, overconfidence effect.  In general, we think we are more effective than others, and more effective than we truly are.  The result is that we think that the actions that we intend to lead in favor of diversity will be done, and that they will have a higher impact than they do.  So less is done than what one originally imagines.

Another one is status quo bias, where we tend to have an exaggerated preference for the current situation when making decisions.  The impact here is that we know that running a structured interview is a much better way to recruit than unstructured interviews (and has a side effect on diversity as some biases such as the halo effect are mitigated).  But what we saw with one of the global organizations we worked with was no recruiting manager had planned for structured interviews in advance or used a scoring template during the interviews (which is also linked to the overconfidence effect, as we tend to believe that we are better recruiters than the average, and compared to what we really are!).

And finally, loss aversion.  We tend to prefer avoiding losses to acquiring equivalent gains.  Again, the impact is that managers and decision makers can focus too much on what they personally would lose, from say a change in process, than from what they would gain out of it. For example, we know calibration, if well thought through, positively impacts fairness in people evaluation.  But for managers, calibration means allowing others to impact their evaluation of their staff. We recently observed at one of our clients that this is something many managers are reluctant to do, as they perceive this as a loss of power and don’t consider the possible gain of additional thoughts, having access to additional information on talent, etc.

So depending on culture, processes, and the choice architecture of decision makers, theses biases can have a negative impact on driving change in the space of diversity and inclusion, despite the goodwill of all stakeholders.

Q:  But many companies deploy unconscious bias training to combat bad behaviors that lead to a less diverse and less inclusive workforce.  This approach should help, no?  

A:  As mentioned, implicit bias training has existed in the US since the 1950s and consequently we have a lot of knowledge about it.  The most famous study on the impact of diversity training is a 2016 study published in the Harvard Business Review, which analyzed 30 years of diversity training data from more than 800 US companies.  It showed that, on the whole, such programs not only fail, but can even decrease diversity. “The positive effects of diversity training rarely last beyond a day or two, and a number of studies suggest that it can activate bias or spark a backlash”, say the authors.  Multiple other studies have previously and since backed this research.

Several reasons exist for the lack of success associated with these training programs, including the impact of the previously mentioned cognitive biases.  They range in nature – but include the idea that training can make stereotypes more top-of-mind and thus easier to be acted upon – all the way to lack of adherence due to the perception that the organization is attempting to control them[11].

Q:  So how does behavioral science consulting overcome these challenges to drive actual changes and therefore a more diverse workforce?

A:  A behavioral approach aims at reaching objectives by taking into account and even leveraging our knowledge of all the drivers that impact the way we humans make decisions and behave. This means understanding, in specific contexts, the individual, social and situational factors that influence people, and can act as barriers for positive change. Having identified these barriers, we can propose targeted solutions.

Specifically, regarding diversity and inclusion, we love the pub example as a very simple case study.  A company observed that women and some minorities were promoted less often than other groups, despite all competencies being equal. A behavioral audit was able to identify that the promotion process was largely based on personal connections and “networking” – which itself was largely dependent upon bonds created at the end of the day, at the pub. And some groups go less often to the pub than others. Here, a situational factor was impacting the promotion process: the pub culture – otherwise highly valued by the staff, and a key element of comradery and cohesion.

Once you have identified key factors impacting diversity – such as this one – a behavioral approach will aim at optimizing the choice architecture of stakeholders to encourage an identified target (here, that women and other groups also bond with the rest of the staff). With this company, a number of other bonding opportunities, including lunchtime joint breaks and regular afternoon getaways were implemented. As these actions were deployed, the rational was also shared with managers and staff as a way to both inform and engage them, and to raise awareness on the current promotion process, its value, but also its impact.

A behavioral approach aims at creating a combination of such changes, to overcome all identified barriers. The specificity of the approach is that it impacts people’s choice environment – most often at the time of decision-making.

And the combination of such changes, we have observed, can have a fantastic positive impact on diversity.