Part 2: Beyond Compliance

So you say you value diversity…

The topics of diversity, equity, and inclusion come up frequently in discussions of corporate social responsibility and the role of business in society, but never have these topics been so present in our broader social discourse. In the wake of the killing of George Floyd and the growing social consciousness of the role of systemic racism in our society, companies are being forced to ask themselves questions they have been able to avoid until now. This has taken a number of forms, with the most obvious grifters in the business world using it as an opportunity for marketing, and the most caring taking a sustained pause to think about how their work can advance the causes of justice and social equity.

In this article, the second in my series on ethical issues in the Missouri cannabis market, we turn our attention to the topic of diversity in organizations. We’ll start by exploring the most relevant facts, using those as the foundation for exploring the ethical and operational cases for building diverse organizations, and conclude with a few specific action steps you can take within your organization to move ideas and words into the realm of day to day culture and operation.

The moral argument

As an educator, I love really clear cut examples of business issues that highlight ethical issues. Unfortunately, the corporatization of cannabis commerce is an excellent case study in moral imperatives. Articles in previous issues of Greenway have covered the issue of social equity in licensing and wealth building, so I’ll only provide a brief recap here. I encourage you to read the entirety of Sylvester Brown Jr.’s piece on social justice in the Missouri market, which can be found here.

As we transition into a world of legal, medically-prescribed cannabis, two features of this transition and market need to be highlighted so that they can serve as the foundation for our discussion of the moral imperative present in this situation.

The prohibition of cannabis has disproportionately affected marginalized communities.
Ownership in licensed cannabis companies often skews away from these same communities.

These circumstances create the foundation for the ethical argument that gets made with respect to how we should move this industry forward and why social equity frameworks are important in advancing justice. In Brown’s previous piece, he highlights some of the more damning statistics highlighting the role of race in prohibition:

The American Civil Liberties’ (ACLU) recent report, “The War on Marijuana in Black and White,” concluded that “Black people are 3.64 times more likely than white people to be arrested for marijuana possession, notwithstanding comparable usage rates.” Between 2010 and 2018 alone, of the six million people arrested for marijuana possession, blacks were more likely than whites to be arrested in every state, including those with legalized marijuana.

The ACLU report also noted that blacks are nearly six times more likely to be incarcerated for drug-related offenses than their white counterparts. Almost 80 percent of people serving time for a federal drug offense are black or Latino (“The War on Marijuana”, 2013, as cited in Brown, 2020).

Moving into the era of legalization and decriminalization, these disparities stand, with a more recent ACLU report highlighting the fact that black people continue to be arrested at higher rates for cannabis offenses, even in states where it has been legalized or decriminalized (“A Tale of Two Countries”, 2020).

So, with us now at a place of understanding the broader societal context within which our discussion of ethical business practice takes place and,understanding that there aren’t regulatory requirements in Missouri’s medical market moving the issue of social equity forward, I ask our industry’s business leaders a question:

What are you doing to advance issues of equity and justice within your organization and within this industry?

Pause and think about it. If the question makes you uncomfortable or defensive, ask yourself why. If the first responses that come to mind involve issuing statements, making donations loudly, or being responsive to social changes, consider how those actions advance issues of social equity and how they might not.

With this initial question and response as our backdrop, let’s move into the two arguments I make for the importance of diversity in Missouri’s cannabis business community.

We have an obligation to ensure that the benefits accruing to society as a result of the end of cannabis prohibition are distributed in ways that are fair and just. In any market where systemic disadvantages have decreased the likelihood that members of marginalized communities are able to compete fairly, regulatory mechanisms should attempt to level that playing field. Absent those regulatory mechanisms, business owners have a moral obligation to do the same.
Smart organizations operating in markets characterized by intensive competition recognize the benefits of innovation to their organization and understand the role of diversity in creating the conditions for innovation.

Although our discussion from here involves the individual actions that business owners can take, I do not want to detract from the larger, systemic-level change that is needed to address these issues. The actions that follow are intended to be complementary to regulatory frameworks that promote equity and justice. Understanding the state of Missouri’s current regulatory framework in this respect, though, increases the urgency with which business leaders should adopt practices that improve organizational diversity where it is lacking.

The benefits of diverse organizations

If the preceding argument centered around fairness and justice didn’t appeal to you (and I sure hope it did in 2020) or you just fashion yourself as more of the Dr. Evil type (and I know there are at least a few of you out there), let me expound for a minute on the positive outcomes that are realized by diverse organizations.

There is a pretty wide array of research on the effects of diversity on organizational performance, but I think we have a better understanding of how it affects businesses than we have at any other point in its study. A recent Boston Consulting Group report highlighted research showing that diverse leadership teams outperform more similarly composed teams, with organizations with above-average diversity reporting higher levels of innovation and Earnings Before Income & Taxes (EBIT). The mediating role of innovation here in improving financial performance is key and it makes sense, as diverse teams have diverse problem-solving skills. In the same report, BCG notes that revenue from innovation is 19% higher in organizations with diverse management teams, when compared to those with below-average diversity.

“In other words, nearly half the revenue of companies with more diverse leadership comes from products and services launched in the past three years. In an increasingly dynamic business environment, that kind of turbocharged innovation means that these companies are better able to quickly adapt to changes in customer demand”.

The ability to innovate is a significant competitive advantage in an industry like ours.

“We calculated, based on our survey data, that innovation revenues could increase by 1% by enriching the diversity of the management team, 1.5% with respect to national origin, 2% with respect to industry origin, 2.5% with respect to gender, and 3% with respect to managers with different career paths. With greater increases on more dimensions, the total uplift potential could therefore be even more significant”.

Additionally, 2015 McKinsey report found that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. Another study, highlighted in Harvard Business Review, correlated diversity with self-reported market outcomes. In this summary, it’s noted that employees in organizations with diverse leadership teams (as defined in the study) are 70% more likely to capture a new market.

With the moral imperative clear and the business case compelling, let’s turn our attention to how we transform our ideas and thoughts into action.

How to operationalize diversity as a value

I have no doubt that those of you reading this want to build a diverse and equitable industry in our state, one that tears away at systemic inequity instead of reinforcing it. As you reflect on your own operational environment, it’s natural to ask:

What business practices can we adopt that will turn our values into action?

Fortunately, we’re not the only ones asking these questions and we don’t have to look far to get guidance on practical steps. In the last several months, thought leaders in this area have issued evidence-based advice for decision-makers confronting the reality of their organizational demographics.

Although the first step is making a commitment to advancing ideas of justice by building a diverse organization, advancing issues of equity and justice within a business requires sustained and continuous action as a follow up. Creating business cultures that are inclusive takes work, honesty, and evidence. That said, the steps needed are pretty similar to those required to advance any other business goal.

Metrics, Accountability, and Transparency

Like a meeting of Alcoholics Anonymous, you don’t get to move forward until you embrace the problem at hand. In “What Works: Evidence-Based Ideas to Increase Diversity, Equity, and Inclusion in the Workplace”, Elizabeth Hirsh and Donald Tomaskovic-Devey of the Center for Employment Equity provide a thorough description of what diversity metrics can look like within an organization. Organizations that value diversity need to “develop metrics, make them transparent, and hold people accountable, just like for any other outcome of interest, be it profit, sales, or market penetration”.

The metrics that are most useful when it comes to diversity are job-level composition data, which includes gender, race, ethnicity, age, disability, etc. With this data, businesses also have the ability to conduct pay equity analysis of their organization’s positions. The more employees a business has, the more data they have to perform this type of analysis. The job-level data is important because it allows an organization to see if there are variations in demographics as a function of job itself, which is often the case (with organizations having less diversity at more senior levels). Tracking this information historically may give decision-makers additional insights. Other information that is important to collect and track in a formal manner include incidents of harassment or discrimination.

In addition to workforce data, consider your supply chain. Who are you buying from and in what communities is wealth being built through those decisions? Here in Missouri, I think this is especially important, as quite a bit of the opportunity here is adjacent to the licensed industry, in support industries. Just like an organization can set goals related to workforce diversity, you can do the same with supplier diversity, setting a goal that the majority of your packaging comes from minority-owned businesses, as one example.

When you have an understanding of the current composition of your workforce or supplier pool, you can compare this to the composition of the community you operate in, peer organizations, and set related goals. Making these goals transparent is the foundation of accountability. Increasingly, organizations are making their workforce demographic data public and I’d call on all businesses operating in the Missouri cannabis space to do the same. Make your diversity goals explicit and let the patients you serve hold you accountable to them. This is what I mean when I give business leaders a hard time and say “So you say you value diversity?” — tell us explicitly what you’re doing to recruit your next minority executives and managers, what you are doing to build an inclusive work environment, and how you are making decisions related to where you spend your organization’s money.

In practice, these steps might look something like:

Assess your current workforce demographics
Set recruitment targets to address any discrepancies
Conduct a pay analysis and eliminate any pay disparities
Publish your findings
Rinse and repeat

This exploration may lead you to understand that there is something discriminatory in some business process you have, such as a hiring practice or some technology that you use in screening. Because issues of discrimination are beneath the surface, paying attention to outcomes is especially important. You can have great, values-driven policies and procedures within your organization, but if your end results don’t reflect those values, you have something happening that you need to figure out.

Have a system for reporting issues of discrimination and harassment

As indicated above, one piece of information that an organization needs to track are incidents of discrimination and harassment that take place within the workplace. To get there, companies need to formalize a system for reporting those issues. Historically, this has often taken the form of some type of formal human resource process, but these systems are often insufficient and can result in some type of negative outcome for the reporter. With this in mind, organizations are getting more creative these days and looking to alternatives to reporting these issues.

Depending on your organization’s size, other options for reporting and tracking these issues include using an ombuds office or an employee assistance plan as a neutral third party for incident reporting and tracking, a dispute resolution office, or more transformational dispute resolution systems (such as restorative justice processes). A complete exploration of alternatives to legalistic processes can be found in this chapter by Dobbin and Kalev.

Create inclusive spaces

As a society, we’re demanding that our employers create inclusive spaces. An article in MJBizDaily titled “Black cannabis business executives suggest solutions to address racism and create a more inclusive industry” gives us a great starting point. Additionally, Just Capital provides us with an overview of the efforts other employers are using to promote inclusive cultures, but I think we can all acknowledge that this work needs to happen at a level that’s much larger than just within our organizations (truly, this is the work that society needs to do more broadly). That said, within our workplaces, there are certainly steps we can take, such as acknowledging and working to combat racial stereotypes. If, like me, you’ve lived a life of privilege, you’ll have to work at this constantly and can be supported by development like unconscious bias training. All organizations can benefit from having a regular bias training, so as you consider the kinds of support your employees will need to be effective operationally, understand the importance of mitigating unconscious bias in the same.

The idea of changing our business cultures (and social culture) more broadly requires honesty, authenticity, soul-searching, and the humility to admit that we’ve been wrong, implicitly — and often quite explicitly — in the ways that we’ve created those cultures to date. It requires saying that we’re not good enough, that we’re a long ways off, and that we need to commit to putting in the work and resources it will take to get there.

It requires more than just a verbal commitment to diversity, a few thousand dollars to a good cause, and a responsive posture towards global social change. It requires action, both small-scale and every-day and significant and structural. And, importantly, it requires all of us.

So…

You say you value diversity… But what are you doing about it?

Want to continue the conversation? Chase can be reached at chase.cookson@gmail.com.