Making Diversity A Profitable Reality
CEOs should strive harder to build diversity. It makes business sense.
December 1 2004 by Chief Executive
In a world of ever-increasing regulation, the term “diversity” is sometimes misunderstood, lumped in with the mountain of dictates imposed upon business, many of which tend to restrain rather than enhance corporate performance. Even those CEOs who recognize the importance of diversity and I believe most do find themselves challenged to fully implement it in their companies.
This should be a major concern for boards and corporate leadership, because recognizing diversity’s true meaning, and understanding its impact on a fundamental level, can pay huge dividends.
I learned that lesson several years ago while leading the operating division of a multibillion-dollar global business headquartered in Europe. Working closely with men and women from 37 countries, representing nearly every race, religion and political persuasion, showed me the extraordinary potential of diversity. It enabled us to talk with anyone in his or her native tongue, and to develop better products for local markets.
To really “get” diversity, it’s important to understand the meaning of the word, as applied to corporate culture. It’s not only about eliminating prejudices, which have no place in our society. We know we should hire qualified people regardless of color, gender, religion, sexual orientation or any of the other many differences that distinguish our society. Diversity is what our country is all about, and by tapping the true potential of an unprecedented mix of talented and industrious people, we have built the greatest economy in the world.
But diversity, in its purist sense, also means allowing people to be themselves sharing ideas, taking risks and adding value. We constantly ask our customers what they want to see in their local store and how we can make their lives easier by meeting those expectations. This may fly in the face of the efficiency-focused concept that is so popular in many companies today, but I assure you it’s not a Pollyanna approach. If you understand the diversity of your consumer base, if you give these people what they want and make their lives easier and their shopping experience more enjoyable in the process, you’ll keep those customers for life.
Of course, it’s easier said than done. To deliver on that promise, you need not only cultural diversity in the thought process, but also an associate (our term for “employee”) population that genuinely reflects the diversity of the customer base at every level. Once this happens, everyone becomes energized and more eager to contribute.
At Albertsons, we pride ourselves on the diversity of our corporate family. Early this year, we reached an important milestone by becoming the only company in the S&P 500 to have 50 percent female representation on the board of directors, which we have since exceeded. The women on our board are not only skilled business professionals, they bring us closer to having our leadership team mirror our customer base. Women of all backgrounds are our primary shoppers, accounting for 85 percent of all purchasing decisions in our stores. So it makes strategic sense for women, arguably the people who can best relate to the needs and concerns of our company’s principal retail audience, to sit at the highest levels of our company.
Those who don’t understand the value of diversity often make the old argument challenging “diversity for its own sake.” But that criticism is losing steam, as the benefits of having a diverse work force and management team make themselves known. Where it was once just a gut instinct, we now have the research to prove that diversity works. For example, according to a study of the top 500 companies by the research firm Catalyst, companies with a higher representation of women in senior management outperform those with proportionately fewer women at the top. The trend held true across a broad spectrum of industries, and the numbers are significant a difference of 35 percent return on equity and 34 percent on total return to shareholders.
Encouraging diversity fosters a culture in which people are encouraged to be themselves, to speak up, to take risks. Without risks, there will be no significant rewards. Each voice is an asset, and each idea another asset. As many of us have learned over time, even ideas that seem to lack merit at first glance should be listened to carefully, because one of them may be the jewel that will be incorporated into the business and improve results.
A few years ago, Albertsons, like every other retailer in the nation, focused increased attention on the Hispanic market. Hispanics were the fastest-growing ethnic group in the U.S., and one underserved in the consumer marketplace. Everybody added Latinos to their staffs, increased the number of products and services aimed at Hispanics and did targeted advertising. This was fine. It was deserved. But with everybody doing about the same thing, no company gained a significant edge.
Albertsons also took a “me-too” approach, until we came out from behind the counter and began talking directly to our neighbors in Hispanic communities. They told us they appreciated the additional products and the increased number of Hispanic associates, but what they really wanted was their own stores. So we reengineered some of our Los Angeles-area stores to meet the neighborhood demands. Local residents helped us to create a totally new store format with brighter color schemes, new product varieties and displays, including 30 percent more space for fresh produce and fruit. We added bilingual staff, bilingual signage and in-store music featuring songs by Hispanic artists. We capped it off with an entirely new store name: Super Saver.
The neighborhoods took notice. Finally, residents had “their own stores.” Super Saver sales are up by strong double digits, with some product categories up more than 100 percent, and we plan to expand the concept to other Hispanic neighborhoods across the country. We are listening to our neighbors. We are taking advantage of the power of human capital. We are putting diversity to work.
For all of this to really work, a commitment to diversity must start at the top. If the CEO doesn’t take the lead and believe in the process, it’s just not going to happen. One of the first things I did when I arrived at Albertsons three years ago was to create an officer-level position solely responsible for monitoring and encouraging diversity in every aspect of our business. Every open candidate slate must include at least one person of difference, and we track the results closely. I personally make it an integral and conscious part of our business process by including a diversity discussion in every quarterly business review with our division presidents. By treating diversity the same as we do sales and earnings, the bar goes up and people notice.
CEOs need to put diversity on the agenda at quarterly business reviews, officer meetings and board meetings. Everyone in the company should be encouraged to adopt diversity and report what they have done to embrace it. We challenge everyone to be a diversity champion at Albertsons. To help that along, we have formed more than 20 affinity groups that represent the ideas of African-Americans, women, Hispanics, Pacific Islanders and Asians and others. As CEO, I meet with these groups and listen carefully to their ideas and action plans. And I implement those ideas where possible.
To keep diversity as a vibrant part of the corporate culture, it should be integrated from the point of hire, through orientation and on to every day on the job at every level of the organization. It’s interesting how, by embracing diversity, stronger business results invariably occur and attendant career-advancement opportunities are developed.
Of course, not all the benefits of diversity are as easily quantified as monthly earnings or return on equity. Diversity is about values, and values mean as much as numbers for a successful company. It’s all part of an integrated matrix. Diversity is a key component of managing a company, and its power must never be discounted. At Albertsons, diversity is etched into our company’s DNA and written in our core values as a constant and lasting reminder that it hasn’t just happened; we made it happen.
I challenge all CEOs to take a fresh look at diversity, not as a requirement for companies in the modern age, but as an often underutilized asset and a strong competitive edge that can add a new spirit to your company and revitalize its performance.
Larry Johnston is chairman, CEO and president of Albertsons, based in Boise, Idaho.