Alex Edmans of the London Business School starts our conversation with a complaint. Reflecting on the meeting he just had, he asked: Why do we have to sit through so many meetings where people without any expertise dominate? So often, confidence trumps knowledge—and eventually shapes decisions and outcomes.
There are two obvious major problems: Decisions are often made without considering evidence and nuance gets lost along the way. Political polarization is only one of the consequences. The same issues persist in business when complexity is continuously pushed to the side.
As a professor of finance, it isn’t surprising that in his new book, May Contain Lies, Edmans hones in on the biased (and consequently often bad) decision-making that happens in the business world, from investment decisions across asset classes to hiring and simple “executive level” processes. As part of his plea for more nuance, he also picks two of his pet-peeve topics apart (both of which are at the heart of my own research and work): DEI and ESG; and my question is, Have we been doing it and preaching it and teaching diversity and sustainability wrong all along? Are these mistakes leading organizations to dismiss DEI teams, most recently Microsoft, and change language and terms, like big HR company SHRM?
ESG still matters
One of his essays, titled provocatively, The End of ESG, is often interpreted as a scathing takedown of it all. Edmans maintains, “I never said that ESG is a bad thing; saying something is at the end, doesn’t mean it is good or bad.”
One of the core issues with this stance is that confirmation bias misses the nuance in his argument. “People already have their own viewpoints, so they interpret anything that supports their viewpoint,” he explains, “So if you are an anti-ESG person, you take the ‘End of ESG’ article in that direction.”
Evidence supports that integrating financially relevant ESG considerations and risk in investor decision-making is beneficial to the bottom line. And that doing ESG well leads to better financial outcomes. From human rights and supply chain management to good governance and diversity, these don’t require us to be “good people.” It’s sufficient to be focused on financial outcomes as long as you do the work and focus on the material problems, starting with a materiality assessment.
The D is nothing without the E and the I
That takes us to another problem with evidence-based decision-making: “In a rational world, evidence and data should change people’s minds,” he says. “But that is not true. Context matters. If I were an old white man (Edmans is of Asian descent), I wouldn’t be able to say the same things that I do about diversity.”
Edmans says he is not attacking diversity per se. “I am on your side, I am on your team. But we need to change a little bit how we do diversity.” Like ESG, diversity has become a contentious topic recently, across industries and asset classes. The critics call it “woke” and scream for meritocracy instead of diversity as the guiding principle.
Edmans sides with the critics of DEI pointing toward the mistaken focus on “skin-deep diversity” leaning on visible attributes like gender and ethnicity. “Diversity goes far beyond gender and ethnicity.”
What we need to focus on is a more intersectional view of diversity. That takes into account interlinked and wider identifiers, including privilege and socioeconomic background. Edmans explains: “Some people are about opportunities and value creation and potential and others are about risk management and what can go wrong and you want to have both kinds of people in the room when making decisions.” That does not mean gender and ethnic diversity don’t matter at all, they are just not enough.
“Try to actively encourage different viewpoints. Give time and space for people to express different viewpoints. The share of voice in a meeting is a big thing. When people raise an objection, those shouldn’t be shouted down,” he says. “People listen with the intent to reply not with the intent to understand,” Edmans adds, “Defend yourself against defensiveness.”
Measurement is…dangerous?
The focus on diversity instead of the more complex inclusion or carbon accounting often the major part of ESG, is connected to measurement as evidenced in the rise of OKRs and the mantra: “What gets measured, gets managed.” Edmans asks, “If we can only get done what gets measured, what about the things that matter but can’t get measured?”
He points to a major problem that I also encounter every day during my work on ESG with VC investors: They’re obsessed with quantifying and measuring. Issues that don’t come in the form of a number aren’t real.
For example, you may easily count the number of women on a team but understanding how included they are in decision-making isn’t as straightforward. For ESG, carbon accounting is easy (and easy to outsource), figuring out what good governance at a small startup should look like isn’t.
Edmans explains, “We acknowledge this issue in other contexts: A focus on quarterly earnings means we don’t think long-term and that’s increasingly critiqued. We jump on the things that are easy, which are often the things that get measured.”
To do both ESG and DEI right, measurement is not enough. The idea of “starting somewhere” might not lead to good results, even mid-term. The devil is in the details and not just the quantifiable and measurable details.
While we’ve started to accept that in accounting, we aren’t there yet for ESG and DEI. That needs to change, especially in light of the backlash. As small tech grows into big tech, we can learn from some of the committed heavyweights who are pushing forward, like Netflix—which extended their efforts to consider dimensions like disability and various kinds of representation in front of and behind the screens—or Salesforce, which set ambitious goals of representation, works with all stakeholders on DEI, and runs a large number of equality groups.
Bringing nuance back in and making real evidence-based decisions will not only lead to defeating the critics and better financial results for everyone.
By Johannes Lenhard
Source: fastcompany.com
A lack of focus on DEI also — perhaps self-evidently — has a clear impact on organizational equity, as fewer companies prioritize work that dismantles structural biases. However, Elliott points out that many companies that distance themselves from DEI now may never have been truly invested in their goals.
CEO Jim Farley sent a memo to all employees early Wednesday outlining the changes, including a decision to stop taking part in external culture surveys and an annual survey by the Human Rights Campaign that measures workplace inclusion for LGBTQ+ employees.
Language matters. If DEI is the right acronym for your organization, don’t let the naysayers force you to pivot. If people understand what it means, why it matters and how the organization is using DEI to create a competitive sustainable advantage, it is likely a long-term fit.
