Featured in today's briefing:
- The accelerating impact of board diversity at high-performing organizations..
- Employer guardrails around ChatGPT use at work.
- Cutlery theft in office kitchens.
The Macro Context
- Despite recent mass layoffs, jobless claims—which fell to a seasonally adjusted 191,000 last week—are remaining below the pre-pandemic average of 220,000.
- Newly released economic forecasts from the Federal Reserve suggest that the bank is preparing for a recession this year, according to an analysis from Bloomberg.
Focus on What We Know About How Board Diversity Affects Companies
In the weeks since Silicon Valley Bank’s collapse, a strain of seemingly bad-faith argument has emerged pinning the bank’s failure on an over-focus on diversity and environmental and social considerations. In particular, one Wall Street Journal column highlighted the makeup of SVB’s board of directors, noting: “the company may have been distracted by diversity demands.”
To understand what research actually says about the link between board diversity and financial performance, we reached out to Wharton assistant professor Stephanie Creary, whose scholarship on diversity, equity, and inclusion includes qualitative research on how diverse boards affect their companies’ bottom line. Here are excerpts from our conversation, lightly edited for length and clarity:
What’s your response to the accusations that SVB failed at least in part because it was too focused on diversity?
The first thing I always do is lead with science and say, what is it that we actually know when we think about the relationship of diversity to any type of performance outcomes? What we know is that the research does not typically find that diversity can harm firm performance. It’s a hypothesis that these folks who are anti-diversity have, but this has been tested. More often than not, it's found through various mechanisms that diversity can positively impact firm performance, particularly in firms that are already doing well. For example, there's a variety of papers that say more innovation-focused banks are more likely to benefit from diversity. Diversity is the amplifier. It's the thing that helps to catapult the firm from a good place to an even better place. A lot of the research is about upper top management teams. Some of it is about employees, and increasingly it's also about boards.
But we also know from the research that diversity, in many cases, is brought in when a firm is failing. We're more likely to promote a woman to CEO or hire a Black person for the job when the firm is failing. It's called the ‘glass cliff’ phenomenon because when the already failing entity happens to fail, who gets blamed? It’s the woman or the Black director.
So, the bank is failing. The bank has some amount of heterogeneity, though it's still overwhelmingly a white male board. We have two things happening at the same time: We have a firm that is increasing its commitments to ESG and to diversity, and we also have a bank that has a highly risky portfolio. It’s not surprising that a bank that has a highly risky portfolio, when the economic conditions start pressuring it, would start to struggle.
I also think it's important to understand that the average person doesn't actually understand what a board director does. They think of board directors as the people who actually run the firm. They can advise, but it's management's responsibility to take that advice or not take that advice. So what's also happening here is people are fundamentally not caring to understand what a board does in relation to a firm. Yes, it is the board's responsibility to make sure that that firm stays healthy, but then to relegate it to a small number of underrepresented people on a board, and to pass the blame on to the fact that we focused on diversity as being the whole explanation for what happened, is just illogical. That's the nicest way I can say it. It's not empiric.
What are the mechanisms through which diversity can enhance performance?
One way is as a revenue-generating mechanism. Over time, what scholars have done—as opposed to just looking at the relative diversity of gender or race or educational institution of the board members or the leadership team—is looked at how diversity affects things like market access, meaning the more diversity that exists, the more access to a broader range of customers. The idea is that they would somehow know more about different markets than a non-diverse team.
The other one is a cost-lowering mechanism: turnover intent. When employees turn over, that is an operating cost, because it costs more relatively to hire and onboard new employees than to keep your employees happy. So we look at how diversity helps to convince more people, particularly people from underrepresented groups, that they should stay in that organization and not leave. It lowers their turnover intent, and lowering the turnover intent can help to enhance the firm's financial performance.
Why would that be more pronounced in high-performing organizations?
Think about it this way: Diversity can help firms that are really focused on doing more, finding lots of opportunities, to find those opportunities. That's what market access is. Innovation-focused means you're actually focused on finding opportunities, and then tapping into these new markets. But if you're not super-focused on innovating, on creating new stuff, how the heck is diversity actually going to help you access new markets?
Your research has also found that a diverse board alone doesn’t make a difference without the right board culture.
When I had collected my data in 2018, the most prominent diversity conversation on boards was gender diversity. Most of the boards I studied didn’t even have racial diversity or LGBTQ diversity on their radar. They didn't have this understanding that there was a business case for diversity. And they weren't yet to a place where diversity was necessarily changing the way that they made decisions. Why, you might ask? Because women get on these boards and they don't let them talk.
One of the issues is that while we would like boards to be highly functional and effective, a lot of people have gotten on boards as their retirement gigs, and they're kind of there signing off. So there's not all this rich discussion and exchange happening. In many cases, it's literally the chair of the board, who's often the CEO, presenting hours upon hours of material to the board and saying, ‘Do you have any questions?’ I’ve talked about those as hierarchical boards. In hierarchical boards, that diversity isn't really mattering because no one's really talking. Inclusive boards or egalitarian boards are boards that see that bringing in diversity is important, but actually elicit ideas and suggestions and integrate the ideas and suggestions from board directors into what the board does.
Read a full transcript of our conversation.
What Else You Need to Know
Employers are setting up guardrails around the use of ChatGPT. Some 48% of HR executives in a Gartner benchmarking survey last month said they were in the process of drafting guidance on generative artificial intelligence. In the meantime, many employees are embracing it, with or without their employer’s knowledge.
- While many firms have taken a hard line against ChatGPT and similar technologies—Citigroup, JP Morgan, and Northrop Grumman are among those that have banned or restricted their use in recent weeks—employers including Amazon and Citadel are encouraging the use of generative AI at work.
- Recent developments have highlighted some of the potential challenges of AI: Cybersecurity researchers used ChatGPT to win a hackathon in Miami, portending a potential future in which hackers and scammers use the AI service for nefarious purposes. The newly released GPT-4 is more likely to perpetuate false information than its previous iteration, GPT 3.5, according to an analysis by Newsguard, which rates news outlets’ and websites’ credibility.
Google employees are protesting the company’s handling of its layoffs. After Google laid off 12,000 employees via email in January, some 1,400 signed an open letter calling for Alphabet CEO Sundar Pinchai to publicly commit to five actions: freezing new hiring and giving workers the opportunity to move to other roles; giving hiring priority to laid-off employees; protecting and supporting employees from other countries, especially those from nations with active conflicts; allowing affected employees on parental or other leave to finish their leave before letting them go; and guaranteeing that layoffs wouldn’t disproportionately affect marginalized groups.
- Around 153,000 tech workers have been laid off so far this year, according to the tracking website Layoffs.fyi, with Amazon and Indeed among the latest to announce cuts this week.
Nearly half of Gen Z workers are “polyworking,” or working multiple jobs at once. Some 46% of Gen Z workers reported working two jobs in a survey of 1,000 American workers from talent management platform Paychex, making them the generation most likely to do so.
- Across generations, 40% of respondents reported holding two or more jobs. Gen X workers were the least likely to polywork, at 23%.
- The report’s authors point to various motivations for poly working, including economic insecurity, a desire for flexibility, and openness to contract work.
Hotels are pushing employee upskilling programs to recruit and retain front-line workers amid an ongoing labor shortage. With nearly 1.5 million unfilled positions in the hospitality industry as of January, many hotels are rolling out development opportunities for front-line employees, like cross-departmental training, management workshops, and a clearer path to leadership positions, in addition to raising wages and improving benefits.
- The percentage of job postings emphasizing career-development opportunities on the online recruiting platform Wizehire has increased from 2% to 8% since the beginning of the pandemic, according to a Wall Street Journal report.
- Amazon has also pledged to invest $1.2 billion through 2025 in upskilling efforts to boost recruitment and retention among its front-line workforce. The program offers 10 upskilling programs, including Career Choice, a program that funds employees’ coursework at four-year institutions.
Return to workplace speed round:
- Allstate CEO Tom Wilson recently doubled down on the company’s flexible work policy during a Fortune Connect panel. “We found out flexibility really sells and, you know, nobody wants to drive to an office to do a Zoom call, and they don’t have to,” he said. “And commuting is way overrated.”
- The Organization for Economic Cooperation and Development and multiple countries’ tax authorities are drafting new recommendations for policies that could levy taxes when remote workers clock in abroad during “workcations” or longer-term stays. The OECD’s report is expected to come out at the end of 2023.
- As office vacancy rates remain high in many major American cities, office rents are falling in major markets including San Francisco, Chicago, and New York City.
- Apple has reportedly begun monitoring employees’ in-person attendance using badge records. Employees who fail to appear three times a week will receive escalating warnings.
- The average number of days worked remotely has stabilized at about 25% of total working days, according to new data from Stanford’s Nicholas Bloom, whose research also found that flexible-work policies can reduce quit rates by 35%.
- Amazon issued a formal rejection this week to a petition signed by 30,000 employees protesting the company's return-to-office mandate.
Here are some of the best tips and insights from the past week for managing yourself and your team:
- Extend your one-on-ones to encourage candid conversations. In the wake of a stressful event, like layoffs, managers can signal that they’re making space for reports to process, ask questions, and express concerns by adding 15 minutes to their regular check-ins.
- Map how decisions are made. To check how inclusive your team is, start documenting whose input is included and valued while making decisions. Who got to weigh in? Which voices were most influential? Who was the ultimate decider?
- Use DESC to give difficult feedback. When approaching a feedback conversation that has the potential to become heated or emotional, try planning out what you will say using the acronym “DESC,” which stands for description (what’s the situation or issue you want to address?), emotion (how did the other person’s behavior make you feel?), solution (how do you wish it had been handled?), and consequence (what would happen if this was left unaddressed?).
Taking big swings. A new research paper titled “How Working from Home Boosted Golf” finds that, well, working from home has indeed boosted golf—Wednesday afternoon rounds, in particular, are now 278% more popular than they were in 2019.
- The paper’s authors wrote that the rise is likely caused by workers golfing during breaks from work, noting that “if employees make up the time later then this does not reduce productivity.”
You could cut the tension with a knife—if you had one. Kitchen drawers are emptying in some workplaces, as employees returning to in-person work are stealing cutlery enough to create office shortages.
- One employee who took on the self-appointed role of “fork police” told The Wall Street Journal he had posted a sign to shame the thieves, unsuccessfully: “They all came back, and then two weeks later, they were gone again.”
- The office kitchen is a lightning rod for drama in more ways than one, with returning employees becoming reacquainted with squabbles over fridge space, counter cleanup, and—the worst offense of all—stolen lunches.