The Business Case for Diversity

Rosetta Thurman, a consultant now blogging for the Chronicle of Philanthropy, has posted a challenge to US not-for-profits and their perpetual dallying on diversity.  “Put Up or Shut Up,” she demands.  But couched as a moral imperative, this is an empty threat.  And the danger of not taking actual steps toward diversity is very real.

I believe there is nothing as important to the long-term success of a not-for-profit organization in America as recognizing and being representative of its constituency, especially now when the demographics of our nation are changing so dramatically and so quickly.  However, I want to suggest an alternative explanation both for why organizations lack diversity today and how that can be changed in the near term.

At one point, Ms. Thurman asks, “When will organizations make it a priority to ensure that their leadership reflects the racial diversity of the people they serve?”  I believe that depends on two factors.  First, how you define “serve” and, second, what is the pressing financial interest for change.  Rather than these basic business benchmarks being an impediment to ethnic diversification, I believe they are a rational argument for it and far more compelling and effective than any moral argument has been to date.

Fundamentally, not-for-profit organizations are businesses whose products are a public benefit.  The customers, therefore, are the donors, not the beneficiaries.  For that reason, not-for-profit organizations, like their for-profit brethren, must first and foremost consider their current and future market in all leadership decisions.

Traditionally, not-for-profit boards and CEOs somewhat mirrored the most numerous and most generous donors.  Since the wealth of the past was largely homogeneous, it is understandable that boards and executive leaders were the same.  However, those days are over.

Today, the demographics of wealth in America are changing fast.

Women, already the gender majority, significantly outpace men in higher education graduation rates, historically a marker for higher income earnings, with college graduates earning on average $1 million more over the course of their lifetimes than those with only a high school education.  About forty percent of privately held U.S. firms are owned or controlled by women.  In addition, women’s businesses grew at twice the pace of all other firms between 1997 and 2004, created jobs at twice the rate of all other firms, grew faster than all others firms and were more likely to stay in business.

Women of color do even better!  Their businesses are about four times as likely to stay in operation as any other!

And speaking of ethnicity, the nation’s Hispanic/Latino and Asian populations are not only expected to triple over the next half century, to nearly 34% of the US total, but these populations are also quietly but profoundly changing wealth creation centers in America.  For example, Hispanic women-owned businesses number over 550,000, employ more than 320,000 workers and generate in excess of $44 billion in sales nationwide.  Between 1987 and 1996, the number of Latina-owned businesses grew by 206%, compared with 47% for businesses as a whole.  In fact, four in ten minority women owned businesses are controlled by Latinas.

It’s a pretty safe bet that those who have more education and own more businesses will end up having more wealth in time.  But not-for-profit organizations, like all businesses, are somewhat conservative in character.  They have largely not embraced fundraising strategies which would attract and retain donors of color and, for that reason, they have not built relationships to new donor communities that naturally lead individual contributors from attending a function to writing a check and finally to serving on the board.

It’s hard for any business, even a not-for-profit, to stop picking fruit in one reliable orchard and to suddenly move to another which is both unknown and likely not initially as bountiful.  The problem, however, as anyone who has visited an orchard knows, is that trees don’t bear fruit forever and you’ve got to cultivate an orchard to get any apples at all.  Therefore, organizations must make the painful switch to do a little less in the known and a lot more in the unknown.  To not do so means they both risk diminishing returns on their current activity and leave new markets to other more forward-looking competitors, ranging from other enterprising not-for-profits to the uncertainty of social entrepreneurship.

Looking even more broadly, the ultimate market opportunity for US not-for-profits—and not coincidentally the greatest opportunity for diversification—is international fundraising.  Here, it is not a matter for soothsayers reading tea-leaves on wealth trends.  The switch has already occurred.  Three out of four of the world’s ultra high net worth individuals reside outside North America.  In 2013 there will be more millionaires in China than in the United States.  Even the richest man in the world is no longer from America but from Mexico.

Here’s one way to make a shift in thinking about not-for-profits and their markets.  Rather than merely considering the demographics of your beneficiaries, as Ms. Thurman seems to suggest, or the demography of your donor base, as most fundraising training tells us to do, look around the place where you live and where your kids go to school.

Thirty years ago, the community where I live would have been almost entirely white and English speaking.  Today, it is nearly 30% “minority,” a term which covers many things but also leaves out the dramatic rise in multicultural, multiethnic and multilingual households, including my own.  Public schools, perhaps the best measure of your community’s demographic future, have experienced a more profound change.  In my community thirty years ago, only two languages would likely have been heard in the hallways and cafeterias of the schools.  Today, there are over 100 languages being spoken by the children attending public schools in our area.

The quest for diversity is an honorable one.  But it does seem elusive.

One reason is the way we do business: we are almost always doing things “the old way” until change has overrun us and we realize it’s time to catch up, just as it seems to be now with changing demographics, fundraising practices and organizational leadership.

Another reason is that the word diversity has both a dictionary meaning and a meaning in our own individual minds.  Certainly the idea of what diversity looks like could be a bit different for a white man in his forties, an African American woman closing in on thirty and for a 10 year old child of two parents of two different races and cultures.  If we could try a little harder to look through our children’s eyes at their world, then perhaps we might get a little closer to what true diversity may be today.

Until then, my hope and belief is that we can make a strong business case for diversity.  For while moral arguments for inclusiveness and representation are meritorious, they are far more difficult for many to fully appreciate than the inevitability of a declining market.  And in this case, the numbers are clear.  For organizations to achieve success in the future, they must diversify their donor constituencies.  Once this is done—and it can be done starting today—the face of the board and executive leadership will change as well.