Metrics are a tricky issue in diversity. On the one hand, numbers-focused diversity programs fail. They fail because they end up forcing managers to fill quotas (which everyone resents) while failing to create a workplace welcoming to women and minorities. On the other hand, the use of metrics is associated with successful diversity programs. Metrics are a "best practice" because management pays attention to numbers and they provide a way to keep score. So the bottom line is that organizations should report on diversity metrics. Just what they should report, and to whom, is the subject of this article.

Measurement Versus Assessment
In the U.S. business people talk about metrics with a certain reverence, to the point of dismissing other kinds of useful evidence. This is a serious mistake since numbers can be misleading and because there is a lot of useful information that cannot be conveyed with numbers. I prefer to talk about assessment rather than measurement. The goal of reporting on diversity, or anything else for that matter, is to provide information that will allow someone to assess the situation and make appropriate decisions. So reporting on diversity is not just about giving metrics, it is about describing the programs, the rationale for the programs, and even anecdotal information as to whether the programs are working.

Who Cares About Diversity?
Obviously, if top management has funded a diversity program they will want some evidence it is working. The first reporting goal for the manager of diversity is to provide the information top management wants. However, there are several other stakeholder groups:

• Current and prospective employees
• Customers
• The Board
• Investors

Not all, but many, current and prospective employees care about diversity and good diversity programs can attract and retain talent. It's interesting that even white Anglo-Saxon males may care about diversity. In The Rise of the Creative Class, Dr. Richard Florida reports that prospective straight employees may ask about a company's gay-friendly policies. On the face of it this seems crazy but "the creative class," as Florida labels them, wants to be able to express themselves; they feel that a company that is open to gays will allow them to express their true selves at work.

Some customers care about diversity. This occurs at two levels. At the brand level notably good or notably bad diversity can affect customer relations. Denny's invested in diversity programs because notably bad publicity around race relations had been damaging their brand. At an operational level it is generally believed, and it stands to reason, that having a mix of employees that roughly reflects the mix of customers will lead to higher sales.

The Board and investors care about diversity because it impacts performance. The impact on brand is easy to see and Catalyst's famous studies suggest that gender diversity at senior levels is associated with higher performance.

Reporting on diversity should address the needs of all these stakeholders.

Diversity, HR and Intangibles
We've spoken of reporting on diversity in isolation; however diversity is part of the larger topic of HR which in turn is part of the still broader topic of intangibles. It is now widely known that tangibles (like plant and equipment) typically account for about half of the value of a publicly traded company. The rest comes from intangibles like brand, relationships, and human capital.

In Denmark many companies produce an intellectual capital report, and if diversity is an important intangible for the company it would be reported in that context. In the U.K. companies are now required to prepare an "Operating Financial Review" in which human-resource issues are expected (but not required) to be included. Currently, many North American companies produce a corporate responsibility report and diversity is often reported there in the context of "workplace," "social performance," or "our people." We have some issues with this, which we will get to later, but it is encouraging to see companies going public with information on diversity.

Ideally, reporting on diversity should be in the larger context of human capital or intangibles; however lack of a larger context need not deter diversity managers from issuing their own reports to the Board and the investor relations department.

What The Fortune 50 Tells Wall Street
In our landmark study, Reporting on Human Capital: What the Fortune 50 Tells Wall Street (www.rbl.net), we discovered many companies already report quite a bit about diversity. Of the Fortune 50 organizations that do report on diversity, the average word count is 750 words - close to two pages. Twenty-six percent report what we call "complete metrics," specifically Overall Male/Female ratios, Male/Female ratios by level, Overall Ethnic Mix and Ethnic Mix by level. Dow does a good job of providing historical data so that investors can see trends. IBM does the best job of explaining the business rationale for diversity. SBC Communications, Chevron, GM and Microsoft all do a good job of explaining their practices - information that helps the human-capital analyst look beyond the numbers to assess whether or not diversity is likely to improve.

While it's encouraging to see the glass half full it's worth nothing that 42% of the Fortune 50 does not report at all on diversity in their annual or corporate responsibility reports.

Your Diversity Report
This discussion now leads us to the point of what your organization ought to do now. To cut to the chase, organizations should create a report on diversity because, as we have shown, it is of interest to investors, the Board, customers and employees. It is far better to be proactive and create a report than to wait until a Wall Street analyst turns to the CEO and says, "Well, where the heck are your diversity numbers?"

Diversity serves at least two purposes. It is a social responsibility goal and it is a business goal. While social responsibility is a sufficient reason for having a diverse workforce, there is no question it is more powerful if diversity can be shown to be serving business goals. In fact, one of the characteristics of sustainable diversity programs is that while they typically started as a social-responsibility objective, they soon evolved to being a business objective. As long as reporting on diversity is only in the corporate responsibility report there is the implication that diversity is not strategically important. Organizations serious about diversity should be sure that the most critical information about diversity appears in the annual report.

Because reporting on intangibles is new we want to be a little careful about being overly prescriptive. However, to get you started here are a few guidelines.

• Metrics: Report on gender and ethnic mix by level and show at least five years of history so stakeholders can see trends. Also, while no one in the Fortune 50 reports employee satisfaction/engagement scores broken down by gender or ethnic background, they should. This is a critically important metric and smart Wall Street analysts will start asking for it.



• Rationale: Explain why diversity matters to your business. Is it about getting top talent, reducing turnover at lower levels, improving innovation, entering certain customer segments or something else? Do not assume stakeholders understand why diversity matters to your organization - explain it.



• Practices: Describe the diversity practices that have the greatest impact and the reasons you believe they have that impact. The reasons could be a logical argument, anecdotal information, or metrics.

But I Am So Busy...
Everyone has too much work and improved reporting may seem like just one extra thing to do. There are several reasons why reporting on diversity should take priority. The first is that good reporting to the Board, investors and general public will provide the visibility to keep the organization focused on diversity. Secondly, failure to report is a failure to manage risk; the Board needs to know at the very least there are no looming problems. Thirdly, reporting is not onerous. A few well-chosen metrics and several carefully thought out pages of text is all that is needed. We encourage all companies, and in particular public companies, to improve reporting on diversity and more generally on all human-capital intangibles.

Reporting on human capital is an important emerging issue. We would love to get your thoughts. Please email creelmanresearch@canada.com or nsmallwood@rbl.net.

What is your point of view? Please post your thoughts on the discussion board.

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