Three years after companies doubled down on DEI, 'the pendulum swings back.' Here's why.

By Ciara Linnane

Inflation, anti-ESG movement and a war on 'woke' politics are hurting the diversity, equity and inclusion push at companies

Jane discovered she had lost her job as part of Twitter's inclusion, diversity, equity and accessibility team on a Saturday night, when an attempt to log into the company's Slack channel failed. The news was confirmed in an email early Sunday.

Some two weeks after billionaire Elon Musk's $44 billion takeover of the social-media platform last fall, all 30 members of the IDEA team had been laid off, bringing an end to what was widely viewed as one of the most successful diversity, equity and inclusion programs in corporate America and especially at a tech company.

"Twitter set the bar high," Jane, who asked to be identified by a pseudonym because she is involved in litigation against Twitter, told MarketWatch. The company's DEI initiatives included full salary transparency and ambitious goals to hire from historically excluded communities. With one swing of Musk's ax, that ended. "It's sad that a lot of that work lives on a drive that will probably never be touched again," Jane added.

The demise of Twitter's DEI team set an unhappy precedent, coming at a time when the movement to create greater equity for women and people of color in the workplace was already slowing, according to Lili Gangas, the chief technology community officer at the Kapor Center, a nonprofit that works to improve racial justice and equity in the technology sector.

The Twitter team was not an addition made in the wake of George Floyd's murder in May 2020 and the racial reckoning it stirred, as was the case at many other U.S. companies both within and outside the tech sector. "It was built with real intention and was working closely with communities to get more people of color into its ranks," Gangas said.

Now, what Gangas called "the Musk effect" may further undermine the DEI push if other executives also decide they can abruptly drop those teams. She has a point: Salesforce chief executive Marc Benioff recently told Business Insider that every CEO in the Valley is watching what Musk is doing, and asking themselves if they need to "unleash their own Elon." (Twitter no longer has a communications team to respond to media inquiries.)

In recent months, DEI has come under pressure from another constituency, too -- namely, conservatives waging war on what they call "woke" ideology, even going so far as to blame the recent demise of Silicon Valley Bank on such policies.

While the term "woke" originated as a bit of Black American vernacular and has a decades-old history, figures on the political left today use it in reference to social-justice advocacy, while right-wing politicians and commentators often use it to describe liberal priorities or policies they don't like. And DEI initiatives at companies have become a target of that criticism.

Related:'Woke' is being used to describe everything and nothing. What does it actually mean?

In one recent example, Wall Street Journal opinion columnist Andy Kessler noted that Silicon Valley Bank's board was made up of 91% independent directors and 45% women, with one Black director, one LGBTQ individual and two veterans. "I'm not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands," he wrote in a March column.

Then there's the backlash to investing using environmental, social and governance, or ESG, factors. Such investment strategies have become the target of GOP lawmakers across the country who argue they are focused more on pushing political agendas rather than earning the best returns, as the Associated Press has reported.

'The pendulum swings back'

It all looked different in the summer of 2020, when company executives were rushing to express solidarity with movements like Black Lives Matter and racial-justice organizations following Floyd's murder by a Minneapolis police officer.

"My phone and email were blowing up," said Tina Opie, an associate management professor at Babson College specializing in diversity, equity and inclusion and organizational behavior.

Nearly three years later, "I'm seeing a freeze on budgets," she said. "I predicted this would happen, because throughout history, whenever we see an advance for social justice, the pendulum swings back."

The macroeconomic backdrop, and especially inflation, have been contributing factors, Opie said. Once inflation became a top news story last year, companies didn't want to talk about diversity. "They think it's a conflict," she said.

Inflation, and the rapid interest-rate hikes implemented by the Federal Reserve to contain it, forced companies to take a closer look at their rising costs, Opie said. Some found DEI no longer felt as pressing or even necessary viewed in that light, and began to question its value.

But the companies that think solely about the return on investment they can expect from diversity are not going to succeed at it, Opie said. "It's not just about hiring different people and sticking them in a room," she said. "You have to know how to lead and manage them, and it doesn't happen by osmosis."

Others say the movement had slowed almost immediately after the first wave of headlines and statements from companies and executives, and the first rush to create DEI divisions and pledge funds toward hiring more people of color and those from other historically marginalized groups.

DEI roles actually started to shrink at a faster pace than non-DEI roles starting in 2021, according to Revelio Labs, a data company that tracks workplace trends by analyzing public employment records, including layoff sites, employee-sentiment sites, online profiles and resumes. That trend that continued to accelerate in 2022, particularly as companies began announcing major layoffs.

In a study Revelio conducted for Black History Month involving 675 U.S. companies, DEI roles across all companies in the survey were showing higher turnover.

There are several reasons for that, according to Reyhan Ayas, Revelio's senior economist. For starters, "our previous research shows that layoffs often operate on a last-in, first-out rule, so those people who were hired more recently are more likely to be laid off first," she said.

Hispanic workers and women are overrepresented in layoffs, likely because they tend to occupy lower-paying roles that are often first to be cut. Staff at the middle-seniority level are also overrepresented, which is problematic because it's where tech companies in particular tend to have the most diverse teams, Ayas said.

Read more:Women are overrepresented in lower-paying jobs. It's costing them billions of dollars

"There was a lot of hiring of diversity officers without a real plan of diversifying the workforce," she said. "You need to create a culture of belonging. A lot of companies don't implement changes based on metrics that matter and/or follow through on their promises."

"You can instantly hire DEI officers, but you can't instantly increase your share of Black workers," she added.

The survey also found that people of color stay at companies with DEI teams for longer, although the average tenure is quite close to that of companies without them.

DEI efforts can't be 'expendable'

Bhaskar Chakravorti, the dean of global business at Tufts University's Fletcher School, disagrees that there was real momentum in the summer of 2020 -- and views what actually happened as more talk than action.

In the tech sector, for example, companies had a clear opportunity in that moment to take a key step toward adding more people of color to their workforces, he said: that is, finally allow people to work remotely and widen the recruitment pool to locations outside of centers like Silicon Valley, New York and Massachusetts, which had become unaffordable for many.

"To truly make the industry more inclusive, tech companies need to let go of their geographic biases and change the way they recruit, organize teams and allow employees to work," Chakravorti wrote in an article published in the Harvard Business Review in December.

Some of that hiring did happen -- but the trend quickly reversed last year once the "tech winter" set in and companies realized they had overhired during the boom pandemic period and needed to shed staff again. At that point, remote workers became more vulnerable, as it's easier for managers to cut staff they don't face in an office daily, he said.

"To be fair to companies, the summer of George Floyd was also the first pandemic summer and we were all living under a cloud of uncertainty. We didn't know if we should be touching the doorknob," he said. "So turning the ship around was not executable even with the best of intentions."

Companies that decide to abandon their DEI push when times get hard are making a tactical error, according to numerous studies that have found having a diverse and inclusive culture can give a company a real competitive edge.

A 2019 ranking of S&P 500 companies by the Wall Street Journal's research analysts, in fact, found that the 20 most diverse had better operating results on average than those with a lower score, and their stocks also outperformed. That research, which was the Journal's first ranking of corporate sectors, found that diversity aids innovation, which in turns boosts profit and sales.

"Diversity helps create long-term shareholder value," Lottie Meggitt, a responsible-investment analyst at Newton Investment Management, a unit of Bank of New York Mellon, told the paper at the time. "Too often we have seen companies fail or make poor decisions where teams are populated with individuals who all think the same, or who are unwilling or unable to challenge the status quo."

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04-25-23 0943ET

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