Bill Ackman and Elon Musk called DEI 'racist' but companies need it to succeed, experts say

• Billionaires and business leaders are arguing over whether DEI efforts should exist.

• Investor Bill Ackman and Elon Musk say diversity, equity, and inclusion programs are "racist."

• Corporate DEI efforts might evolve, experts told BI, but they're not likely to go away.

It's the abbreviation that has some billionaire bigwigs pretty worked up — and it's not AI.

The talk about DEI — diversity, equity, and inclusion —  isn't about how to jumpstart efforts that once seemed almost universally lauded. It's about what's next for these programs following attacks on DEI by several high-wattage names in business.

Billionaire investor Bill Ackman, who became a vocal critic of how Harvard handled antisemitic rhetoric on campus, is now targeting DEI. In a post on X this week following the resignation of Harvard President Claudine Gay, Ackman said he believes DEI is "the root cause of antisemitism at Harvard," his alma mater.

The debate didn't end there. Elon Musk went after fellow billionaire Mark Cuban for his support of DEI efforts. Cuban, in a post on X, wrote that "there are people of various races, ethnicities, orientation, etc that are regularly excluded from hiring consideration." Musk replied that DEI was "just another word for racism."

The billionaire brawls over DEI signal that a focus on diversity — from academia to the corporate world — will further shift gears in 2024: Many of the efforts will stick around though some might evolve, experts told Business Insider.

"I don't think the work is going to stop," Joelle Emerson, cofounder and CEO of the DEI advisory firm Paradigm, told BI. "When I'm talking with boards and C-suite teams, I'm not hearing conversations around 'Oh, should we/shouldn't we.' I'm hearing conversations around how do we navigate the distraction that is this external kind of conversation?"

Part of the reason DEI efforts might change is practical. There are fewer people to carry out the work following layoffs in DEI departments over the past year or so. More than one in three people who started a role related to diversity following the 2020 killing of George Floyd, which touched off widespread social-justice protests and drew attention to DEI work, have left the field, according to research by data provider Live Data Technologies.

Another reason why changes to companies' DEI programs are likely is because the business world goes through cycles of enthusiasm for various topics, Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management, told BI. The current focus is artificial intelligence, so it's little surprise, he said, that there's less attention on DEI at many companies.

And, in the case of the attacks on Harvard, Sonnenfeld said communication failures by the university's governing board left an opening for critics of Gay to make the issue about DEI rather than her testimony before Congress over hate speech on campus and on subsequent accusations of plagiarism in some of her work.

"They left a vacuum there for people to fill with this stuff — with this DEI explanation. And what does that do?" Sonnenfeld said. "It horribly discredits some of the finest educators this country has."

DEI backlash grew after the Supreme Court's ruling

The latest attacks on DEI follow the Supreme Court's decision in June that effectively struck down the use of affirmative action in college admissions. Some schools had relied on affirmative action to consider race when deciding whom to admit.

That decision, which appeared to embolden conservative critics of the practice, also left some in the corporate world undeterred when it comes to diversity. In a survey of 400 C-suite and HR leaders in the weeks after the court's decision, the executive search firm Bridge Partners found that 96% of business leaders described DEI programs as being "very or somewhat important" to their organization.

Sonnenfeld, who's also the founder of Yale's Chief Executive Leadership Institute, said companies have been implementing DEI programs because they believe they're good for the bottom line. Research from McKinsey, for example, shows diverse and inclusive companies tend to be more profitable. They also file more patents and show greater innovation, research has shown.

"Having a better representation in your leadership of your workforce, and having a better representation of your owners, your customers, and your communities in your leadership is seen as a huge plus by 95% of corporate America," Sonnenfeld said.

DEI can be good for business

Sonnenfeld said it's unlikely CEOs will retreat from their efforts around diversity even if some of the work becomes the target of critics. "I don't know of any CEOs that are shrinking for fear of being called out," he said.

Kedra Newsom Reeves, a managing director and partner at Boston Consulting Group, told BI that equity and inclusion efforts can drive tangible results for a business. These include boosting innovation, increasing access to customer markets, and improving employee performance.

She explained BCG advises companies to think about using "an equitable, inclusive strategy to drive your own competitive advantage and performance in a way that's beneficial to you as an organization because you do have a fiduciary duty to your shareholders and beneficial from a social perspective as well," she said.

That idea of fiduciary duty is one some critics of DEI efforts are exploring as they make the case that companies' considerations of workers' backgrounds have meant talented workers were excluded. That, they argue, could sideline the best and therefore put shareholders at risk.

And there are signs that some companies are pulling back from their work around diversity, in some cases because there are indicators it's not been all that effective.

Emerson said some of the corporate conversations around DEI early on were performative because leaders didn't want to be called out for not addressing the issues. Having separate teams of DEI experts might not have been as effective when other teams were left to make decisions around things like hiring. Instead, she said, the work of ensuring various voices are included needs to be handled across teams.

"I hope we're going to move away from the trend of this being sort of a flashy topic that sits on its own as sort of a check-the-box," Emerson said.

Newsom Reeves said BCG encourages its clients to think less about organizational diversity targets and focus on outcomes.

Despite the rhetorical heat on DEI, she said, many companies that are still pursuing their diversity initiatives are looking at metrics like how to boost employee retention and drive revenue. "It is not simply DEI for DEI's sake," Newsom Reeves said. "It's really about how do we drive impact as companies."

The debates about DEI following the fights at Harvard are regrettable, Sonnenfeld said, because they miss the point over why Gay was forced to resign — the handling of her Congressional testimony and the allegations of plagiarism.

"Making her a poster child of DEI issues — that's exploiting her. This poor person, this professional who had some tragic missteps, should not become an ideological political football for people on different sides of the political spectrum. That wasn't the issue here," he said.

Read the original article on Business Insider