Companies chase ‘return on equality’

When Todd Sears was an investment banker on Wall Street, all his clients wanted to know about was return on equity.

Now, his organisation Out Leadership, OUTstanding, the UK-based multi-industry LGBT networking group, and other organisations like them are educating companies around the world about the “return on equality” that comes from investing their support in LGBT staff.

Their message is simple: diversity is good for business, and a failure to provide it has measurable financial implications on productivity, brand image and recruitment.

Corporations have played a significant part in raising awareness of LGBT rights around the world. The globe-trotting nature of employees in big financial services firms has led many to lobby for change in less tolerant regimes, and the significant spending power of LGBT consumers is not lost on the corporate world.

At a human resources level, the Human Rights Campaign recently reported that 91 per cent of Fortune 500 companies have policies prohibiting discrimination on the grounds of sexual orientation, and 62 per cent provide health insurance benefits to employees’ partners.

Nevertheless, there is plenty of statistical evidence to show that many organisations have yet to adopt such policies.

Research conducted by Out Leadership found that 40 per cent of LGBT employees remained in the closet at work.

Although it found that older employees had a greater tendency to keep their sexuality under wraps in the workplace, younger staff are also fearful of the career implications.

A separate study by the Human Rights Campaign found that 62 per cent of LGBT college graduates in the US went back into the closet upon taking their first job.

Harvard University conducted an experiment in 2011, applying for 1,700 jobs with two résumés – one that said the applicant was treasurer to their college’s LGBT society, and one that did not. This study found that the openly gay candidate was four times less likely to be invited to a first-round interview.

Additionally, a UK survey by Stonewall in 2013 found that gay men earned on average 17 per cent less than straight men in similar jobs.

Employers are concerned that the energy and emotion of having to hide one’s sexuality at work can be an unnecessary source of worry and distraction for employees, and turn off potential recruits.

“People who are out at work are a whole lot more productive,” says Claudia Brind-Woody, vice-president at IBM, and the tenth most influential LGBT executive on OUTstanding’s Top 100 list. “They’re able to bring their whole selves to work, their entire creativity, and the teams function better when people can work from their own authenticity.”

She practices what she preaches – as an out gay woman, she says on her management blog: “It is in claiming my own authenticity that I have been able to be a catalyst for change in the workplace.”

Her assertion is backed by research studies. They show that employees who are out at work tend to be more engaged and are promoted more quickly, whereas those in the closet are more than 70 per cent likelier to leave the company within three years.

This is both a drain on the talent pool and also costly in terms of recruiting replacements.

Neil Bentley, former chief operating officer of the CBI and member of OUTstanding, says: “We know that when people are themselves, they are at their best and can be the most productive and that’s what brings competitiveness.”

Another reason international financial institutions have been so quick to support the diversity movement is because discriminatory laws prohibit the free movement of talent in their organisations – relocating to a state or country where same-sex marriage is not recognised is clearly problematic for LGBT employees.

Attendees at a recent LGBT networking event were asked if they had ever turned down an international relocation or promotion because of the fear of discrimination. More than 60 per cent said they had – and Singapore and the Middle East were the two most frequently mentioned locations.

In the US, last year’s symbolic overturning of the Defense of Marriage Act, which failed to recognise same-sex marriages at a federal level, was lobbied for by more than 300 companies – the largest group being Wall Street firms.

“It mattered to them on a business level, because staff who had married in the state of New York, where marriage equality was recognised, were losing 1,049 rights at a federal level if they moved to Alabama,” Mr Sears says. “If the company wanted them to relocate, why should they?”

In Asia, deeply conservative family cultures mean LGBT employees are more likely to be out at work, but remain in the closet at home. Even so, many are also reluctant to come out in the office. Last year, an HSBC survey published in the South China Morning Post showed that 10 per cent of Chinese banking staff were unwilling to work with gay colleagues.

Stonewall notes that employment protection for LGBT people still only exists in a quarter of the countries in the world, and has set up a programme called Global Diversity Champions.

Out Leadership is encouraging its members to undertake advocacy overseas, producing “business briefs” on countries (including Singapore, Russia and Nigeria) for executives, setting out the legal situation for LGBT people, why this is bad for business, plus a list of the key influencers in government, in the hope they may lobby them.

Mr Sears says: “We’re arming chief executives with information, so they can say – Singapore, you know that law 377A? It’s bad for my business, and if you want to compete with Hong Kong, you might reconsider it.”

Large corporations are also increasingly aware of the spending power of the LGBT community and its allies.

In the US alone, LGBT spending power was pegged at $743bn in 2010; Stonewall estimates £70bn-£81bn for the UK. Supportive straight consumers swell this purchasing power further.

Honey Maid, the US snack company, made a direct play for the “diversity dollar” with an ad campaign in March, tagged “For every wholesome family” featuring two gay dads with their young sons.

The response on social media was electrifying. A month later, the 90-year-old brand made a second ad where two artists turned all the hate mail spawned by the campaign into a paper sculpture spelling the word “love”. The company underscored its message by showing the sacks of appreciative mail – 10 times greater in volume – and has enjoyed a huge boost in sales.

Backlashes against intolerance can have an equally striking – but damaging – effect on brands – a type of “return on inequality”.

In 2012, Dan Cathy, the chief executive of US fast-food chain Chick-fil-A caused a storm by making negative comments about same-sex marriage in the press. Two weeks later, the chain’s score on a YouGov poll of US brand approval ratings dropped by nearly 50 per cent, as customers voted with their feet. Mr Cathy has since apologised for the comments.

Backlashes against intolerance can have an equally striking – but damaging – effect on brands

Credit Suisse has attempted to calculate how such behaviour can affect a company’s stock value, and launched the Credit Suisse LGBT Equality Index last year. Drawing on data from the Corporate Equality Index, which dates back to 2002, this operates on a 100-point scale with companies awarded points for fulfilling criteria such as having transgender-inclusive health coverage. Nicole Douillet, co-creator of the index and chair of the bank’s Open Network for LGBT employees, says that 304 businesses score 100 points on the index, compared with just 13 in 2002.

Some 20 per cent of gay men and 12 per cent of gay women said in a survey conducted two years ago that they viewed their sexual orientation as a business asset. When asked the same question again recently, more than 40 per cent said yes. What’s more, few appeared to be concerned about the concept of a “pink ceiling”, a term coined to reflect the small number of LGBT executives running companies listed in the FTSE 350 or Fortune 500, which has precisely zero openly gay chief executives.

This year’s OUTstanding list of the 100 most influential LGBT executives includes several UK-based chief executives, with Christopher Bailey of Burberry, a FTSE 100 company, topping the rankings.

There are more examples of LGBT chiefs among smaller US-listed companies. Last year, C1 Financial Inc became the first IPO to name chief executive Trevor Burgess’s husband as a “spouse” in company listing registration documents of related parties.

As chief executives tend to be in their 50s and 60s, many may be more inclined to stay in the closet, as Lord Browne did while he was chief executive of BP. But times have changed. Drop a generation and many openly gay CEOs in waiting in their 40s are ready to lead companies with global reach and influence.