- LGBT-friendly policies increase a company’s stock market valuation
- Employees are more productive in LGBT-friendly firms
- Policies must be approved of by shareholders to be successful
“Get woke, go broke,” is a slogan you’ve probably heard at some point of another. However, the emerging trend shows that adopting LGBT-friendly policies actually boost company performance, new research from Aalto University School of Business reveals.
Casting aside the universally recognised reliability of memes, Assistant Professor Jukka Sihvonen at Aalto, along with his co-authors from the University of Vaasa, analysed financial statements and stock prices gathered from 657 US companies to find that taking a supportive stance on sexuality significantly increased a firm’s stock market valuation and profitability.
But what is meant by “LGBT-friendly policies” in a concrete sense? The Human Rights Campaign, which is the largest LGBT rights advocacy group in the US, assesses companies using a five-point system called the Corporate Equality Index (CEI).
CEI first looks at hiring practices to see if your company is turning people away at the door based on their sexual orientation or gender identity. Next, it investigates whether you offer equal employment benefits to minority groups.
Such benefits could include mental health support for transgender workers or offering the same package of parental leave for homosexual workers adopting a child that you would extend to expecting heterosexual workers.
The other big factors that affect your CEI rating include public engagement with the LGBT community, such as philanthropic work and talking about relevant social issues, and taking accountability for any discrimination (past or present) that relates to your business.
To understand how such strategies put more pennies in your pocket, switch out the “LGBT” for “worker”. Now you have “worker-friendly policies”.
Adopting this approach could mean that your recruitment team is open to drawing in talent from communities that your competitors might be too close-minded to accept, giving you a significant competitive advantage. Additionally, the perks of working for an actively supportive employer can also result in your company retaining those highly-skilled employees for far longer.
“LGBT-friendly firms are associated with greater employee commitment, improved job satisfaction, increased employee productivity, and more altruistic workplace behaviour,” says Sihvonen.
In other words, a company that looks after its employees earns their dedication and builds a strong workplace community. Employees that feel a strong sense of attachment to the organisation will work harder to ensure its success. LGBT-friendly policies mean worker-friendly policies.
Of course, if no companies took pro-LGBT stances, the members of that community would still find jobs. But, the research suggests, it’s likely such workers would have a lower level of attachment to the business, meaning decreased worker productivity. Additionally, the workplace atmosphere would also be affected by becoming secretive and isolating for those workers feeling they have to hard parts of their identities. Such a culture could hinder teamwork. Sihvonen believes that if companies don’t adopt LGBT-friendly policies, they limit their potential for growth.
That being said, adopting non-discriminatory policies does not guarantee success. While Sihvonen’s research makes it clear that companies with a competent business model can benefit financially and reputationally from openness to the LGBT community, it’s not a magic plaster with which you can seal up the gaping wounds caused by drying-up revenue streams.
There is also a caveat added to Sihvonen’s findings. Taking a pro-LGBT stance can hurt profits if a significant portion of the company’s shareholders are against the idea. However, the messy civil war that could follow applies to any decision taken by a business that aggravates shareholders, not just this one specifically.
To avoid such circumstances, Sihvonen suggests companies should take steps to understand the opinions of the people who have invested in their company, and plan their strategy accordingly. It’s always possible buying back a certain proportion of your shares is necessary to securing the opportunity for future growth.
And grow your business will. “Our empirical findings demonstrate that LGBT-friendly corporate policies pay off, and the documented positive relationship between LGBT friendliness and firm performance can be considered economically significant,” says Sihvonen.
To condense that in numbers, a business which makes a moderate increase its CEI score faces and increased stock market valuation of three to seven percent in the US, depending on the religiosity and political leaning of the state. Growth tends to be highest in less religious, firmly Democrat states, but keep in mind that there is still growth in the less fertile climates.
For many, Sihvonen and his co-authors’ research crystalises what they have already known for some time. Others may ask, but what makes LGBT people so special?
This question misses the mark entirely. The merits of LGBT-friendly policies will attract more people from that community, correct. But their value to your company is not in bringing you diversity tokens you can cash in for higher profits.
Non-discriminatory policies are about not shutting talent out. A business blunts its competitive edge by limiting the number of pools it can draw on for recruitment. The refusal to appeal to certain groups is simply the exercise of carving up a smaller and smaller consumer base.