Making the Financial Case

“I’ve been worried about the diversity issues in my nonprofit organization for awhile now.  I’m the #2 person, my Executive Director is a little aloof about this.  I think he’s ultimately worried that our white, wealthier donors and board members will see this as “fringe work.”  Staff are becoming unhappy with our lack of action on this and the organization is suffering.  I know we need to make changes, but how do I make the case to invest in this?”

If this sounds familiar, that’s because it’s not unusual.  Many people in what i call historically white organizations have a primarily white leadership tier with more racially and ethnically diverse hires at lower levels within the organization.  Well-meaning and well-intentioned leaders struggle with how to proactively improve diversity and inclusion.  They struggle with how to communicate urgency about this work, how to make a case for investing time and resources in it when both are already coming from overdrawn accounts.

Even though nonprofits are mission-driven, change-making, people-focused organizations, money still plays a big role – not to make a profit, but to fund the work toward their mission.   While there’s a much more compelling, human reason for diversity and inclusion, that may not be the argument your stakeholders need to hear right now.

If you’re looking at it from a purely dollars-and-cents perspective, consider these facts:

1. The cost of replacing a staff person can be upwards of 50% to 200% of that person’s annual salary.

This according to the Society for Human Resource Management.   Diverse staff are much more likely to leave organizations they find unfair.  The 2007 Corporate Leavers Report found that people of color are three times as likely to cite workplace unfairness as the only reason for leaving their employer.  Gay and lesbian professionals said workplace unfairness was the sole reason they left their employer.

Where does that 50%-200% come from?  Consider these factors:

HR Staff Time (exit interview, payroll administration, benefits)
Manager’s Time (retention attempts, exit interview)
Accrued paid time off
Temporary coverage – paid and “unpaid” where another staff member assumes responsibilities
Reduction in program delivery
Disruptions to the team
Hiring activities (job posting, resume reviewing, interviewing, HR hiring functions, orientation, and training)

2. Failed diversity and inclusion initiatives are expensive.

Many organizations start their efforts with diversity training.  In recent years, research has shown that some of the traditional models of diversity training actually  have an adverse effect on an organization.  In the 2012 Harvard Business Review article “Diversity Training Doesn’t Work,” Peter Bergman shows how rather than improving appreciation for difference, many trainings heighten and polarize difference, leaving people feeling defensive and cynical about training efforts.  The cost of these failed efforts equals not just the cost of the training itself but also the cost of fixing the mess – which means bringing in better, more effective training, managing the increase in staff retention costs and possibly lawsuit expenses.

Organizations should start with assessing what their training needs are.  One way to go about that is to use the Intercultural Development Inventory.  It’s a research-based assessment grounded in a developmental model that is non-judgmental and offers specific training objectives based on an individuals and/or group’s intercultural awareness levels.  Further, recent research on implicit bias has revealed new understandings about biases and prejudices that all people hold.  There are new trainings designed to get at these unconscious choices we make – a critical consideration in the hiring process.

3. In ten years, if you’re not diverse, you will likely find your grant-funding options decrease.

The D5 Coalition is a national group of philanthropic organizations that have come together across the country to advance diversity, equity and inclusion in philanthropy.  They have four main priorities for big sector changes for 2015, one of which is to increase funding for diverse communities and ensure that foundations offer all constituencies equal opportunity to access the resources they need to thrive.  Another priority involves better data collection – including greater transparency of diversity demographics of organizations funded.

In October of 2014, Guidestar, the nation’s leading nonprofit reporting group, announced that it would begin collecting and publishing demographic information about nonprofit board, staff, and volunteer diversity.  This will be an incredible tool for philanthropists to access when considering their giving choices.

Let’s tally up the expenses.

While the following exercise won’t be a perfect fit for every organization, you can certainly plug in your own numbers to estimate the costs facing your particular size.

  1. Lost retention of two professional nonprofit staff members: $60,000 (based on annual salary of $45K, plus benefits – $60K x 50% = $30,000 x 2 ppl)
  2. Failed diversity training = $15,000 (or much more, depending on how much you spend to train and to fix…)
  3. Fewer grant prospects = $50,000 (5% fewer grant prospects, based on 5% of 1 million in grant dollars.


$125,000 – TOTAL SAVINGS

By engaging in strong internal diversity and inclusion work, the average one-million-dollar nonprofit has the potential to reinvest a considerable amount of its resources into its mission, build a strong and diverse staff team, reduce turnover, improve service and strengthen its organization.