The cost of inaction: 3 costs to the business when DEI is deprioritised

Cutting DEI budgets is more than just a financial decision; it’s a step back from progress, writes Sarah Liu.

If you work in corporate Australia, you’re no stranger to diversity, equity and inclusion initiatives (DEI). In fact, our research shows three-quarters of us say we’re hearing DEI conversations at least occasionally at work. It makes sense; a report by Deloitte shows workplaces that implement effective DEI strategies have a business performance increase of 31 per cent.

But are these conversations genuine? Do our business leaders really care about inclusion, or is this a box-checking exercise to meet corporate compliance standards?

Our latest research suggests compliance is the leading driver of DEI in Australian workplaces, a sentiment backed by 45 per cent of respondents in a study entitled DEI Deep Dive: APAC’s Path Forward.

While that same study found Australia is the Asia-Pacific leader in DEI, it seems the tides may be turning. Australia is at risk of unravelling all the progress we’ve made in fostering diverse workforces, and it’s stemming from a systemic attitude of complacency.

DEI budgets and teams are under siege internationally, with diversity programs being outlawed and companies abandoning their once-vocal support of minority communities. That sentiment may start to make its way to our own shores, with research indicating almost half of Australian employees see budget constraints as the reason for ongoing DEI support.

At the same time, a growing campaign calling for merit, excellence, and intelligence (MEI) over DEI is sweeping across innovation hubs like Silicon Valley. But who’s to say we can’t have both?

To assume that diverse communities cannot also be appointed on the grounds of merit, excellence, and intelligence is frankly ignorant. It also overlooks the additional effort required to overcome the additional barriers to entry faced by minority groups to attain the same level of achievement.

However, divestment in DEI can have far-reaching consequences for any business. The bottom-line benefits of DEI, supported by numerous studies, including by Harvard Business Review, suggest that complacency and divestment in this area could lead to significant setbacks in employee engagement and retention, innovation, and business reputation.

It begs the question: What are the tradeoffs for companies that get complacent with DEI? Here are three costs to the bottom line that leaders should budget for:

1. Employee engagement and retention

In today’s competitive job market, employee engagement and retention are non-negotiable for business success. DEI isn’t just a nice-to-have; it’s essential for creating a workplace where everyone feels valued. Savvy leaders already know this, with 41 per cent of Australian employees reporting talent acquisition and retention drive their workplace’s DEI-related strategies.

Slashing DEI budgets sends a clear message to employees: their unique perspectives aren’t worth investing in, which inevitably leads to higher turnover rates. It’s a problem corporate Australia wants to solve. Our research shows that 56 per cent of Australian workplaces say employee engagement and retention are critical business issues they want to address this year – yet this is incongruous with DEI budgets being reduced.

Companies with strong DEI initiatives see a 50 per cent reduction in turnover and a 56 per cent boost in job performance. Ignoring DEI means risking not only your current talent but also the engagement and productivity that drive your business forward.

2. Workplace innovation

Innovation thrives on diversity. Different perspectives spark creativity and lead to breakthrough ideas. When DEI budgets are cut, businesses stifle this potential. Boston Consulting Group found that diverse management teams see a 19 per cent higher impact on innovation. Yet, the penny hasn’t dropped here. Only 17 per cent of Australian employees believe DEI can drive innovation. This disconnect is dangerous. By underfunding DEI, companies risk stagnation. Young professionals, in particular, seek inclusive workplaces where their ideas are heard. With 57 per cent of them reporting higher satisfaction in diverse environments, it’s clear that investing in DEI is also an investment in future innovation and growth.

3. Reputation

Reputation is everything in today’s socially conscious climate. Consumers and employees alike expect companies to align with their values, and as such, failing to prioritise DEI can severely damage a business’s reputation. Numerous reports show that most consumers prefer brands that actively promote DEI, despite a loud minority of DEI doubters putting disproportionate pressure on brands globally. It’s not enough to have DEI conversations; businesses need to back these discussions with tangible actions and investments. The fleeting relief of short-term savings or the quieting of the disgruntled, narrow-minded is not worth the long-term damage to your brand’s reputation.

Cutting DEI budgets is more than just a financial decision; it’s a step back from progress. Compromising on core values comes with tangible costs. Business leaders must tread carefully, recognising that DEI is a vital component of a thriving, future-ready workplace.

Sarah Liu is the founder and managing director of TDC Global.