11.3 Diversity in the Workplace – Benefits and Challenges

Benefits of Diversity

As we’ve already discussed, there are a number of benefits of having a diverse workforce.  Let’s explore some more benefits:

Higher Creativity in Decision Making

An important potential benefit of having a diverse workforce is the ability to make higher quality decisions. In a diverse work team, people will have different opinions and perspectives. In these teams, individuals are more likely to consider more alternatives and think outside the box when making decisions. Research also shows that diverse teams tend to make higher quality decisions (McLeod et al.,  1996). Therefore, having a diverse workforce may have a direct impact on a company’s bottom line by increasing creativity in decision making.

Better Understanding and Service of Customers

A company with a diverse workforce may create products or services that appeal to a broader customer base. For example, PepsiCo Inc. planned and executed a successful diversification effort in the recent past. The company was able to increase the percentage of women and ethnic minorities in many levels of the company, including management. A company with a diverse workforce may understand the needs of particular groups of customers better, and customers may feel more at ease when they are dealing with a company that understands their needs.

More Satisfied Workforce

When employees feel that they are fairly treated, they tend to be more satisfied. On the other hand, when employees perceive that they are being discriminated against, they tend to be less attached to the company, less satisfied with their jobs, and experience more stress at work (Sanchez & Brock, 1996). organizations where employees are satisfied often have lower turnover.

Market Reputation

Companies that do a better job of managing a diverse workforce are often rewarded in the stock market, indicating that investors use this information to judge how well a company is being managed. Ekta Mendhi is senior director of corporate strategy at CIBC in Canada. She serves as the co-chair of Women in Capital Markets’, Women in Leadership Network, and co-founded the Canadian Gender and Good Governance Alliance. They found through their research that creating a more diverse board of directors can enhance decision-making process and augment an organisation’s performance and market reputation (Mendhi & Dart, 2018).

New industries such as the Canadian Cannabis industry is not exempt from these diversity considerations. A report by Marijuana Business Daily reports that “Cannabis companies in Canada with “monoculture and mono-gender” boardroom compositions could face a competitive disadvantage and will ultimately take a hit to their bottom lines” (Lamers, 2019).

Lower Litigation Expenses

Companies doing a particularly bad job in diversity management face costly litigations. When an employee or a group of employees feel that the company is violating equity laws, they may file a com- plaint. The Ministry of Labour (MOL) acts as a mediator between the company and the person in cases where litigation is claimed due to unfair or unequal hiring practices, and the company may choose to settle the case outside the court. If no settlement is reached, the MOL may sue the company on behalf of the complainant or may provide the injured party with a right­to-sue letter. Regardless of the outcome, these lawsuits are expensive and include attorney fees as well as the cost of the settlement or judgment, which may reach millions of dollars. The resulting poor publicity also has a cost to the company. The Canadian Employment Equity Act has a mandate to “encourage the establishment of working conditions that are free of barriers, corrects the conditions of disadvantages in employment and promotes the principle that employment equity requires special measures and the accommodation of differences for the four designated groups in Canada” (Employment and Social Development Canada, 2018).

The Employment Equity Act identifies and defines the designated groups as:

  • Women
  • Aboriginal peoples – Indian, Inuit or Métis;
  • Persons with disabilities; and
  • Members of visible minorities

If you’re interested in reading about more legal cases related to diversity and discrimination, The Ontario Human Rights Legal Support Centre has a description of recent cases related to diversity and discrimination where you can see the latest outcomes of those cases.

Higher Company Performance

As a result of all these potential benefits, companies that manage diversity more effectively tend to outperform others. Research shows that there is a positive relationship between racial diversity of the company and company performance. Companies ranked in the Diversity 50 list created by DiversityInc magazine performed better than their counterparts (Slater et al., 2008).

Challenges of Diversity

If managing diversity effectively has the potential to increase company performance, increase creativity, and create a more satisfied workforce, why aren’t all companies doing a better job of encouraging diversity? Despite all the potential advantages, there are also a number of challenges associated with increased levels of diversity in the workforce.

Similarity-Attraction Phenomenon

There is a tendency for people to be attracted to people similar to themselves (Riordan & Shore, 1997). Research shows that individuals communicate less frequently with those who are perceived as different from themselves (Chatman et al., 1998). They are also more likely to experience emotional conflict with people who differ with respect to race, age, and gender (Jehn et al., 1999; Pelled et al., 1999). Individuals who are different from their team members are more likely to report perceptions of unfairness and feel that their contributions are ignored (Price et al., 2006).

The similarity-attraction phenomenon may explain some of the potentially unfair treatment based on demographic traits. If a hiring manager chooses someone who is racially similar over a more qualified candidate from a different race, the decision will be unfair. In other words, similarity-attraction may prevent some highly qualified women, minorities, or persons with disabilities from being hired. Of course, the same tendency may prevent highly qualified White and male candidates from being hired as well, but given that White males are more likely to hold powerful management positions in today’s Canadian based organizations, similarity-attraction may affect women and minorities to a greater extent. Even when candidates from minority or underrepresented groups are hired, they may receive different treatment within the organization.

For example, research shows that one way in which employees may get ahead within organizations is through being mentored by a knowledgeable and powerful mentor. Yet, when the company does not have a formal mentoring program in which people are assigned a specific mentor, people are more likely to develop a mentoring relationship with someone who is similar to them in demographic traits (Dreher & Cox, 1996). This means that those who are not selected as protégés will not be able to benefit from the support and advice that would further their careers. Similarity-attraction may even affect the treatment people receive daily. If the company CEO constantly invites a male employee to play golf with him while a female employee never receives the invitation, the male employee may have a serious advantage when important decisions are made.


A faultline is an attribute along which a group is split into subgroups. For example, in a group with three female and three male members, gender may act as a faultline because the female members may see themselves as separate from the male members. Now imagine that the female members of the same team are all over 50 years old and the male members are all younger. In this case, age and gender combine to further divide the group into two subgroups. Teams that are divided by faultlines experience a number of difficulties. For example, members of the different subgroups may avoid communicating with each other, reducing the overall cohesiveness of the team. Research shows that these types of teams make less effective decisions and are less creative (Pearsall et al., 2008; Sawyer et al., 2006). Faultlines are more likely to emerge in diverse teams, but not all diverse teams have faultlines. Going back to our example, if the team has three male and three female members, but if two of the female members are older and one of the male members is also older, then the composition of the team will have much different effects on the team’s processes. In this case, age could be a bridging characteristic that brings together people divided across gender.

Research shows that even groups that have strong faultlines can perform well if they establish certain norms. When members of subgroups debate the decision topic among themselves before having a general group discussion, there seems to be less communication during the meeting on pros and cons of different alternatives. Having a norm stating that members should not discuss the issue under consideration before the actual meeting may be useful in increasing decision effectiveness (Sawyer et al., 2006).


An important challenge of managing a diverse workforce is the possibility that stereotypes about different groups could lead to unfair decision making. The assumption that women are more relationship oriented, while men are more assertive is an example of a stereotype. The problem with stereotypes is that people often use them to make decisions about a particular individual without actually verifying whether the assumption holds for the person in question. As a result, stereotypes often lead to unfair and inaccurate decision making. For example, a hiring manager holding the stereotype mentioned above may prefer a male candidate for a management position over a well-qualified female candidate. The assumption would be that management positions require assertiveness and the male candidate would be more assertive than the female candidate. Being aware of these stereotypes is the first step to preventing them from affecting decision making.

Suggestions for Managing Demographic Diversity

What can organizations do to manage diversity more effectively? In this section, we review research findings and the best practices from different companies to create a list of suggestions for organizations.

Build a Culture of Respect for Diversity

In the most successful companies, diversity management is not the responsibility of the human resources department. Starting from top management and including the lowest levels in the hierarchy, each person must understand the importance of respecting others. If this respect is not part of an organisation’s culture, no amount of diversity training or other programs are likely to be effective. In fact, in the most successful companies, diversity is viewed as everyone’s responsibility. Rogers Communications Inc. partners with Career Bridge to provide work to internationally educated professionals. Accenture Inc. has a global Persons with Disabilities Champions program, which is focused on workplace accommodations. Finally, British Columbia Hydro and Power Authority encourages managers to hire skilled newcomers, providing a career advancement plan (Jermyn, 2018). Companies with a strong culture, where people have a sense of shared values, is rewarded with loyalty and team performance. This enables employees with vastly different demographics and backgrounds to feel a sense of belonging (Chatman et al., 1998; Fisher, 2004).

Make Managers Accountable for Diversity

People are more likely to pay attention to aspects of performance that are measured. In successful companies, diversity metrics are carefully tracked. For example, in PepsiCo, during the tenure of former CEO Steve Reinemund, half of all new hires had to be either women or minorities. Bonuses of managers partly depended on whether they had met their diversity-related goals (Yang, 2006). When managers are evaluated and rewarded based on how effective they are in diversity management, they are more likely to show commitment to diversity that in turn affects the diversity climate in the rest of the organization.

Diversity Training Programs

Many companies provide employees and managers with training programs related to diversity. However, not all diversity programs are equally successful. You may expect that more successful programs are those that occur in companies where a culture of diversity exists. A study of over 700 companies found that programs with a higher perceived success rate were those that occurred in companies where top management believed in the importance of diversity, where there were explicit rewards for increasing diversity in the company, and where managers were required to attend the diversity training programs (Rynes & Rosen, 1995).

Review Recruitment Practices

Companies may want to increase diversity by targeting a pool that is more diverse. There are many minority professional groups such as The Aboriginal Women’s Professional Association (AWPA) which provides “Aboriginal women from all over Canada the opportunity to gather and meet other Aboriginal women and to learn from each other” (Charity Village, 2019). By building relationships with these occupational groups, organizations may attract a more diverse group of candidates to choose from. The auditing company Ernst & Young Global Ltd. increases diversity of job candidates by mentoring undergraduate students (Nussenbaum, 2003). Companies may also benefit from reviewing their employment advertising to ensure that diversity is important at all levels of the company (Avery, 2003).

Let’s Focus

Dealing with Being Different

At any time in your career, you may find yourself in a situation in which you are different from those around you. Maybe you are the only male in an organization where most of your colleagues and managers are females. Maybe you are older than all your colleagues. How do you deal with the challenges of being different?

  • Invest in building effective relationships. Early in a relationship, people are more attracted to those who are demographically similar to them. This means that your colleagues or manager may never get to find out how smart, fun, or hardworking you are if you have limited interactions with them. Create opportunities to talk to them. Be sure to point out areas of commonality.
  • Choose your mentor carefully. Mentors may help you make sense of the organization’s culture, give you career-related advice, and help you feel like you belong. That said, how powerful and knowledgeable your mentor is also matters. You may be more attracted to someone at your same level and who is similar to you, but you may have more to learn from someone who is more experienced, knowledgeable, and powerful than you are.
  • Investigate company resources. Many companies offer networking opportunities and interest groups for women, ethnic minorities, and employees with disabilities among others. Check out what resources are available through your company.
  • Know your rights. You should know that harassment based on protected characteristics such as gender, race, age, or disabilities, as well as discrimination based on these traits are illegal in the Ontario. If you face harassment or discrimination, you may want to notify your manager or your company’s HR department.


This section is adapted from:

Managing Demographic and Culture in An Introduction to Organizational Behaviour by Saylor Academy which is licensed under a Creative Commons by-nc-sa 3.0

2.1 Demographic Diversity in  Organizational Behaviour by Seneca College is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted.

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Psychology, Communication, and the Canadian Workplace Copyright © 2022 by Laura Westmaas, BA, MSc is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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