Inequality: the financial costs of inaction
Updated: Dec 13, 2022
This is a modified version of an article that first appeared in Charity Finance's February 2022 edition. You can read the full piece here.
One million pounds. That’s the amount it’s estimated Yorkshire Cricket Club will pay out following claims of racism against former player Azeem Rafiq. This includes £200,000 compensation to Rafiq – agreed at an employment tribunal – and a further £800,000 or so in pay-offs and legal disputes with ex-staff who have stepped down or been sacked following the scandal.
But that’s not all. Because of the way the club handled – or refused to handle – allegations of racism against Asian players, sponsors are now leaving by the droves. Nike, Anchor Butter, Yorkshire Tea, David Lloyd Clubs, Leeds Beckett University, and Tetley’s Beer have all distanced themselves from Yorkshire in recent weeks. Perhaps most costly, however, will be the loss of a £2.5m naming rights agreement with Emerald Publishing. “We do not tolerate any form of racism or discriminatory behaviour and the damaging effects this has,” said the publishers. All of this is a big hit for a business that makes £3 million a year from commercial income.
It’s clear the club didn’t consider the financial implications of not acting on allegations of bullying and racism when they first arose in 2020. Undoubtedly this was in part because it did not take the allegations seriously and partly because it did not understand how seriously allegations of racism, discrimination, and bullying can hurt an organisation’s brand.
In a way, this is surprising given the current climate – especially the last couple of years – in which there has been an underbelly of moral outrage, one where ‘we’ have all been shocked at how little progress we appear to have made on equality (and race equality in particular). You only have to look at adverts on TV and compare them to two years ago to see how hard advertisers are working to make sure that they are representative of the UK.
So we are seeing a shift from talking about the business case for equality – talking about the benefits inclusion brings to organisations by, for example, widening the talent pool they can draw on or helping them understand new customer groups – to talking about the moral case for equality (that is, stressing it is, simply, the right thing to do).
Employment tribunals: average awards
But this doesn’t mean we should underestimate the financial costs of not tackling inequality in the workplace. Take the costs of employment tribunal awards. Latest figures from the Ministry of Justice show that in 2019/20 (the last pre-pandemic year) tribunals awarded compensation in 720 claims specifically relating to unfair dismissal or discrimination involving a protected characteristic (protected characteristics are those aspects of our identity that are protected under equalities law: they cover things like sex, ethnicity, age, and disability status).
It’s important to remember that a lot of cases will be resolved informally before a tribunal hearing takes place, so the financial settlements awarded represent a fraction of what organisations will have paid out in total. Even then...
the average award for a race discrimination claim during this period was £9,800
the average sex discrimination award, £17,400
the average sexual orientation award, £28,000.
These averages only tell part the story, however. While the average age discrimination award during this time was £38,800, one organisation was ordered to pay £243,600 for unfair age-related practice. The average disability award was £27,000 – but, again, one employer was ordered to shell out a whopping £265,700 to an employee it had discriminated against based on their disability status.
Compensation totals can soon tot up due to the range of factors employment tribunals take into account when deciding how much offending organisations should pay. Not only do tribunals compensate claimants for loss of money arising from discriminatory practice – loss of earnings, loss of pension contributions – they also compensate individuals for hurt, distress, and injury to physical and mental health. Tribunals can also award ‘aggravated damages’ when an employer has been found to act particularly badly.
The £4.5m payout
For example, in one of the highest awards ever ordered by a tribunal, an NHS doctor, Dr Eva Michalak, was compensated £4.5m for unfair dismissal and race and sex discrimination. The tribunal found that senior managers at Dr Michalak’s trust had secretly conspired to get rid of her when she was six months pregnant. Following their meetings, false allegations of bullying were made against her, resulting in a two-year suspension and eventual dismissal.
In reaching their decision about how much Dr Michalak should be awarded, the tribunal explained that ‘the abuse of power’ involved in her suspension and the sham disciplinary proceedings was so ‘oppressive’, ‘arbitrary’, and ‘unconstitutional’ that ‘exemplary damages’ had to be awarded.
These are some of the specific, direct costs of not tackling inequality in the workplace. But what of other less concrete costs? In many ways these are weightier concerns for many organisations as they are more likely to be incurred than tribunal costs or fines. Nevertheless, despite their relevance – and the desire of many a CEO or HR director to know what they are – surprisingly little research explores what impact they can have an organisation’s bottom line.
The financial costs of bullying
One important study by Dr Sabir Giga and his colleagues back in 2008 estimated the cost of workplace bullying to UK organisations to be at about £13.8bn a year. This figure is based on 3.5 million days being lost to organisations due to bullying-related absenteeism, almost 200,000 employees leaving companies because they can’t stay in toxic work cultures, and the equivalent of 100 million days productivity being lost as a result.
A more recent study by Professor Duncan Lewis and Roger Kline into the likely costs of bullying to the NHS in England drew on available research and data sources to calculate the impact of bullying and harassment on things like sickness absence costs to the employer, employee turnover, diminished productivity, and ‘sickness presenteeism’.
It estimated the combined financial cost of these factors to be a colossal £2.3bn a year. The biggest financial impact was from what the researchers called ‘sickness presenteeism’: the productivity lost when staff come to work while being bullied. This was estimated to cost healthcare organisations over £604m a year.
As important as these figures are, one of the real benefits of studies such as these is to bring to the light the factors at stake when we consider the cost of acting on equality. Take, for example, the number of people leaving work due to racism. Various studies have put the number of Black and minority ethnic staff who have resigned from a workplace due to diversity and inclusion issues at somewhere between 20 and 50 per cent. The figures depend on the specific question asked and how much emphasis is placed on discriminatory behaviour participants have experienced (after all, the reasons people leave jobs are complex).
Our own work supporting employers suggests once an organisation hits 1,000 employees you can usually find at least 50 people who are looking to leave as a direct result of racism (often they don’t feel they’re progressing at the same rate as other colleagues; sometimes, at the other end of the spectrum, they are experiencing direct bullying and harassment from managers and others).
Even if this is an overestimate – after all, we tend to work with organisations who are experiencing particular issues around inclusion – let’s halve the number and ask what the costs are of replacing 25 members of staff. In 2014, researchers at Oxford Economics estimated the average cost of replacing an employee at £30,614. This figure includes the cost of lost output while the new member of staff gets up to speed and logistical costs involved with recruiting and onboarding.
So, a reasonably large organisation is looking at a cost of £765,350 as a direct result of not addressing racism. For some organisations in less diverse parts of the country, this will be an overestimate. But for many it’s probably an underestimate: there will be people in two minds about applying for another job who are not covered by our rough calculation.
All this suggests it’s important employers make efforts to tackle inequality in the workplace. In fact, there’s a great deal of crossover between what legislation requires larger organisations to do, what employment tribunals consider when considering how culpable employers are, and what the evidence suggests actually works when it comes to promoting inclusion.
When tribunals consider cases of discrimination put before them, they tend to look for mitigating evidence such as whether the employer been fair to other marginalised groups, whether it has a plan or strategy around equality, whether it has provided training on these issues, and so on. Essentially, a pro-active employer looking to find and root out issues will make a more favourable impression than one brushing problems under the carpet.
The real costs of bullying
Which brings us back to Azeem Rafiq and the problems he experienced at Yorkshire Cricket Club. Speaking to a group of MPs Rafiq recalled how six or seven people at the club spoke out about bullying but he was singled out in board meeting minutes as a ‘problem’ and ‘trouble-maker’. Following this, his son was stillborn and Rafiq recalled the response from the club:
“The treatment I received from Yorkshire was inhuman,” he said, “they were not bothered, they didn't care when I got a call to say there was no heartbeat.” In fact, the day he returned to work, one of the club’s directors took him into a room and berated him.
“I would regularly come home from training and cry all day,” Rafiq said. “It was a very difficult time for me. I know how close I was to committing suicide during my time at Yorkshire. At my worst, I was right on the edge.”
As we contemplate the financial costs of not acting on inequality, it’s important not to forget the very human price our actions can have. As leaders and managers we have the power to shape people’s futures in ways we don’t always realise. Making people valued, included, and respected can make the difference between someone staying or leaving a career they love. Treating them as a person – not just an employee – with hopes and trials of their own can transform someone’s life.
And quite often, this doesn’t cost very much at all.
Photo credits: Olga Mrozek (https://thegreats.co/artists/olga-mrozek)