For nearly a decade I have led a business focused on helping large corporations become more equal and inclusive. But one thing is escaping our economy – how critical equity analysis and audits can be for small and medium-sized businesses.

Despite the current focus on big players through lists like Just Capital’s annual rankings or Equileap’s comprehensive gender and diversity indices, it is SMEs that employ a significant portion of the workforce and can greatly benefit from conducting equity audits. 

In 2023, 61 per cent of the UK’s private sector workforce was employed by SMEs. Yet, many of these businesses overlook equity audits, prioritising other growth initiatives due to limited resources.

However, an equity audit can be a cost-effective strategy to ensure legal compliance, boost employee engagement, enhance reputation, attract top talent and increase productivity – all under one umbrella. These are just some of the points I have learned from the corporate world that will be of significant benefit to smaller organisations.

1. Legal compliance 

An equity audit helps SMEs stay ahead of various legal requirements related to equal pay, parental leave, working hours and recruitment processes. By ensuring compliance, businesses can avoid costly legal penalties and lawsuits. This proactive approach not only protects the company but also fosters a fair and just workplace environment. 

2. Improved employee engagement and retention 

Research indicates that the cost of recruiting a salaried employee can range between six to nine months’ salary. For SMEs, where each employee often plays a crucial role, these costs can be even higher. Engaging employees positively and reducing attrition can save between £18,000 and £55,000 per hire. An equity audit can identify and address issues that impact employee satisfaction and retention, making it a smart investment. 

3. Enhanced reputation 

A commitment to workplace equity enhances a company’s reputation, attracting customers who value social responsibility and top talent-seeking inclusive employers. The rising popularity of B Corp certification among mid-sized UK businesses underscores the importance of a strong reputation in today’s market. An equity audit signals a company’s dedication to fairness and inclusivity, which can differentiate it from competitors. 

4. Increased productivity 

The UK’s productivity rate has been a topic of economic concern. Diverse and inclusive workplaces foster creativity and better problem-solving, which can help close the productivity gap. Different perspectives lead to innovative solutions and improved processes, directly benefiting the business’s bottom line. 

5. Financial performance 

Addressing disparities uncovered by equity audits can lead to better overall business performance. By promoting a fair and equitable workplace, SMEs can enhance employee morale, boost efficiency and improve financial outcomes. Given the competitive nature of the market, any edge in performance is valuable. 

6. Broader context and local indices 

While global indices like Just Capital and Equileap focus on large global corporations, tools such as the Honordex by Equality Group and the Lead5050 Equity Index provide valuable insights closer to home. These resources measure and score companies’ diversity, equity and inclusion performance based on publicly available information, allowing SMEs to benchmark themselves against peers and strive for improvement.

The Honordex framework, for instance, offers a comprehensive DEI data measurement tool, helping businesses understand their standing and areas for enhancement. Similarly, the Lead5050 Equity Index aggregates information from gender pay gap reports, enabling companies to compare their performance with others in their region or sector. 

7. Connecting the dots 

For SMEs, integrating equity audits into their operational strategy connects various business agendas under one umbrella. Legal compliance, employee satisfaction, reputation management, productivity enhancement and financial performance are all interlinked. Addressing equity issues holistically ensures that no aspect of the business is overlooked. 

In conclusion, prioritising workplace equity audits is not just a matter for large corporations. SMEs stand to gain significantly from these audits, enjoying benefits that extend across legal, operational, and financial realms. By fostering an inclusive and fair workplace, SMEs can build a robust foundation for sustainable growth and competitive advantage. 

Zara Nanu is a serial entrepreneur and a member of the women’s leadership board at Harvard Kennedy School.