(FORTUNE Magazine) – ERNEST H. DREW, the amiable CEO of Hoechst Celanese, the chemical giant, remembers exactly when he became an advocate of a more diverse work force. He was attending a 1990 conference for Hoechst's top 125 officers, mostly white men, who were joined by 50 or so lower-level women and minorities. The group split into problem-solving teams, some mixed by race and sex, others all white and male. The main issue was how the corporate culture affected the business and what changes might be made to improve results. When the teams presented their findings, a light clicked on for Drew. ''It was so obvious that the diverse teams had the broader solutions,'' he recalls. ''They had ideas I hadn't even thought of. For the first time, we realized that diversity is a strength as it relates to problem solving. Before, we just thought of diversity as the total number of minorities and women in the company, like affirmative action. Now we knew we needed diversity at every level of the company where decisions are made.'' Drew has since thrust Hoechst Celanese into a small group of pioneers: companies that have learned to attract, retain, and promote women and the profusion of ethnic groups streaming into the labor pool. Human resources experts estimate that only 3% to 5% of U.S. corporations are diversifying their work forces effectively. Employers agree with that assessment. A 1992 survey by the Hay Group showed that only 5% of 1,405 participating companies thought they were doing a ''very good job'' of managing the diversity of their work forces. Such results might surprise those who remember how loudly the diversity drum was beaten seven years ago, when the Labor Department released its Workforce 2000 report heralding dramatic demographic shifts in the U.S. work force by the millennium. Nearly 85% of the 25 million entering the labor pool would be women, minorities, or immigrants, it said; only 15% of new entrants would be white males, and their total share would shrink from 51% to 45%. The most recent studies by the U.S. Labor Department confirm those trends, although some percentages vary slightly. Many companies vowed to master the management of diversity. They spent huge sums for consultants to whip it into the corporate culture mix. Yet in most cases the changes never took. At some companies, downsizing became the more urgent imperative. At others, it seems, the intention was never really sincere. But companies such as Xerox, Avon, AT&T, IBM, Grand Metropolitan's Burger King, and Levi Strauss have stuck with their commitment to work force diversity, even in the face of restructuring, rising hostilities among some ethnic groups, and blistering competition. Why? After all, no study has so far proved conclusively that diverse work forces perform better. To many executives, it is just common sense. Says IBM chief Louis V. Gerstner Jr.: ''Our marketplace is made up of all races, religions, and sexual orientations, and therefore it is vital to our success that our work force also be diverse.'' Adds Ted Childs, director of work force diversity at IBM: ''We think it is important for our customers to look inside and see people like them. If they can't, it seems to me that the prospect of them becoming or staying our customer declines.'' Several academic studies, while not real-world evidence, suggest that diversity can enhance performance. At the University of North Texas last year, ethnically diverse teams of business students were pitted without their knowledge against all-white teams for 17 weeks. At first the homogeneous teams sprinted ahead, but by the study's end the heterogeneous groups were viewing situations from a broader range of perspectives and producing more innovative solutions to problems. Says Larry K. Michaelsen of the University of Oklahoma, one of three professors who conducted the experiment: ''Cultural diversity in the U.S. work force has sometimes been viewed as a dark cloud. Our results suggest that it has a silver lining.'' That seems especially likely as business moves toward management that values the intellectual contribution of every worker. No longer is the push to integrate or assimilate everyone into some homogeneous corporate type. At companies that are successfully managing diversity, different cultures and styles are embraced. The companies recognize that individuals' gender, ethnicity, and sexual orientation deeply inform the way they think about themselves. Says Robert L. Lattimer, managing director of Diversity Consultants in Atlanta, a division of Towers Perrin: ''The whole point of managing diversity is to draw on the uniqueness of each employee. If people feel they must censor what they say and how they act, the major benefit of diversity is lost.'' Lattimer urges clients like AT&T to constantly reexamine such policies as dress codes that may tacitly support a stultifying, monolithic culture. At about the same time he had his eye-opening experience at the management conference, Drew of Hoechst Celanese began to see other evidence of diversity's benefits. Productivity began to surge at plants where the work force was becoming more diverse. The polyester textile filament division had lost money for 18 straight years when, in the late 1980s, it launched a major effort to recruit minorities and women for the plant in Shelby, North Carolina. Under the leadership of Grover Smith, an African American who was then director of polyester filament, and his diverse business team of women, white males, and people of color, polyester filament began to turn around. The team's winning strategy was to de-emphasize what had always been seen as the division's core business, commodity production. Instead, the team cut costs, improved quality, and concentrated on niche markets such as automotive upholstery. The filament division pulled into the black in 1992 and posted a ''substantial'' profit in 1993, says William B. Harris, head of worldwide fibers at Hoechst Celanese. ''We tried everything for so many years, but the business did not perform better until we had a diverse management group,'' Harris reveals, adding, ''People need to understand why it makes good business sense for white males to no longer get every promotion.'' Many companies still do not see it that way. When in 1990 Maybelline Inc. launched Shades of You, a mass-market cosmetics line for women of darker hues, no minorities worked in marketing at the company or in middle or upper management. When Maybelline's parent, Wasserstein Perella, became aware of the situation, a few people of color were hired. Shades of You is a winner, with about 35% of the $100-million-a-year ethnic cosmetics market, and CEO Robert Hiatt asserts, ''It is not the makeup of our management that is important; it is paying attention to the market and customers. We don't keep track of the number of minorities or other groups in the company.'' Other companies, while not denying the value of diversity, don't push for it. High-tech superstars often have more homogeneous staffs than their hip cultures might suggest. Says Randy Massengale, who is heading Microsoft's two- year-old diversity effort: ''The company has been so focused on growth that we have not built all of the human resources infrastructure that we need.'' Perhaps ironically for an industry that is supposed to know consumer markets, ad agencies in particular don't seem to have caught on. A 1992 survey of 2,500 agencies by MediaWeek revealed that fewer than 1% of media managers are black, 2% are Hispanic, 3% are Asians, and Native Americans are too few to count. Companies that accept the business value of a diverse work force and make an effort to better exploit diversity have learned several lessons:

-- Get the CEO's commitment. A must. Says Clarence C. Kegler, manager of Hoechst Celanese's textile plant in Shelby, North Carolina, and a 23-year company veteran: ''We've had lots of stops and starts with diversity, but it never worked, because of racial prejudice, until Ernie Drew became CEO.'' Like a minister who electrifies his church with the gospel, Drew galvanizes the Hoechst Celanese troops with his message on diversity. As the company's self- described diversity ''steward,'' he stumps from plant to plant to convert doubters. Says he, with fervor: ''When the CEO meets with employees, it signals diversity is important.''

-- Make diversity a business objective. Under Drew's direction, work force diversity is one of four performance criteria equally weighted in determining managers' salaries and bonuses. (The other three are financial success, customer satisfaction, and environmental and safety improvements.) Site manager Kegler observes, ''When Ernie started hitting people in the pocketbook, they began to value diversity.'' Richard A. Orange, a New York City organizational consultant, argues, ''Corporate America will make progress when companies start holding first- line supervisors as well as senior managers responsible for it.'' Xerox and Burger King are among the few other major companies with this policy. Like any other business goal, Hoechst Celanese's diversity target is specific: at least 34% representation of females and minorities at all levels of the company by 2001. The top-to-bottom 34% target, which Drew refers to as reaching ''vertical parity,'' mirrors the company's prospective work force -- the percentage of women and minorities graduating with relevant majors from colleges where the company recruits.

-- Adopt a plan for addressing the concerns of white males. White men are in no danger of losing or even sharing control of management for at least 25 years at current rates of change, Equal Employment Opportunity Commission figures indicate. They still hold some 60% of management jobs and 96% of senior executive positions in the U.S. Nonetheless, many white males worry that women and minorities are being given an unfair edge by companies pushing diversity. Employee surveys conducted by companies in the forefront of the effort reveal that most white men believe their employer is doing ''enough'' or ''too much'' for women and minorities. Says William Harris of Hoechst Celanese (a white man): ''White males still have distinct advantages, yet some of them don't understand emotionally why others have the opportunity to compete with them.'' Fearing white male backlash, smart companies try hard to include their views in forging policies on diversity and to get them to air their concerns at gatherings. Some companies conduct training classes designed to help white men deal with the loss of the world they knew. When Xerox discovered that white men were underrepresented in entry-level engineering jobs a few years ago, the company made a splashy production out of bringing in a bunch more.

-- Scrutinize compensation and career tracking for fairness. Compensation reviews designed to spot salary disparities not related to performance or seniority have become standard practice at Hoechst and a few other companies. Hoechst's first salary equity review, completed in 1992, revealed a differential between white males and other employees, mostly in middle management. ''It caused a little commotion when we made salary adjustments,'' recalls Drew. ''Some people didn't realize they were underpaid.'' Identifying high-potential individuals is also essential, diversity experts say. It's just common sense, as well. ''We want every promotable woman and minority to surface, so we make sure that managers review all employees,'' says Charles Langston, vice president of strategic resources management at Hoechst Celanese. Such reviews begin a year after an employee joins the staff. To be identified as high potential, an employee must be judged promotable twice within five years until he or she reaches the level of vice president. When engineer Adrienne Brown, 26, joined the company's environment and safety unit three years ago, she was surprised that her white male manager understood different cultural backgrounds. The manager helped Brown, an African American, lay out goals as part of her career plan. Explains Brown: ''I wrote down my goals plus all the things I needed to do, like seminars to attend, to get where I wanted to be. I asked my manager if I was on a reasonable track.'' A year later Brown reached her short-range goal on schedule; she has since been promoted twice. Says she, with unrestrained verve: ''This company is making a real effort. My peers at other companies have not been exposed to similar diversity practices.'' A computerized succession plan review for all high potentials warns management if Brown is blocked as she moves up. Says Langston: ''If white males are the only ones recommended for promotions in a particular area, it will surface.'' In such cases the human resources department steps in to ensure that females and minorities are added to the pool for consideration.

-- Give top executives experience of what it's like to be a minority. At Hoechst Celanese, the top 26 officers are required to join two organizations in which they are a minority. CEO Drew, a board member of black Hampton University and of SER-Jobs for Progress, a Hispanic association, explains why he put this policy in place: ''The only way to break out of comfort zones is to be exposed to other people. When we are, it becomes clear that all people are similar.'' Adds Hoechst VP Langston, who has sought out the experience with three groups, including the board of Florida A&M University, a historically black college: ''Joining these organizations has been more helpful to me than two weeks of diversity training.''

-- Use diversity training, but watch out. It's a booming industry, and critics say it is rife with charlatanism, overcharging, and divisive training techniques. The charges carry some truth, so choose trainers and consultants carefully. Ray Hood-Phillips, former vice president of diversity affairs at Burger King, who continues as an outside consultant, works closely with trainers to design programs tailored to Burger King's culture. ''You just can't take a program off the shelf, because every culture is unique,'' she says. She makes sure that programs she uses are not combative, guilt-driven, or contemptuous of white males, which some programs are. Training is often most useful for senior managers, who can set an example for the people below them. Says New York City consultant Richard Orange, who runs training seminars for a number of FORTUNE 500 companies: ''Most senior executives have no frame of reference to people who are different, due to the nature of their lifestyles, culture, and position. Still, they do not want to appear biased.'' To boost the awareness of top managers, Orange frequently takes them to plays and movies, such as Angels in America, Thelma & Louise, Malcolm X, and Philadelphia, that depict mores different from their own. Says Orange: ''We discuss what they see and feel, and then we connect the theme of the movie to situations in business. It is an impactful way of meeting without being contentious.'' Many employers provide only a day or two of training, then blame the consultant when it fails. The experts say training should be in depth and repeated periodically. Most important, it must be integrated into daily business routines. Says consultant Orange: ''Diversity training is like hearing a good sermon on Sunday. You must practice what you heard during the week, and refer to the Bible.''

-- Celebrate differences. This helps banish fear. IBM's Systems Storage Division in San Jose -- a city where 33 languages are spoken -- launched an annual diversity day in 1993. Employees dress in various ethnic costumes, perform traditional dances, and prepare authentic dishes for fellow workers to try. Raymond Wynn, head of the plant's diversity council, says the festival was so successful in defusing tensions that his team is preparing a monthly ! bulletin listing diversity events in the city, such as parades and festivals. The council will also produce a series of videos, featuring a different culture each month, to be played in key gathering spots in the plant.

-- Improve the supply of diverse workers. ''It's just not true that you can't find qualified minorities and women in the technical fields,'' says Hoechst Celanese's Drew, responding to a common plaint. He advises companies to broaden their recruiting ambit and relax their dependence on Ivy League schools. Says he: ''We look for schools that have great diversity in the student body, like the University of Tennessee, Texas A&M, and Rutgers. And we don't sacrifice quality at all.'' Hoechst Celanese forms ''partnerships'' with these schools, which entail sponsoring research by professors, providing employees as guest lecturers, bestowing scholarships and donations, and hiring students for summer jobs. Says Charles Langston: ''We get to know the teachers, the deans, and the students in various departments, and it works for us.'' Other companies reach into high schools and grade schools to attract students who may not otherwise be inclined to enter fields like finance or engineering. In multiracial Jersey City, for example, Merrill Lynch is helping high schools develop a curriculum that will prepare students for careers by teaching them to use personal computers and financial-services software. Top students earn a summer internship with the company. Merrill Lynchers also tutor grade-schoolers in 20 states.

-- Don't lose focus during downsizing. It's the greatest challenge to workplace diversity. Between 1990 and 1991, for example, job losses for African Americans at Dial Corp. were two-thirds higher than for other workers. At Pet Inc. blacks took a 35% hit, almost three times the rate of overall work force cuts. Both companies say they closed facilities in areas with a large percentage of black workers. Critics are wary of such explanations and contend that many companies insidiously target certain ethnic groups and even play off one minority against another. While such charges are hard to prove, it is a fact that at many companies women and people of color are steered into low-level and dead- end staff positions, which are often among the first jobs to be cut in a reorganization. The U.S. Labor Department's Glass Ceiling Commission study of 1991 found that ''minorities and women are less likely to obtain positions in ; line functions which most directly affect the corporations' bottom line.''

The problem at some companies, say human resources specialists, is that diversity guidelines are not considered in downsizing. Says Wesley Poriotis, who heads one of the nation's oldest minority search firms, Wesley Brown & Bartle: ''The senior executive may have mouthed the words about supporting diversity, but it was the $45,000-a-year white male plant manager who was swinging the axe. And his level of comfort with nonwhites is still extremely low.'' Robert L. Johnson, who was Sears Roebuck's first black senior executive and is now CEO of a packaging company, concurs: ''Many companies have trouble dealing with two major challenges at the same time, managing diversity for the long term and downsizing for the short term.'' A few companies -- AT&T, Xerox, Burger King -- manage the two challenges simultaneously. How? They acknowledge up front that deep-seated prejudices can emerge in the stress of downsizing. To prevent that, these companies establish procedures to help maintain percentages of women and minorities at all levels. Of course, performance always takes precedence over procedure. Says Xerox CEO Paul A. Allaire: ''Diversity is no fad for us. We remain aggressively affirmative on diversity in tough times as well as good times.'' AT&T, which has announced major job cuts every year since 1990, monitors reductions by department and finds creative ways to keep valued workers, both people of color and whites. Anne Fritz, director of human resources and quality, explains: ''In some instances we retool huge blocks of laid-off employees for different jobs in the company. Other workers are sent to our in- house temporary agency, where they are loaned out to various departments until permanent jobs in the company can be found for them.'' The telecommunications giant also holds on to valued workers with something called a special enhanced leave of absence: An employee takes two years off to go to school or travel, with full benefits and assurance of reemployment at the same level and pay if a job in the company is available upon return. The positive results are twofold. First, job losses are considerably less than the number of pink slips initially handed out. Of the 10,700 employees notified that their jobs were ''at risk'' in 1992, for example, 4,033 found work elsewhere in the company. Second, the percentage of women and minorities canned is about the same as for the overall staff. Burger King, which recently announced its third major cutback in four years, also keeps close track of who's being let go. ''I am present at every stage of meetings concerning downsizing to make sure there is no discrimination due to age, gender, or ethnic group,'' says Ray Hood-Phillips. ''We do computer runs of layoffs by function and department, and look for the macro pattern. If someone is a poor performer, whether female, Asian, or Hispanic, that person will go. But if there is a 5% companywide reduction, we make sure the percentage of women cut, for instance, is not 12%.''

The way a company deals with crisis is often what marks it as a leader. AT& T, lavishly praised for its management of diversity during the past decade, reeled from an incident last fall that made headlines. The company's employee magazine featured a cartoon of customers on various continents making phone calls. The caller in Africa was depicted as an animal. AT&T's switchboard lit up. Letters poured in from irate employees, customers, civil rights groups, Congressmen. Tackling the situation head on, the company apologized in the press for the ''racist'' illustration, which had been drawn by a freelancer. Chairman Robert E. Allen wrote a letter of apology to the staff, sat down with the Congressional Black Caucus, and vowed to ''turn this ugly incident'' into an opportunity to accelerate the pace of work force diversification at AT&T. He immediately set up a hotline for employees and assigned four senior lieutenants to lead diverse, cross- functional committees charged with devising a strategic plan to escalate AT&T's efforts on the diversity front. ''I regret that some of these actions are being driven by a crisis,'' Allen told a packed room last November at the annual meeting of the Alliance of Black Telecommunications Employees, the oldest and largest employee caucus group at AT&T. ''One of the mistakes we have made is to manage diversity at the edges and not in the mainstream of our operations,'' he admitted, promising change. Two months later the accelerated diversity plan appeared, with the mission to ''create a work environment that sets the world-class standard for valuing diversity.'' Although timetables and numerical goals are conspicuously missing, the six-page plan recommends several actions. Among them: All 13 top officers should increase their direct interaction with employee caucus groups. ONE OF THE FIRST issues AT&T's seven caucus groups -- they represent black, Latino, Native American, Asian, gay, female, and disabled employees -- will likely raise with the brass is the absence of numerical goals and timetables in the diversity plan. Since Chairman Allen promised to make key assignments ''with diversity goals in mind,'' the absence of dates has set off another round of letter writing and voluble anger. Fumes one employee: ''So how do we know Allen is sincere, when he ran away from dates and timetables?'' Responds Allen: ''We're putting an aggressive diversity strategy in place, but we must take care to assure that whatever goals and objectives we establish are credible and achievable.'' Many managers remain unwilling to acknowledge the fast-rising numbers of nonwhite, non-U.S.-born Americans -- future employees, customers, and shareholders -- or the differences in managerial thinking they will require. They don't want to hear that immigrants are arriving in the U.S. at a rate of over a million a year, mostly from Asia and the Latino world, or that by the middle of the next century minorities will make up almost half the U.S. population. For many managers as well, talk of work force diversity triggers bitter reactions to federal hiring quotas and interfering government bureaucracies. This isn't about those things. It's about facing reality, arguably the first responsibility of a manager. As Ellis Cose, author of The Rage of a Privileged Class, a book on equality in America, says, ''It is going to be awfully hard to forge a globally competitive work force if the races can't learn to work together.'' Or listen to IBM's Ted Childs: ''The company that can demonstrate that it is blind to color, gender, age, and culture will have the greatest success and appeal to the broadest population.'' That is an argument any business person should be able to appreciate.