Firms Still Not Prioritising DE&I, Despite Greater Board Diversity

Most staff still don’t believe that corporations are prioritising diversity, equity and inclusion (DE&I) for business or social reasons, despite greater board diversity, according to a new study.

Diverse directors overwhelmingly (62%) feel that race receives too little attention from company leadership teams, revealed a study from Ariel Investments; a global asset management firm co-founded by the Black Corporate Directors Conference with Russell Reynolds. Additionally, 37% of directors think their companies’ leadership teams are out of touch with the actual experiences of their diverse employees.

However, US workers disagree. More than half of White male workers (54%); and nearly half of White women (40%) say their leadership team pays too much attention to race. Surprisingly, a significant portion of Black (35% of men, 32% of women) and Hispanic (42% of men, 28% of women) workers feel the same way. This mismatch is attributed to a lack of information sharing and a disconnect between employees and leaders.

GREATER BOARD DIVERSITY

Although Corporate America is making progress on diverse board representation, the study shows that the world’s largest companies still have room to grow on effectively operationalising DE&I goals and driving measurable results.

While 90% of directors surveyed say their boards are more racially diverse now than five years ago, several obstacles are holding back progress throughout all levels of corporations. DE&I is a newer agenda item for many boards; added over the past 18 months following the murder of George Floyd. In a few cases, it is still not at the top of the list. According to the study, 40% of respondents say their boards recently added DE&I as a primary agenda item over the last 18 months; while 7% have still not added it to the agenda. When they do, 62% of US workers believe companies do it for public relations or political reasons; rather than real DE&I concerns.

DE&I CRITICAL TO BUSINESS SUCCESS

When DE&I is a primary agenda item, companies tend to back them with adequate resources to support those goals. For companies where DE&I is prioritised, 82% of directors say their companies invest capital to support these initiatives; and 71% feel there is sufficient capital committed. However, the study also noted “inadequate board oversight of DE&I issues” and diverse directors “not well-positioned to drive change”. Nearly half (41%) of diverse directors said their boards do not regularly oversee risks related to potential impacts on communities of colour. There is also evidence that business leaders need better training to implement programmes. Almost half (45%) of respondents say their boards do not prepare organisational leaders for effective oversight of DE&I.

There’s an opportunity to better position diverse directors to drive change. Yet, less than half of respondents (45%) say diverse directors on their boards have oversight of DE&I through Nominating and Governance committees; or other relevant committees.

The report also identified an education gap between the board and average employees on how DE&I contributes to business outcomes. Most diverse directors believe companies act on DE&I issues to help improve the experience of diverse employees (66%); concern for social inequality (59%); and the interests of shareholders (59%). This suggests that directors believe DE&I is critical to a company’s success.

CALL TO ACTION

Ariel Investments recommends the following board action to meaningfully advance their DE&I objectives at all levels of their companies:

• What gets measured, gets done: When developing DE&I goals, ensure commitments are measurable by including key dates, deadlines and targets.
• Create accountability: Do not only incentivize leadership teams to be successful – also hold them financially accountable for lack of progress.
• Capital counts: When goals are set, ensure specific budget line items are allocated to achieve them, with finite dates and deadlines; and reassess annually.
• Transparency translates: Update all stakeholders on a regular basis (e.g., quarterly) on DE&I progress, and be honest about challenges.
• Offer data: Educate all employees—from the rank-and-file to the C-Suite—using data on why diversity is good for corporate results. Link business objectives to DE&I goals using evidence on the revenue-driving benefits of diversity. For example, a 2018 McKinsey study found that companies with the most ethnically and culturally diverse boards were 43% more likely to experience higher profits.
• Representation in the right places: Ensure that when diverse directors join boards, they are well-positioned to advance DE&I goals by serving on Nominating and Governance committees; in addition to other committees. Also, recruit directors of all races who value and have a proven track record in confronting DE&I issues.
• Keep DE&I on the agenda, indefinitely: Foster a board culture that empowers directors to speak up by regularly including the company’s racial justice agenda in board meetings; and actively solicit input from diverse directors.

Click here to see the full survey.

According to another recent survey, 84% of staff report lack of progress on building more equitable workplaces for people of colour. Click here to read more.