US companies are caught in an increasingly powerful tug-of-war when it comes to promoting diversity within their workforces. On one side, investors and other stakeholders such as employees are pushing for greater diversity, equity & inclusion (DE&I) within firms – and related disclosures – pointing to moral and ethical as well as operational and financial benefits.
On the other side, last year’s US Supreme Court ruling against affirmative action-based admissions at universities has triggered threats from a group of Republican attorneys general and litigation from conservative groups aiming to stop or curb companies’ DE&I efforts, which they argue distract from companies’ core missions and create unfair playing fields.
In the latest episode of the Governance Matters podcast, we hear from a panel of experts on these developments and the implications for companies, boards and governance practices.
Meredith Benton, principal and founder of consultancy Whistle Stop Capital, talks about a report from shareholder advocacy group As You Sow called ‘Capturing the Diversity Benefit’. The research analyzes EEO-1 data from 1,641 public companies and finds that greater racial and ethnic diversity among management is linked to increases in eight financial metrics.
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Benton, who is lead author of the report, highlights some of the key findings and the governance lessons they present. She says boards have a role in promoting diversity: ‘There are two key components. One is that the board should speak to the importance of diversity and have that communication be public not just to current employees but also to potential and future employees so that they are aware this will be a good company for them to fit into.
‘The other is that the oversight mechanism… [should have] the board ensuring it understands what’s happening within its company and within its sector… and that it is looking at whether or not there is a positive progression over time.’
Luke Morgan, attorney with As You Sow, discusses the legal environment. He explains the legal basis litigants are using to bring cases against companies’ DE&I programs, how companies can limit their exposure to such litigation while continuing with their DE&I efforts – and the risks of not continuing those initiatives.
Andrew Behar, CEO of As You Sow, talks about the importance of diversity disclosures and investor expectations in the current environment, which he says have not been affected.
‘I think investors are actually looking for more information,’ he says. ‘The bottom line is we want to… assess and address risk… ESG is just a framework for assessing risk. Any businessperson who isn’t assessing and addressing risk is not doing his or her job. Any investor that isn’t assessing and addressing risk is potentially in breach of its fiduciary duty.’
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The Governance Matters podcast provides listeners with insight into cutting-edge issues of the day for corporate secretaries, general counsel and other governance professionals. The series looks at how the roles of governance professionals and the board – as well as the landscape in which they operate – are evolving.
From ESG and entity management to shareholder engagement, regulation and technology, hear from governance experts and leading advisers about the latest public company governance matters.
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Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
