In the Market: How to harness the benefits of corporate diversity
26/06/2023 06:00
By Paritosh Bansal
June 26 (Reuters) - In the early 2000s, Maryann Bruce
and other senior women executives at Wachovia bank formed an
affinity group called the Women of Wachovia. Within three years,
WOW went from having more than 100 women to far fewer as many
left the bank.
The bank, now part of Wells Fargo WFC.N , had hired women
but did not know how to do things differently to retain them,
said Bruce, who now serves on corporate boards.
"There's a big difference between diversity and inclusion,"
Bruce said. "Diversity is all about counting people; inclusion
is about making people count."
While U.S. companies have made progress in adding more
gender, ethnic and other types of diversity to their ranks in
recent years, some of the same problems that WOW faced persist.
A Russell Reynolds Associates global survey late last
year, for example, of some 130 senior executives who had left
their jobs showed the top reason women gave for leaving was that
they felt undervalued.
Now increasingly, corporate directors, academics and other
governance experts are calling for companies to focus more on
retaining and nurturing the people they hire. Among the
components of DEI - diversity, equity and inclusion - they argue
a focus on the latter two themes is crucial to make diversity
more than just a box-checking exercise and necessary to reap its
benefits.
Much is at stake for companies. After years of academic
debate, there is mounting evidence that companies that score
high on DEI metrics also perform better financially, the
governance experts said.
The costs of failing to do enough are getting clearer as
well. Just last month, Goldman Sachs paid $215 million to settle
a gender discrimination case with female employees.
"Many companies took this on in a crisis management way,
jumping on the bandwagon,” said Roberta Sydney, an independent
director and entrepreneur, referring to the corporate diversity
push in recent years. "That led to bursts of activities rather
than a change-management culture."
A long-time director who currently serves on three major
company boards said more focus was being placed on equity -- or
fair treatment of employees to create a level playing field --
and inclusion as some companies were finally embracing the idea
that "you need D, E, I to work in tandem to truly get the
advantages of having a diverse organization."
SLOW PROGRESS
Companies have been adding diverse talent, especially to
boards, in recent years as environment, social and governance
(ESG) investing became popular and was mandated in places like
California by law.
Gender and ethnic diversity issues have also risen to the
forefront in the aftermath of the #MeToo movement highlighting
sexual harassment and the 2020 death of George Floyd, a Black
man murdered by a white police officer who kneeled on his neck
for over nine minutes.
John Rogers, chairman of asset management firm Ariel
Investments and member of Nike and other boards, said diversity
was imperative for corporate success.
If a company has a "1940s board, with all white males," it’s
a problem, he said. "They're not thinking about creating a
climate to be successful in today's world.”
Nike, for example, is among companies that understand its
customers and employees care about ESG, Rogers said. "So if they
don't stay cutting edge, you could lose market share," he said.
Progress, however, has been slow, and some data suggests it
has decelerated over the past year. A Heidrick & Struggles
report on the boards of Fortune 500 companies, for example,
shows appointments of women and ethnic minorities decreased in
2022 compared with the previous year.
Pressure has eased from investors, too, amid an anti-ESG
backlash in the United States. Among Russell 3000 companies
during the current proxy season, support for shareholder
proposals on racial equity and civil rights audits declined by
about half on average, a recent Conference Board report shows.
Projections for gender and racial parity in different
corporate roles go out decades.
DIVERSITY PREMIUM
There has been debate in academia about whether diversity
has any impact on the financial performance of a company, with
some research showing only weak correlations and no study
proving causation, according to experts.
A research paper published last month argues that's because
people have been doing it wrong: looking at diversity alone
rather than DEI as a whole.
In the paper published by the European Corporate Governance
Institute, researchers from the London Business School, Columbia
University and the Federal Reserve Board created a qualitative
DEI score based on employee survey responses to questions that
captured how equitable and inclusive their workplace was, rather
than basing it on just diversity numbers.
They found that higher DEI scores were correlated with
better financial performance, while demographic diversity alone
was not. "Companies can 'hit the target, but miss the point' –
improve diversity statistics without improving DEI," the paper
said.
One of the authors, Alex Edmans, a finance professor at the
London Business School, said in an interview he is helping some
investors consider questions to ask management to understand how
the company approaches equity and inclusion. These include
asking for examples of suggestions by employees that were
implemented or concrete steps taken to encourage inclusion.
The purpose is to understand whether companies are ticking
the box or doing something more genuine, Edmans said, adding:
"It's much easier for companies to say, 'Hey, we've now got a
woman on the board.'"
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More minorities on U.S. company boards, but still
underrepresented https://tmsnrt.rs/3lJewQm
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(Reporting by Paritosh Bansal, editing by Deepa Babington)
((paritosh.bansal@thomsonreuters.com;))