It May Be Time To Reassess The Risks Of Failing To Meet Racial Equity Commitments

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In an environment where stakeholder concerns can move stock prices, directors should reassess the risks associated with saying they are for racial justice but failing to take actions that indeed make things more racially just.

Recent analysis of 100 of the largest U.S. corporations’ shows their efforts to demonstrate a real commitment to racial equity are lacking. Two years after many corporations made public pronouncements that they would do more to foster a spirit of racial equity and fairness at their companies in the wake of George Floyd’s brutal death at the hands of police, a report from not-for-profit Just Capital concludes that “the nation’s 100 largest employers are more likely to disclose baseline DEI commitments, but less likely to disclose actions that show accountability toward progress.”

For the boards of companies that have made commitments connected to racial equity, it may be time to examine the impact of their success or failure to make good on those commitments. In an environment where stakeholder concerns can move stock prices (employee actions, consumer protests, shareholder proposals), directors may need to reassess the risks associated with saying you are for racial justice but failing to take actions that indeed make things more racially just. The trust and confidence of workers, investors and consumers could potentially be lost.

According to the 2022 Corporate Racial Equity Tracker, while more than 90% of the 100 largest employers increased the disclosure of workplace diversity data (91%) and board diversity data (95%), fewer than half disclosed their racial/ethnic pay equity analysis (45%) and fewer than one-quarter disclosed their pay ratios by race/ethnicity (24%). The risk is that stakeholders might believe these numbers suggest that companies have gotten better at bringing racial minorities into companies and the board room, but most likely don’t pay them the same as whites. The perception is bad and can lead to unfortunate situations with stakeholders.

The report also found that of the 100 companies tracked, only:

• 7% disclose their internal hire (or promotion) rate by race/ethnicity.

• 21% report providing anti-harassment training, compared to 98% of companies that disclose an anti-harassment policy.

• 22% disclose the actual results of the pay equity analysis, i.e. pay ratios by race/ethnicity.

• 23% disclose diversity targets for hiring, workforce composition, promotion or retention by race/ethnicity.

• 42% disclose a supplier diversity spend amount.

The lack of transparency and the lack of action regarding racial equity commitments may soon become a more pressing issue for boards—and here’s why:

• Failure to meet racial justice commitments erodes trust and can damage the company brand. Everyone wants to be treated fairly and equally. Failing to meet racial justice commitments comes across as an endorsement of unfair treatment of racial minorities. Boards may be asked to explain why it is so difficult to pay all workers the same rate for the same job—regardless of race. Is there a strategy to deal with that question? Is there a strategy to deal with consumer backlash over broken racial justice commitments? Is there a strategy to demonstrate that racial justice commitments have been achieved? These are legitimate issues for boards to discuss. How the board deals with these issues could determine whether the trust and loyalty of shareholders, employees and consumers is eroded or strengthened.

• Failure to meet racial justice commitments can hurt recruitment and retainment efforts. If a company fails to meet racial equity commitments it made, that will likely trigger an exodus of the most talented racial minorities from the company. Such a failure sends the message that the company will not stand by its commitment to racial minorities. It will also make it more difficult to recruit racial minorities to the organization. That is not the type of reputation a company wants in the marketplace.

• Failure to meet racial justice commitments could be used support the growth of labor unions. The Covid 19 pandemic has put a brighter spotlight on how workers are treated. Lack of transparency regarding workforce diversity and pay equity give labor union advocates additional ammunition to accuse companies of exploiting workers. Boards may need to include the fulfillment of racial equity commitments in discussions on how to show greater support for workers.

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