A recent report from the Women Corporate Directors Foundation (WCD) suggests that corporate board members are gradually moving from formal boardroom discussions about Diversity, Equity and Inclusion (DE&I) to actual implementation of policies and goals that can track actual progress on DE&I throughout the company.
The report, “Directors, Prepare for More: Tracking, Reporting and Incentivizing DE&I”, which was prepared in cooperation with executive compensation consultancy Pearl Meyer, showed that although 90 percent of the 157 WCD members surveyed acknowledged that DE&I was on the board agenda, only 46 percent of their companies had committed to setting DE&I goals. While talking about creating an environment where DE&I is an important part of the corporate culture is a welcomed first step, it may be worth asking how many years should it take before boards and management actually begin implementing changes and creating mechanisms that ensure diversity, equity and inclusion at their companies?
The good news from the WCD report:
• 75 percent of respondents are tracking new diversity hiring and 56 percent track diversity in leadership promotion;
• 54 percent of respondents have assessed pay equity, 40 percent have examined pay gaps and 30 percent have considered doing something about performance rating bias;
• 39 percent of respondents say they’ve incorporated DE&I factors into their annual incentive plans and another 41 percent say they are likely or very likely to do that moving forward.
However, as positive as these numbers might be to some, the percentages connected to actions taken by these boards should probably be higher given the fact that this is a survey of companies that have at least one woman on their board. You would think the commitment to most issues connected to diversity, equity and inclusion would be higher than 50 percent on boards with women already on them—but apparently not. This demonstrates the amount of work that needs to be done.
Beth Florin, managing director at Pearl Meyer, said in a press release, “The organizations that are making progress are the ones where the leadership team is invested in creating change.” Those companies truly interested in change will figure out what it will take to incorporate DE&I metrics into business and growth strategies. To help that process, the WCD report lists six steps boards can take to improve their company’s DE&I environment.
There is no denying that it will take some time for many boards to embrace the adjustments that come with fully implementing effective DE&I policies but pressure from investors, regulators, employees and consumers will continue to keep this a board agenda item for 2022. Expect to see an increase in shareholders asking companies to produce reports detailing information on diversity that includes plans for diversifying their board as well as workplace diversity data.
However, as companies implement changes they believe will improve DE&I, they should be careful not to focus solely on financial incentives as a motivator. Offering financial incentives for diversifying the workplace without addressing behaviors that detract from equality and inclusion may worsen conditions at a company. Even if companies improve their record of hiring diverse employees (by paying executives to do that), unless they address the hostility and negativity connected with failing to include people, failing to pay people equally and failing to treat people fairly in work assignments, promotions and evaluations, they will be creating a “revolving door” environment that brings diverse individuals in, but then subjects them to untenable conditions that motivates them to leave at the first opportunity.
Boards should consider how a full corporate culture change would improve investor relations as well as position the company to recruit the best and brightest employees and win brand approval from customers in multiple markets. That would be one way to incorporate DE&I into a corporate growth strategy that has possibilities.