Experience has taught companies that DE&I (diversity, equity & inclusion) is critical to their success in myriad ways, and there is growing evidence of consensus around its importance. At the 2021 Society for Corporate Governance National Conference, SEC commissioner Allison Herren Lee said, “Historically many ESG issues were seen as not within the purview of the board of directors. Those days are over… [The] connection between ESG and the interest of shareholders has become evident.”
This is also evident in the way we talk about these issues. The original umbrella term, “corporate social responsibility,” evolved to ESG (environment, social and governance) is more aligned to the language of business, reflecting an understanding that these nonfinancial factors are really part of a company’s overall strategic business objectives.
This maturing understanding creates an interesting time for boards as they endeavor to provide oversight and support to their management teams, who hold responsibility for integrating DE&I into business models.
In a recent discussion among professionals from Grant Thornton and the North Texas Chapter of the National Association of Corporate Directors, focus was on key matters driving attention to DE&I at the board level and key challenges boards face in meeting their DE&I goals. The program was moderated by Nicole Blythe, Grant Thornton Audit Services partner.
Factors driving DE&I focus
Attracting and retaining employees. People are choosing where, how and for whom they want to work. In recent Grant Thornton research (see “The state of work in America”), 21% of respondents said they turned down a job because the company’s values did not align to their personal beliefs. “You have a unique convergence where something that is admirable from a policy standpoint actually has real bottom-line impact for the business,” said Bobby Majumder, Partner Attorney at Frost Brown Todd, and member of the board of Bluerock Residential Growth REIT, Inc. He is also a member of the board of trustees of the Total Income + Real Estate Fund and the advisory boards of the Atlantic Council’s South Asia Center and of the Cattle Baron’s Ball.
Expanding the addressable market. Companies with diverse workforces benefit from a broader set of experiences and diversity of thought, which translates into more inclusive products and services that can increase the addressable market. Majumder explained: “When you have employees who are representative of different walks of life and are enthused about working with you, they are ambassadors for the company, which is good for sales.”
Addressing stakeholder interest. Companies are feeling the pressure to be more transparent about their efforts and results. Current and potential customers and employees, investors, and suppliers want to know how companies are addressing diversity. As stakeholders, they are making decisions based on DE&I performance. Institutional investors are more vocal about diversity at the board level and throughout the organization.
Key challenges for boards
Providing strategic oversight. “Boards need to resist the understandable tendency to jump in,” said Majumder. “Their role is to provide strategy and oversight, empower management with the tools to execute goals, and measure accomplishments against objectives.” If management is falling short, boards should ask what needs to be addressed, then provide resources to help stay on track.
Walking the talk. Boards themselves are under pressure to improve diversity among directors. John Friedman, Grant Thornton, Managing Director, ESG and Sustainability Services, noted: “BlackRock, State Street and Vanguard have all identified board diversity as a metric that’s key for success and figures into their investment decisions. If it didn’t make the business better, they wouldn’t be asking for it.”
Making sure transparency is taken seriously. There is a risk in being transparent — no one wants to show a bad report card. Majumder observed: “But people already know what you’re doing. Information today is shared more effectively, and your employees are talking about you.” Ask management for improvement plans if the company is not meeting its benchmarks.
Action steps for boards
Adopt a new mindset. Blythe said: “DE&I is a journey without a final destination, and it can require a mindset different from what many businesspeople and board members are accustomed to.” It also requires adaptability. The journey evolves as different factors come into play. Majumder cautioned: “We can’t be dinosaurs. DE&I matters. It’s important to know how your customers and employees are changing.”
Be realistic about results. Set appropriate long-term goals and intermediate benchmarks. Benchmarks might include diversity in hiring, retention and turnover, promote-from-within rate, growth of internal DE&I programs, how well the workforce reflects the community, and a supplier diversity program. Blythe advised: “It is very helpful to adopt a framework to chart the DE&I journey and track progress toward long-term goals and intermediate benchmarks.”
Establish a direct reporting relationship with the board. To ensure the board has visibility into DE&I progress, identify a member of the leadership team to report to them on DE&I benchmarks. It may be a diversity officer or someone from HR or safety who reports to the entire board or through committees.
Reward success. Align financial rewards with the achievement of the DE&I results the company is striving for. The company must put real motivation behind their commitment to achieving their goals.
Boards can provide the leadership to help their companies adapt to these changing expectations. Companies will succeed when they build the internal infrastructure and capacity today to meet tomorrow’s needs, including disclosure requirements. DE&I is not a passing fad; it is good policy that is also good business.
Partner, Audit Services
Nicole Blythe is an audit partner in the Dallas office and the firm’s Health Care Audit Leader. Nicole has more than 21 years of in-depth audit and accounting experience in the health care industry.
- Private equity
Managing Director, ESG & Sustainability Services
John Friedman is a managing director in Grant Thornton LLP’s Environmental, Social and Governance (ESG) and Sustainability practice, based in the firm’s Arlington, Virginia office.
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- Growth and transformation
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