A confluence of factors, including changing demographics, the desire for increased profitability and better corporate governance, coupled with shareholder activism, is prompting more serious diversity efforts, particularly on corporate boards.
The Nasdaq has been the biggest promoter of the diversity acceleration. In late 2020, he recommended that the Securities and Exchange Commission (SEC) take an “explain or change” approach to promoting women and minorities to board positions. This action provides greater transparency so that investors can determine the company’s track record in hiring and promotion practices. Citing the Conference Board’s findings, Time magazine reported that 2021 marked the first time a majority of S&P 500 companies (59%) disclosed the racial makeup of their boards.
In the face of growing shareholder activism, leading companies are already stepping up their diversity and equity initiatives. The SEC measures weren’t approved until August 2021, but Bloomberg reports that by then S&P 500 companies had already “tripled the share of new black directors and more than doubled the percentage of Latinos.” “.
Diversity promotes better governance by mitigating groupthink and helps to mitigate risk. Blackrock, the world’s largest fund manager, has said it wants at least two female directors on its investors’ boards. If there is a lack of compliance, they can vote against the nominating or governance committee for an apparent lack of commitment to board effectiveness. Similarly, Goldman Sachs has announced that it will no longer underwrite initial public offerings that lack diverse board-level representation.
Companies that adopt these initiatives will be better prepared for the next generation of workers and consumers. For example, the Society for Human Resources Management reports that our emerging workforce is more diverse. Whites make up about 50% of US residents under the age of 16. Meanwhile, Latino/Hispanic teen populations jumped 9%. Blacks make up about 13.7% and Asian Americans have risen to 4.5%.
Leaders must recruit beyond traditional candidate pools, while ensuring that employees are not treated as tokens, but fully valued and empowered. Businesses can also consider contracting with minority and women-owned businesses. (See the Journal Record list book for options.)
Even without the new SEC requirements, smart leaders recognized both the altruistic impact and the net impact of promoting diversity. Let’s continue our momentum.
Shannon Warren is a former human resources manager, professor of business ethics, and CEO of a nonprofit organization. She is president of the Women’s Diversity Initiative of Oklahoma (https://womensdiversityinitiative.com).