Building a diverse & inclusive corporate culture

The Black Lives Matter movement has turned the public’s attention towards corporate diversity and inclusion practices. 78% of American respondents to a 2020 Just Capital survey¹ somewhat or strongly favored CEO actions that elevate workplace diversity and inclusion.

Workplace diversity and inclusion (D&I) has always been a strong opportunity for ESG (Environmental, Social, Governance) value creation. In 2019, McKinsey & Company determined² that companies with executive teams in the top-quartile of ethnic and cultural diversity financially outperformed the fourth quartile by 36%. Meanwhile, companies with executive teams in the top-quartile for gender diversity financially outperformed the fourth quartile by 25%.

Despite better financial performance, D&I in the workplace has slowly progressed in the US and UK. Female representation of 20% on executive teams in 2019 only rose 5% from 2014. Ethnic-minority representation of 13% only increased 6% in that same time frame.

Embracing D&I starts with integrating these principles into your corporate culture. Corporate culture sets norms for the actions encouraged, discouraged, accepted, or rejected. Harvard Business Review³ states that these norms are shared, pervasive, enduring, and implicit across your company. Heavily engrained, top-down, and rigid corporate cultures could discourage an inclusive work environment where stakeholders do not believe your company values their input, ideas, and views. Fortunately, ESG tracks measurable key performance indicators (KPIs) that enable your company to build an inclusive culture.

Governance

Hiring senior management and appointing board members from underrepresented demographics of age, race, sexual orientation, ethnicity, physical abilities, and gender visibly demonstrates governance diversity.

Inclusive corporate cultures, however, require more than diverse leadership. Your company should select strong leaders that promote and communicate a D&I vision that best matches your company’s trajectory and values. Leadership sets new cultures in motion or maintains the status quo through their values, management style, strategic plans, and rule adoption.

Most leadership teams use D&I vision statements to communicate the desired culture, but the best leadership implements programs that actively demonstrate their vision. EY⁴, for example, states that “Diversity and inclusiveness are not ‘nice to haves.’ They are business imperatives.” Many of EY’s programs back this D&I vision statement such as its Launch internship that introduces ethnically diverse college students to the company’s culture and business practices.

Strong D&I programs incorporate both governance and accountability systems that set corporate culture goals and objectives, design strategies to meet those targets, and track progress of these strategies. Goby recommends applying Dr. Edwin Locke’s and Dr. Gary Latham’s five principles⁵ for setting precise, measurable, and impactful goals that challenge your company to perform better on diversity and inclusiveness.

Sodexo followed these five principles for its goal of having women comprise 40% of its senior leadership by 2025. Sodexo formed the “SoTogether” Gender Advisory Board to secure team commitment towards achieving this goal. SoTogether provided women with professional development mentoring, sponsorship, and training programs such as the Women’s Network Group.

Finally, Sodexo’s Balanced Scorecard for Diversity held the new D&I governance programs accountable by tracking quantitative and qualitative progress towards the overarching goal. Quantitative measures included representation of women in the company’s new hires, promotions, transfers, and terminations. Meanwhile, qualitative measures tracked diversity training attendance, mentoring participation, and employee engagement.

Thus far, Sodexo’s leadership, governance, and accountability systems have worked well together to achieve the 40% representation of women in its senior leadership goal. This year, women represent 60% of Sodexo’s board, 35% of its executive team, and 37% of its senior executive roles.

Accenture tracked the D&I successes of Sodexo and many other companies in its Getting To Equal 2020 report⁶. The report lists 40 governance factors that will help your company achieve an inclusive corporate culture.

Social

Corporate culture extends past your D&I actions in the workplace. Your culture permeates into the larger society by how you interact with customers, suppliers, and the local community. The 2020 Just Capital survey found that most of the American public want to see companies actively promote D&I in their communities. 84% of respondents somewhat or strongly favored CEOs who responded to the Black Lives Matter movement with a statement about ending police brutality and promoting peaceful protests.

Many companies have bolstered their D&I public statements through meaningful action in 2020. Bank of America pledged to invest $1 billion over four-years to support economic development in communities of color. PayPal will contribute $530 million to Black-owned and minority-owned US businesses. Facial recognition software producers of IBM, Microsoft, and Amazon have reduced or eliminated access to their technology by police forces.

In each of these examples, the companies assessed their societal role and developed anti-racism programs that best fit their role.

Environment

The built environment heavily factors into the quality of life for US communities, especially during a pandemic. Millions of US residents live in food deserts with no access to affordable and healthy food during the stay-at-home order. Other low-income residents and communities of color live in neighborhoods with poor air quality. These air quality conditions can lead to chronic respiratory problems, cancer, and heart disease that all increase vulnerability to COVID-19.

Your company can help address these environmental disparities by improving the health and wellness conditions on your property. Three health and wellness certification programs of Fitwel, WELL, and RESET have worked on new guidelines and standards for decreasing the spread of COVID-19 in the built environment⁷. During normal times, these three programs tackle common environmental justice issues of indoor air quality, access to healthy food, mental health support, and more.

Getting started with D&I: Developing a scorecard

ESG offers countless opportunities to improve your company’s D&I. Scorecards that annually track progress should help determine the most effective D&I activities given that your company chooses reliable KPIs and performance targets. Reliable performance targets measure D&I across the entire supply chain. Overall data about employee gender, race, and ethnic diversity will not provide a full D&I snapshot. Try to measure diversity at different levels of your organization (entry, mid-level, senior level, executives, etc.) or at different occupations such as administrative, IT, accounting, and more. Finally, scorecards should compile D&I demographics of supply chain stakeholders outside of your employees. This data includes suppliers, customers, investors, and communities. A diverse and inclusive scorecard should achieve a diverse and inclusive corporate culture.

The president and CEO of the Nasdaq, Adena Friedman, announced recently that, pending SEC approval, Nasdaq will begin requiring companies listed on its exchange to be more transparent with regards to their board members. Additionally, in the coming years, listed companies will be required to have at least one female and one minority director on their board that cannot be the same person. This is an amazing step toward accurate representation in the boardroom of the variety of faces and interests that make up companies.

ESG materiality assessments

With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.

An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.

Download guide

References:
¹ https://justcapital.com/news/notable-corporate-responses-to-the-george-floyd-protests/
² https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters
³ https://www.spencerstuart.com/~/media/pdf files/research and insight pdfs/the-leaders-guide-to-corporate-culture.pdf
⁴ https://www.ey.com/en_us/diversity-inclusiveness
⁵ https://esg.conservice.com/setting-esg-goals-that-create-value/
⁶ https://www.accenture.com/us-en/about/inclusion-diversity/_acnmedia/Thought-Leadership-Assets/PDF-2/Accenture-Getting-To-Equal-2020-Research-Report.pdf
⁷ https://gresb.com/state-safety-health-wellbeing-2020/

Ryan Nelson

Ryan Nelson is Conservice's SVP & General Manager, ESG. He has over 20 years in enterprise software and management consulting experience, including supply chain software implementation and process optimization for fortune 50 companies. Since 2009, Ryan has been focused on helping companies amplify their ESG impact with technology.

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