Within the past couple of years, California has enacted legislation that needs public companies in California to meet certain diversity metrics connected to their boards of directors. All these board-specific requirements follow the development of empirical information that supports the following conclusions: (1) diversity in public corporations’ boards of directors was seriously lacking and (2) diversity in a high degree can make a business perform better. But diversity, equity and inclusion (“DE&I”) doesn’t end at the top, though that’s a great place to start.
The law required by the end of 2019, all domestic general corporations and overseas public corporations whose principal offices are located in California should have a minimum of a single female on its own board of directors. See Cal. Corp.. Code Sections 301.3 and 2115.5.
By the end of 2022, these prerequisites expand to two board chairs if you can find five to eight board seats total, and three board seats for companies with nine or more board seats. Similar fines are offered for non-compliance ($100,000/$300,000). See Cal. Corp.. Code Sections 301.3, 301.4 and 2115.6.
Even though there is ample justification for these board-specific legislative adjustments, DE&I go far beyond the make-up of a board of supervisors and affect the entirety of a business. Recently, we spoke with Melynnie Rizvi, Deputy General Counsel and Senior Director of Employment, Inclusion and Impact in SurveyMonkey on our podcast, The Performance Review, to talk about just how DE&I can make a firm thrive. (take a look at the episode here — in which you may also get MCLE self-study credit).
One of the salient points: To thrive with DE&I, it cannot only happen in the boardroom — it’s the entire company. As stated by Ms. Rizvi, employers must let those initiatives permeate into the company culture and also be included in a company’s business aims. There are a number of reasons firms must focus on developing programs and policies to enrich DE&I campaigns:
Rationale 1: It is the right thing to do.
Though business could be cutthroat, more often than not, the ideal business decision is also just the right thing to do. To put it differently, creating an environment that champions diversity isn’t just consistent with California law, it is good for your employees and great for your customers. This dovetails with an ancillary benefit — it is good for a business’s image. Brand loyalty and awareness is much more important than ever, both for recruiting strong ability, and making customers happy. More and more employees and customers are making choices about which company to support based on the organization’s external facing DE&I initiatives or protocols. As this information becomes clearer, we see an increasing number of workers sharing positive sentiment toward racial justice and racial equality. According to Ms. Rizvi, a SurveyMonkey poll recently discovered that the vast majority of workers in the technology industry want to work for companies which take a stand on social issues.
Reason 2: It’s excellent for business.
Indeed, research and data have shown that a focus on DE&I, along with other initiatives associated with environmental, social and governmental programs, actually lead to better financial performance for companies.
“According to a report by [an global consulting company ], for every 10 percent increase in racial and cultural diversity over the senior-executive group, earnings before interest and earnings rise 0.8 percent.”
“A study by [a research company ] found that the high tech sector could generate an additional $300 billion to $370 billion annually if the ethnic diversity of technology firms’ workforces reflected the talent pool.”
Moreover, the price-to-book worthiness of these companies was greater for people that have women on their boards: 2.4 times the value in comparison to 1.8 times the significance of zero-women boards”
“A 2017 study by [a fund firm ] discovered that United States’ companies that started the period from 2011 to 2016 with three or more female directors reported earnings per share that were 45 percent higher than those firms without a female directors at the beginning of the period.”
“[A sizable financial institution] conducted a six-year worldwide research study from 2006 to 2012, with over 2,000 companies worldwide, showing that women on boards enhance company performance for key metrics, such as stock performance.
There are a number of methods to measure performance however, at the minimum, seeing a rise in profitability is generally high in mind. In addition, focusing on recruitment and training a much more diverse talent pool can open a company up to a larger range of ideas and backgrounds, which can result in better products and solutions.
Rationale 3: It could keep you out of court.
DE&I initiatives can help prevent employers from confronting discrimination or cover equity lawsuits. These suits can be costly, time-consuming, and also a general business distraction — and of course — awful for promotion. By addressing any deficiencies in diversity today, you may prevent your company from litigation heartache later on. Moreover, SB 973, yet another of California’s recent laws, requires covered employers (100+ workers ) to submit a cover data report (Type EEO-1) with the Department of Fair Housing and Employment before or on March 31, 2021, and every calendar year thereafter, that states the number of employees by race, ethnicity, and sex for the prior calendar year in 10 covered job classes.
So maybe that leaves you wondering, what if my company do? Systemic changes require time and can be difficult to get started and/or sustain. They need buy-in in the top all the way down. This will typically require a multi-faceted Strategy, but based on Ms. Rizvi (badly, go listen to the podcast) here are a few thoughts:
Integrate DE&I in your company goals/objectives. Make this a priority with particular benchmarks and deliverables, just as you would set a profit target.
Hold people accountable for insufficient advancement, and reward accomplishments. Just as you would hold somebody responsible for lost a sales target, or releasing a product behind program, companies could consider measuring job performance, at least in part, how DE&I initiatives are performing.
Look for strategies to implement across the business, not just at the very top. And this ought to go between sections too. By way of example, it’s 1 thing if your workforce is majority female, but should they all work just in 1 department, have you created the varied environment across the enterprise to make it flourish? Not likely.
Figure out ways to improve DE&I advocacy. This can be inside the organization, or outside, like partnering with different social justice classes, or engaging in attempts to come up with new legislation.
Implement policies consistent with these aims. This means fine-tuning anti-discrimination policies, creating diversity initiatives, and crafting policies related to social justice systems.
There are numerous ways employers can create an environment that champions DE&I. But at minimum, California has spoken and requires covered companies to start this procedure from the boardroom. But as information continues to show, the demand for DE&I runs all of the way through a business, and can radically transform not only the public’s perceptions, however your company’s bottom line.