In Brief:
- Gender and racial equality in the workplace has proved elusive despite many corporate Diversity, Equity, and Inclusion (DEI) programs. At most large companies, the retention and promotion of employees of color has remained relatively low or stagnant;
- Better inclusion and diversity policies and practices can be a source of competitive advantage and a key enabler of growth for firms.
- Corporate boards have made progress for women that was unimaginable a decade ago; women held 27% of S&P 500 board seats in 2019 vs. 15% in 2011.1
- We identify three mutually-reinforcing areas of sustained effort that made progress possible: Investor Voice, Data, and an Ecosystem supporting best practice.
- Our 2020 Workplace Equity Initiative is grounded in this insight, aiming for meaningful change through proactive engagement, better data and shared innovation.
The Diversity Challenge
Despite the widespread adoption of diversity initiatives at most large companies, the retention and promotion of employees of color has remained relatively low. Research indicates, for example, that the percentage of African-American managers in large US firms has remained stagnant since the 1980s! Women, particularly white women, saw bigger increases in their representation in management, rising from 22% to 29% of managers from 1985 to 2000, but their numbers haven’t budged since then.
The leadership of most large companies is still overwhelmingly white, male, and heterosexual. It isn’t surprising that corporate leaders may underestimate the barriers to success faced by employees who are unlike themselves. Companies may also discount the advantages that an inclusive workplace can deliver. As investors, we are keen to encourage more holistic thinking about corporate diversity, equity, and inclusion. We believe more ambitious and innovative practices for diversity, equity, and inclusion can be a source of sustainable advantage for firms.
Board Diversity: An Example of Success
In 2011, when the Thirty Percent Coalition was created, 30% seemed a tall order—nearly double the existing figures. Today, it looks well within reach. As of June 2019, women represented 27% of board seats on S&P 500 companies, up from 15% in 2011—and the last all male board appointed a woman.1
We identify three mutually-reinforcing areas of sustained effort that made progress possible: Investor Voice, Data, and an Ecosystem supporting best practice. For over two decades, diversity in the Boardroom has been a key focus for responsible investors, including Boston Common. Alongside groups like the Thirty Percent Coalition and 2020 Women on Boards, responsible investors have demonstrated the effectiveness of tenacious shareowner engagement with companies toward more diversity at the Board level.
Data Please!
One of the biggest challenges in achieving Workplace Equity is a lack of data from public companies. Companies are required to collect much of this information for the Equal Employment Opportunities Commission (EEOC), but they are not obligated to make it public. As investors, we want to help close this data gap by urging companies to disclose the diversity of their workforces.
However, data alone is not sufficient.
Technology companies, for example, have started to track and publish data on the diversity of their workforces, but statistics have barely budged for Black or Latinx employees. These workforces—particularly engineering/developer roles—remain overwhelmingly white and Asian. Companies may also be hesitant to report publicly on the gender/racial/ethnic makeup of their workforces, because despite public commitments, they have not made much progress.
Progress has been made by women as a whole, though the progress for women of color has been much slower. According to Catalyst, the research and advocacy group in the United States, women were nearly half (46.9%) of the labor force but only slightly over a third (40.0%) of managers in 2018. In addition, white women held almost a third of all management positions (32.6%), while the share of women of color in management roles was much lower: Latina women: 6.2%; Black women: 3.8%; Asian women: 2.4% .
Researching What Works
The pace of change has slowed in regards to increasing the number of women, people of color, disabled employees, and other under-represented groups in management positions, and without more effective and proven interventions, internal cultural barriers to workplace equality are likely to prevail.
Over the past year, we have begun exploring which corporate initiatives are most effective in promoting inclusion and diversity within the workforce. We were interested in identifying interventions that can be effective in moving the needle and ensuring our portfolio companies benefit from the competitive differentiator that we believe diverse workforces bring.
Research suggests that successful initiatives:
- Engage employees in these discussions – through the formation of Diversity Task Forces and support for Employee Resource Groups (ERGs) and
- Create formal and informal opportunities to increase contact between diverse groups (college recruitment and mentoring within the firm)
New, emerging frameworks including important work by the Boston Consulting Group (BCG) identify successful diversity and inclusion measures worldwide for women, racial and ethnic minorities, and LGBTQ+ employees. BCG’s framework identifies key elements of corporate effort:
Basics: anti-discrimination policies, appropriate anti-bias and cultural competency training, removing bias from evaluation and promotion decisions, equal pay.
Proven Measures For Female Employees – Flexible Work Arrangements; For Employees of Color – Blind Screening and Diverse Interview Panels; For LGBTQ+ Employees – Participating in external events and rankings; appropriate healthcare.
Hidden Gems: For Female Employees – Visible Role Models, Parental Leave, Appropriate Healthcare, Childcare; For Employees of Color – Bias-free day to day experience; Formal Sponsorship of individuals; For LGBTQ+ Employees – Bias-free day to day experience and structural interventions.
We know many of our portfolio companies are leaders in advancing diversity and inclusion. We want to share their best practice examples and continue to urge corporate leaders to raise the bar on increasing the number of women and people of color in management positions.
Next Steps
Our 2020 Workplace Equality initiative will build on our long history of engaging companies on gender and racial diversity. Our efforts have been focused on board diversity, and on workplace practices (including support for the Women’s Empowerment Principles). We plan to supplement our existing frameworks with newer insights, as we engage portfolio companies with significant US employee footprints.
We believe both US and international companies can greatly benefit from adopting some of the most successful, research-tested initiatives in support of diversity. This will include addressing the current pitfalls facing many companies by advocating that goals be made public and be measurable. The achievement of these goals can then be integrated into performance goals and compensation at the individual and team levels. Many of our portfolio companies are already on their journey to achieving diversity and inclusion. By bringing data, insights on ‘best practice’, and sustained investor support to the table, we hope to help them become true leaders in workplace equality.
[1] Umoh, Ruth ‘The Last All-Male Board on the S&P 500 Just added a Female Member.’ Forbes July 25th, 2019 https://www.forbes.com/sites/ruthumoh/2019/07/25/the-last-all-male-board-on-the-sp-500-just-added-a-female-member/#498c00b5399d
[2] Dobbin, Frank and Alexandra Kalev “Why Diversity Programs Fail.” Harvard Business Review July-August 2016 https://hbr.org/2016/07/why-diversity-programs-fail
