This article was written by Helen Chan & Julie DiMauro of Thomson Reuters Regulatory Intelligence
Corporations with ties to the United States are being pressed by increasingly impatient investors and consumers to take tangible actions to address racial injustice in America. Over the past several days, businesses that have spoken out about race relations and the death of George Floyd have been barraged with demands to do more than just pay lip service to solidarity.
The outcry for corporate contribution has included demands to increase workplace diversity and inclusion. At the behest of investors and regulators, boosting gender diversity has already been a focus for boards and C-suites at many North American companies in recent years. The activism and public discourse sparked by the recent Black Lives Matter protests is likely to pressure corporate leaders to show visible progress in increasing black representation in all levels of an organization as well.
Pressure for progress from employees & CEOs
Although shifting demographics and investor pressure have called for more diverse leadership at American companies in recent years, racial diversity at all levels of corporations remains elusive, especially in lucrative industries such as investment banking and technology.
A multiyear study published by the Alliance for Board Diversity and Deloitte on the diversity of boards of directors of Fortune 500 companies found that in 2018, only 11.1% of board seats were held by respondents who identified as African-American.
In a sign that corporations have somewhat accelerated their progress racial diversity, the study found that the percentage of Fortune 100 board seats held by African-Americans and Asians has increased at a “faster” rate of 1.2% between 2016 and 2018 than in previous two-year intervals, which showed gains of less than 1%.
In an online conference call between the chief executive officers of several large corporations, Kenneth Frazier, the CEO of Merck & Co. and one of just four black CEOs in the Fortune 500, said that businesses can play a role in lending a voice to such issues as police violence and minority communities’ access to capital.
Earlier this month, an email by a Goldman Sachs managing director detailing his experiences of racial injustice as a black man and criticizing managers at the Wall Street bank for not supporting junior bankers from diverse backgrounds went viral at the firm. The email and the attention it received coincides with other Wall Street executives and companies speaking out against racial inequality since the death of George Floyd and ensuing protests.
Also this month, Bank of America pledged $1 billion to help communities address economic and racial inequality; Goldman Sachs created a $10 million fund for racial equity; and the CEOs of JPMorgan Chase, Citigroup, and Wells Fargo have also made statements denouncing racism and discrimination.
Racial inequities noted in Canada
In Canada, although less publicized, black and indigenous communities have also been plagued by racial inequalities including socio-economic disparity and racial discrimination in the workplace. A study by the non-profit Catalyst in 2019 found that between 33% and 50% of the study’s 700 subjects which identified as black or Asian reported feeling “on guard” against potential workplace bias. Some respondents attributed the feeling to anticipation of racial or ethnic bias, suggesting that there is a need for racial bias training and other anti-racism initiatives at Canadian companies.
Diversity initiatives and regulatory reform in Canada have predominantly focused on gender diversity, with gradual improvement over the past few years. This demand for tangible results could soon extend to racial diversity, however.
At the start of the year, Canada became the first jurisdiction to require diversity disclosure beyond gender to include race and persons with disabilities. Federally incorporated public companies, which include most financial institutions, are now required to disclose their policies and practices on diversity at board levels and within senior management.
There are a few overarching objectives of the new disclosure requirements: i) to empower investors through information transparency; ii) to press listed companies for continued advances in diversity; and iii) to provide better data on the impact that diversity at senior levels can have on a company’s overall operational and financial performance.
Expectations for actual progress
Corporate accountability is at a high point right now, as stakeholders — including potential consumers and employees — arm themselves with information to better advocate for change. The same is true for businesses reacting right now to racial injustice, as they commit to donating to such causes and to creating greater advancement opportunities for people of color inside their workplaces.
Indeed, CEOs who have spoken up may find an unrelenting public and persuasive investors determined to hold them to their pledges.
Across the consumer goods sector, social media users have been quick to demand concrete actions and action plans from brands that have used popular hashtags to express solidarity against racism, with users threatening to boycott companies that don’t offer satisfactory responses.
It remains to be seen whether institutional investors and investment funds, which often wield immense influence over corporate boards and C-suites, will embody the same fervor to advance racial diversity initiatives.
However, actions taken by such institutional heavyweights as BlackRock, State Street Global Advisors, and the Ontario Teachers’ Pension Plan to increase gender diversity in senior corporate leadership offer a glimpse into what could become more commonplace: lobbying for diversity quotas and even voting against board committee chairs that fail to make progress in improving diversity.