As one of the most (if not the most) vocal mainstream investors on the topic of ESG and diversity, equity and inclusion, State Street has made racial justice a top priority for its Asset Stewardship team. A
recent study by the investor along with Russell Reynolds and the Ford Foundation resulted in a new roadmap for boards, “10 Responsibilities of Boards in the Effective Board Oversight of Racial and Ethnic Diversity.” Highlights of the study include:
- Why boards care. The study found that directors are the most focused on reputation, strategy and financing as motivators for increasing their attention to D&I initiatives. In particular, the idea that investors might choose not to invest in companies without diversity seems to have struck a chord. About a third of directors interviewed noted that they feel D&I risks must be managed to attract and retain top talent.
- What boards are doing. Only a few boards address D&I solely in full-board meetings, preferring to also involve the Compensation Committee or Nomination & Governance Committee. Top priorities are workforce representation, measuring inclusion (such as an inclusion index), retaining diverse talent, and establishing a framework for engaging on social and political issues.
- Setting goals (and tying them to pay). Directors indicated considerable willingness to include D&I goals in executive pay plans, while acknowledging executive pushback in some cases. One director noted that culture and diversity should be “table stakes” and not involve pay (see story below).
- Global challenges. Defining and overseeing diversity in a multi-national company is complex, as race and ethnicity are defined differently, may be impossible to collect data on in some locations, and may involve cultural considerations directors need to know.
The report concludes with a list of ten responsibilities for boards in their oversight of D&I. Along with the expected advice to have a diverse board, focus on representation and make diversity a business imperative, it was suggested that D&I should be both a board and committee responsibility, that board members should make an effort to engage employees of color outside the board room to gauge how they are being treated, and that there should be a structured onboarding for directors on D&I (something very few companies currently do).
