Getting More Diverse Voices to the Board Table: Can the environmental, social and governance movement finally usher in change?

• Author: Pemberton-Heard, Denielle
• Position: DIVERSIFIED SEARCH GOVERNANCE LETTER

The environmental, social and governance movement feels more radical today than the well-intended social-good phenomenon that the current U.S. corporate leadership remembers from the 1980s, (i.e. antiapartheid divestment campaign), because amidst all the do-good rhetoric, leadership of corporate America remained unchanged. Women, minorities and other underrepresented communities were not at the table in any meaningful way, so calls for social impact investing were just a slight reshaping of the status quo.

They didn't change how the majority of businesses behaved because the social guidelines were scripted far too narrowly to achieve racial and gender equity in corporations. They represented an aspirational benchmark rather than a pragmatic one.

Which brings us to today, and some compelling questions: Do contemporary ESG guidelines take into account the realities of the world in which we live and do business? Should boards be more active in changing them?

ESG has played a part as a change agent, especially at the board level. It's a big reason why gender balance is improving on Fortune 1000 boards--up from 15% in 2011 to 22% in 2018, according to a 2019 J.P. Morgan Research study. Still, the pace of change for people of color remains, to put it kindly, a work in progress. And some companies have undermined their commitment to diversity by relegating women and minorities to less influential committees or diluting their voting power by expanding the number of board seats. Progress has largely helped white women.

The truth is that even the most influential corporate boards have little bearing on the day-to-day operations of companies and policies that promote equity throughout the ranks. In 1980, African-Americans held just 3% of all management-level jobs at American companies with 100 employees or more. Four decades later, that number has risen to 3.3%. Moreover, there is no proven correlation between board diversity and the closure of gender or racial pay gaps at individual companies. Statistics fail to capture biases based on sexual orientation, religion, etc.

It's time to refocus ESG-style investing to rate corporate commitment to the hiring, promotion and cultivation of people of color and women in executive positions. This isn't to say boards do not have an active role to play. In the end, it is up to boards to hold their leadership accountable for ESG outcomes. But the pipeline of diverse candidates is likely to come from the executive...