How Boards Can Respond to Calls for Racial Equity: Taking a stand means taking action.

• Author: Burchman, Seymour
• Position: COMPENSATION MATTERS

With widespread protests over persistent racism, many boards of directors are looking for their companies to do more to support racial equity. Here are considerations for different approaches that boards and management teams might pursue.

Deciding among ESG goals

Racial justice is now a top-of-mind concern for all citizens in this country and many activists are calling on corporations to do more. Yet corporations are also expected to address a range of other Environmental, Social and Governance (ESG) issues, including climate change and poverty. Since businesses have finite resources, how should boards of directors proceed, and how might racial justice initiatives fit?

In assessing the ESG issues on which to focus, boards have three considerations. First, can the company make a material contribution toward addressing the problem beyond its own walls? This is largely a function of whether the solution fits within the company's mission or purpose, and whether the company has the competencies to meaningfully address it. Second, how many of the company's stakeholders would be helped or influenced by its efforts? Third, what direct and indirect benefits would the company realize by undertaking the effort, such as in recruiting and marketing? Would investments in this area mitigate future risks to the business?

An electric utility, for example, might well decide to focus on climate change by moving aggressively to renewable energy. A bank, by contrast, might prefer to provide financing for affordable housing in minority communities. A company can certainly pursue multiple ESG goals, but the fewer and more focused the goals, the more likely that any of them will gain traction with management.

Options for pursuing racial equity

Companies deciding to work intently on racial justice can pursue several approaches. Boards and management teams can decide on the approach (or approaches) according to the urgency of the moment, the level of time and money they are looking to commit, and the alignment with the company's mission and competencies.

These efforts are distinct from diversity and inclusion (D&I) initiatives within the company. Almost all large U.S. companies have D&I programs, and 43 of the Fortune 200 incorporate these into executive incentives. Sender Brossy has written extensively on these efforts. (See previous Sender reports, "Executive Pay As a Tool to Advance Diversity Efforts" or "Raising the Board Refreshment Bar: Bringing Diversity Into...