Diversity & Inclusion

The Powerful Role of Investors in Building Diversity, Inclusion and Belonging

By Susie Lee, SVP, global business transformation and DEIB, Degreed

Across corporate America, executives are being given a clear message: If your companies don’t improve their diversity, investors may be the ones to make it happen.

“Diversify your board or activist investors may ‘weaponize’ the issue,” read a Fortune headline. Bloomberg reported that shareholders “have continued to hold companies’ feet to the fire” on the issue. And USA Today noted, “Investors have successfully pressed diversity resolutions at a growing number of companies.”

In a study about Diversity, Equity, Inclusion and Belonging (DEIB) published by my company, Degreed, with RedThread Research, we showed that the increase in investor pressure has been quantified:

“Given the link between DEIB and improved business outcomes, investors are more interested than ever in DEIB metrics. For example, 65% of investment professionals in the Americas region cited client / investor demands as the second biggest motivator for considering environmental, social, and corporate governance (ESG) factors in their investment analysis in 2020, as compared with 45% in 2017.”

A big reason investors are getting involved is that many are frustrated with the lack of progress, despite years of promises. While current figures generally have not been released, the most recent ones available suggest corporate America overall has a long way to go. “Executive roles remain overwhelmingly white and male,” USA Today wrote last summer. “Black and Hispanic workers, particularly women, tend to be concentrated in the lowest ranks.”

The idea that investors can be potent forces in speeding up progress has support from within the Securities and Exchange Commission as well. In a late 2020 speech, Commissioner Allison Herren Lee explained that this is a big reason many people support requiring businesses to divulge more about diversity in their disclosures. “When companies have to formulate disclosure on topics it can influence their treatment of them, something known as the ‘what gets measured, gets managed’ phenomenon,” she said. (Last year, the SEC approved Nasdaq’s diversity rule for listed companies.)

Take a skill-based approach

In addition to demanding certain metrics, investors can call on companies to adopt strategies that work to increase diversity, equity, inclusion and belonging in ways that benefit everyone.

Some people mistakenly believe that building diversity in an organization has to mean hiring people based on their minority status. This isn’t the case. As I explained to Information Age, a skill-based approach is essential. Companies should select candidates based on their expertise and experience -- including a proven ability to develop new skills. As my Degreed colleague Kelly Palmer says, “One of the most important skills of all is being an agile learner – having innate curiosity and the ability to learn new things.”

It’s crucial to hire the best of the best. The key is to make sure you’re starting with a diverse slate of candidates.

Also, when whittling down a list of candidates, it can help to remove information that might trigger biases, including unconscious ones. This can include indicators of gender, ethnicity, age and more. The Society for Human Resource Management reported on one company that actually asked candidates not to include their names, addresses, alma maters or graduation dates on resumes. Each candidate was given a number, until some were brought in for interviews.

Build the workforce skills to grow diversity

Our study with RedThread also finds that it takes skills to build diversity, equity, inclusion and belonging. The more your workforce has these skills, the more likely your organization is to create a culture that allows DEIB to flourish.

The most important skill sets differ somewhat for people at various levels -- individual employees, managers, and senior leaders. But we found that two skills apply to people at all levels in organizations that have high DEIB: calculated risk-taking and nonverbal communication. (The full report, which also explores the overlap among the terms “skills,” “competencies,” and “behaviors,” can be found here.)

Belonging matters

While the terms “D&I” and “DEI” are more common, investors should encourage businesses to include B for “belonging” in their efforts. In our study, we define belonging as “the sense of security and support one has resulting from a belief in being accepted and valued for being their ‘authentic self.’”

Research shows that having a sense of belonging impacts performance in the workplace. And members of underrepresented groups often feel a more acute lack of belonging. McKinsey found that while workers across demographic groups have missed a sense of belonging during Covid, women and LGBTQ+ employees were among those more likely than others to report this problem.

Investors should encourage businesses to use employee surveys and do frequent check-ins to make sure progress is being made on all these fronts. The more this becomes a part of daily operations, the greater the results -- for employees, the business itself, society at large, and the markets.

Susie Lee is senior vice president of global business transformation and DEIB for Degreed.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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