August 18, 2023 Executive Compensation ESG & Human Capital Management Articles

Resource Library / Insights / Articles
ESG & Human Capital Management

Board Oversight of Diversity, Equity, and Inclusion Getting It Right

Well-run diversity, equity, and inclusion (DE&I) initiatives can yield many benefits, including improved talent attraction and retention rates, better decision-making through diverse perspectives, and stronger relationships with customers, clients, and suppliers. On the other hand, poorly resourced DE&I efforts can put a business at risk and hinder progress.

What separates the good from the bad? Organizations that lead in DE&I devote meaningful energy from a strategic perspective by aligning DE&I with business strategy, dedicating sufficient resources, and emphasizing accountability. Simply hiring a chief diversity and inclusion officer is far from enough. Where should boards begin and what questions should they ask to best steward the company’s DE&I efforts?

First, boards should have a solid grasp of the organization’s current DE&I systems, infrastructure, and planned road map.

  • What is the current DE&I infrastructure? What investments are required to succeed? In which areas do we face challenges? To answer these questions, boards could review internal and external resources, such as environmental, social, and governance reports and reporting trend data on gender, race, and ethnicity across the organization. They can also do a deep dive into hiring, promoting, and departure data, along with company values. Additionally, they can understand the decision-makers who facilitate change and the tools and analytics needed for support. A consumer goods company’s human capital committee engaged in this discovery process and learned that the organization had only allocated half the time of one full-time employee to DE&I issues, without staff or any data analytics help. This sparked a deeper board-management conversation about appropriate resources and objectives, leading to adding a team that meaningfully elevated analytics capabilities and accelerated the organization’s ability to drive results.
  • What is the current framework for talent practices and recruitment strategies? Does the company have processes to ensure diverse candidate slates, diverse interview panels, and targeted candidate sourcing? Likewise, boards can inquire about DE&I training and development initiatives at different stages of an employee’s journey, such as during onboarding, ongoing company-wide programs, manager or leadership training, talent assessments, and leadership calibration that emphasizes DE&I behaviors.
  • What is the organization’s measurement capability? How does the company measure progress both quantitatively and qualitatively? How deeply and broadly does the organization measure its diversity statistics? What’s the right cadence of management discussions with the human capital committee or board to ensure an understanding of measures and progress? These insights and measurement trends could help an organization determine if its DE&I strategy works.
  • Do performance management systems, promotion frameworks, and incentive plans reflect the company’s DE&I commitment? In other words, is the organization demonstrating commitment with tangible outcomes? If not, what needs to be changed?

Second, boards must understand the current and aspirational corporate culture.

  • Is there a culture of accountability for DE&I? A clear understanding of who owns different aspects (e.g., philosophy and strategy; development of policies, programs, and processes; outcomes; and progress) is crucial.
  • Does the organization have a culture of feedback loops, grounded in psychological safety, that allows leaders to openly unpack what is working and what isn’t?
  • How involved are leaders below the senior team? What’s the role of business unit leaders and managers in executing clear objectives and building inclusive cultures and subcultures on their teams?
  • Are there opportunities for grassroots ideas at local levels to pilot strategies and share best practices, successes, and failures as learning for the broader organization? For example, an organization might partner with a local nonprofit that works to provide education, training, and work experience for underprivileged youth and create an internship program that would lead to an entry-level pipeline. One investment management firm we worked with found more success in retention rates from these targeted programs when compared to typical university hiring.

Finally, boards can examine and optimize their ongoing support and oversight of DE&I efforts.

Semler Brossy’s 2023 ESG + Incentives research found that 55 percent of S&P 500 companies have diversity and inclusion metrics in executive incentives. Boards should encourage management to present a DE&I strategy, along with best metrics, processes, and a definition of success, and together agree on an approach to regularly review progress against these defined objectives. Additionally, they can do the following:

  • Consider how the DE&I topic appears on the board or committee agenda. Is it annually in the form of a report on statistics, or are there various topics throughout the year that go deeper?
  • Determine if this topic has been delegated to a committee. If so, are the audit and risk committees also tackling this topic? How is the entire board also ensuring support for this work?
  • Ask if directors are sharing DE&I learnings and challenges. Are experiences from other boards coming into the conversation? Would the organization benefit from more collaboration among directors across peers and industries to create more dynamic change?
  • Ensure directors create appropriate urgency among management to make the needed organizational changes. How developed is the DE&I pillar in the CEO’s or corporate goals, if at all? Boards can add a regular agenda item for management to present their DE&I priorities and progress to increase the prominence of the issues.
  • Engage more deeply with business leaders to understand progress and offer support. Boards ahead of the curve typically invite division leaders to regularly discuss diverse talent planning and building inclusive cultures. They also share challenges and successes. This illustrates board commitment to and support for the topic and helps boards understand how well-equipped the leaders are in the DE&I space.

To steward meaningful change, boards should understand underlying dynamics, examine the employee life cycle, and engage with management. By investing in the necessary infrastructure and talent practices, and fostering accountability and feedback, boards and management can accelerate progress. Regularly reviewing objectives and metrics and ongoing board involvement will ensure that DE&I efforts remain prioritized and yield tangible outcomes. By adopting these best practices, boards can effectively champion DE&I initiatives and facilitate meaningful organizational change.

View the full article as it was originally published or download a PDF version of it.

Blair Jones

Anna Natapova

In Collaboration With

Chuck Gray

Co-lead CEO and Board Practice

Cynthia Soledad

Co-lead Diversity and Inclusion

Related Insights