Topics:   Corporate Social Responsibility

Topics:   Corporate Social Responsibility

July 31, 2020

Key Questions to Advance Racial Equity in Business Practices

July 31, 2020

In response to the increased and widespread call for racial justice in recent months, US companies have put out statements in support of the Black Lives Matter movement. While a good first step, management teams and boards need to ensure that companies are now walking the talk through their own business practices. Corporations can be a significant force for good in society, and they must work to advance racial justice by challenging and, when needed, changing practices inside their organizations that may contribute to institutional racism. With this in mind, NACD recently released Key Questions to Advance Racial Equity in Business Practices.

In this new guide, we outline considerations for boards in their review of specific business practices and norms that may inadvertently institutionalize racial inequities.

Role of the CEO

NACD’s recent conversations with directors have revealed a universal component: The role of the CEO makes or breaks a company’s diversity, equity, and inclusion (DE&I) goals. Boards must ensure that they are not only providing oversight of the CEO’s actions on DE&I, but that the full board is making their expectations around diversity clear and known to the management team.

Thus, the board must treat goals around diversity just as they would treat any other business goals. This means they should consider asking management to develop a few critical metrics to track the progress of the company’s workforce diversity against specific goals to evaluate the company’s culture, values, and inclusiveness. Finally, the board should consider tying compensation to DE&I; doing so will encourage the CEO and broader executive team to focus on DE&I.

Specific questions the board should ask itself and management include:

  • Are we expecting and incentivizing the CEO to create and maintain a racially diverse executive team and workforce? 
  • How does the company define diversity in their hiring strategy? Do our hiring decisions drive racially equitable outcomes?

Human Capital Management

Human capital management and talent have been growing priorities in the boardroom. Talent must be considered through many lenses including racial diversity. The board should consider the company’s current employee diversity makeup and understand where and why they may have weaknesses.

Is diverse talent only present at the bottom levels of the organization? Is the turnover rate of diverse employees higher than that of non-diverse staff? The board should have a direct line of sight into the company’s talent and performance management approach to assess the effectiveness of recruitment, development, and promotion aimed at diversifying all employee ranks.  

Questions the board can ask itself and management include:

  • Is there pay variance between people of color and other employees?
  • Do our current compensation practices contribute to or aggravate pay inequities in the organization? If so, what’s the risk of reputational harm and how would we address these inequities?
  • Have we probed whether management has minimized the risk of racial bias in promotion and advancement decisions for staff?

Suppliers

Boards can make important demands to evaluate and improve third-party diversity, including of suppliers, vendors, and contractors. Oftentimes, simply posing questions to management on the racial or gender diversity of third-party suppliers can bring awareness to the issue of inequity. It can also force suppliers to reconsider their own practices regarding diversity, equity, and inclusion.

Boards can ask the following questions to garner a deeper understanding of supplier diversity issues:

  • Does our company have any internal corporate policies regarding the racial diversity of our suppliers?
  • What percentage of our company’s suppliers and third-party providers are minority-owned? 
  • Have targets been set on our percentage of minority-owned and -operated third-party suppliers (including financial services companies, law firms, ad agencies, and manufacturing plants, among others)?

The Board

While the board’s oversight of the business’ DE&I efforts is imperative for progress, none of these efforts can succeed without the board looking inward as well. Boards must consider their own makeup and culture as they work to assist in navigating that of their businesses. This is the time for directors to evaluate what skillsets they may be lacking on their boards, and if the culture in the boardroom fosters inclusion.

When looking at succession planning, or during active director recruitment, boards must consider the following questions:

  • Do we typically look for or favor traditional executive experiences, such as serving as a CEO or a chief financial officer? Are there skillsets that our board is missing that could be filled by a diverse director?
  • How do we identify, recruit, and onboard new directors? If we are working with a search firm, is the nominating and governance committee insisting on racially diverse candidates?

Momentum around racial justice has risen and receded many times in history. To stop this ebb and flow, and instead create lasting change, now is the moment for boards and their companies to not only take a visible stance against racial injustice, but to take real action to dismantle institutional racism.


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NACD: Tools and resources to help guide you in unpredictable times.

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