SHOULD CORPORATE DIVERSITY BE MANDATED?
Heidi Ridley and Kathryn McDonald, Co-Founders, Radiant ESG
After years of discussing the benefits of diversity in the workplace, we remain perplexed as to why meaningful progress has not been achieved by more companies. After all, companies are keenly aware of the adapt-or-die nature of capitalism. In an effort to understand why decades-long efforts to promote diversity have met with only moderate success we have explored the idea of mandated diversity as a possible remedy to inaction.
Can diversity be mandated?
The most obvious example of mandated diversity are the ‘hard’ and ‘soft’ laws governing board-level gender representation adopted over the last 10+ years. Norway was the first to enact such laws, followed by France, Germany, Italy, the UK, and many others including notably, California, the first US state to adopt such laws. The ‘hard’ laws take the form of quotas expressed as a quantity requirement for companies. They typically come with clear penalties for non-compliance that can be severe (e.g. delisting). Quotas, because of their unambiguous nature, have proven to be a quick and effective way to increase board-level female participation. The ‘soft’ laws are often in the form of diversity targets set by regulatory bodies. Companies typically must ‘comply or explain’ by revealing their diversity policies and detailing their progress toward achieving the target. While target-based systems do not have the immediate effect of forcing diversity in the same way as quotas, they have worked to increase board diversity over time by applying a different kind of ‘force’. Target-based systems effectively act as a pricing mechanism allowing firms to weigh the costs and benefits so as to choose an optimal gender mix. To date, companies under these systems have clearly viewed the ‘benefit’ of being aligned with the diversity target as greater than the ‘cost’ of making changes…
You can hear more from Kathryn and Heidi at the Women Asset Management Virtual Summit on September 9th 2020. You can view the full agenda and register for your free place here.
