5 Challenges as Corporate Boards Tackle Racial Equity

WomenCorporateDirectors Education and Development Foundation, Inc. 
Oct 28, 2020, 10:00 ET

NEW YORKOct. 28, 2020 /PRNewswire/ -- As investors, consumers, employees, and regulators put a brighter spotlight on racial equity, WomenCorporateDirectors Foundation (WCD) is bringing directors together to address the issue from the board perspective – revealing challenges that have ramifications across multiple board committees and how directors define what "equity" means.

"Companies recognize the need for change and understand that new strategies and oversight have to start with strong leadership from the board," says Susan C. Keating, CEO of WCD.

WCD's recent highly-attended 2020 Virtual Global Institute launched with a keynote conversation between Paul Knopp, KPMG U.S. Chair and CEO, and Tandra Jackson, Vice Chair of Growth and Strategy, KPMG LLP, on the topic of corporate purpose.

When referring to the importance of Environmental, Social and Governance (ESG) initiatives Knopp said, "It's very clear that the 'S' in ESG is getting more attention than ever. With the events of the last several months, there has never been more focus on inclusion and diversity than there is now – both in the boardroom and the executive suite." He continued, "KPMG has a five-year strategy, Accelerate 2025, to ensure that more individuals from underrepresented groups choose KPMG as their employer of choice, build careers at KPMG, and advance to leadership positions within our firm and within the profession. You can never be inclusive enough or diverse enough."

Dr. Beverly Daniel Tatum, author of the landmark Why Are All the Black Kids Sitting Together in the Cafeteria? and Anne Sempowski Ward, Director for Vanda Pharmaceuticals and Spectrum Brands, and a panel of WCD members discussed the challenges and growing responsibilities of board members to hold management accountable while also ensuring an increase of diversity on their boards.

Persistent low board turnover – 8% last year – has been a challenge in getting minority candidates onto boards, said panelist Julie Hembrock Daum, Partner and Co-practice Leader of the Board and CEO Practice, Spencer Stuart. But even with some recent growth – 59% of new directors to the S&P 500 this year are diverse in gender or race – she predicts that "this is the year that we will see the numbers significantly change."

WCD members discussed the challenges boards are facing – as well as the opportunities to effect change – in their oversight role around racial equity:

  1. Building racial and cultural fluency. "When having a dialogue about this issue, it's important that we build a collective racial and cultural fluency," said Ward, who was also on the panel. "Often, the words 'opportunity,' 'equality,' and 'equity' are used interchangeably, but there are important distinctions that drive different actions in organizations." Ward described how the three terms differed:
    1. Opportunity: This was the first step that businesses had to take saying they would not discriminate. A more passive stance and often legal compliance matter, this is simply about opening the door to everyone, regardless of race.
    2. Equality: The next step was active recruitment to try to increase the number of racially diverse people in the organization or on the board. This is commonly implemented as a goal of fair representation based on demographic population percentages.
    3. Equity: This is the step change required today. Often, when those who are in the position to hire, recruit, or promote someone of color, they don't see enough diverse candidates walking through the door. Instead of just saying "Well, I tried," this means to acknowledge that opening the door and even giving a recruiting goal did not produce results – and now they must choose to do something more about it.

  2. Changing board candidate search criteria. Related to the discussion of equality vs. equity, Ward shared an example of how an attempted board search may force a board to adapt its search criteria to find the candidates it wants – especially as women and racial minorities are greatly underrepresented in senior executive ranks:

    "A simple case would be that of a Fortune 500 company's Nominating and Governance committee looking to fill an open board seat with a sitting CEO of another Fortune 500 company – a common check-box on search criteria. If they are also looking to recruit Black candidates and especially Black women candidates to fill more of their board seats, their criteria becomes an issue. With only three Black CEOs and no Black women CEOs in the Fortune 500, boards will hit a roadblock. To tap into the excellent, qualified base of candidates that are indeed out there, boards will need to go beyond the current paradigm to find the diverse candidates they seek. For example, this means considering those who report directly to a CEO, mid to large cap private company CEOs, current public company Board members, and successful entrepreneurs."

  3. Onboarding diverse board members. The changed workplace and social space driven by COVID-19 has had significant implications on board culture.

    "Boards need to take the time to use new channels to create a process that can help to not only get the new board member up-to-speed quickly, but also identify a way to acclimate them on the culture of the company and the inner workings of the board itself," says Daum.

  4. Looking beyond workforce diversity into the rest of the organization. "While some companies have a diverse senior leadership team and board, fewer have a robust supplier diversity program," said Brenda Gaines, Director for Southern Company Gas and the Smithsonian Institution National Board. "This is an area that needs a lot more attention."

    Supplier diversity is tough to change, said Gaines, but she indicated that examining this is an essential part of the board's duty of care. She encouraged directors to look at the percentage of spend that is going to minority-owned firms, and to consider a "match" program pairing a small diverse company with a larger company so that the small company can gain experience and build depth.

  5. Driving accountability of board members and the CEO. Generally, directors agree that compensation incentives will be needed to effect meaningful change around racial diversity and equity, as what gets measured gets done. "Incentivize the CEO so it counts," said Kym Hubbard, Director for PIMCO Funds and State Auto Financial Corporation.

    "This has to be part of the goals and compensation package for a CEO and his or her senior leadership team, and the management team below the SLT; there are a lot of KPIs," she pointed out.

Rounding out the discussion, Evelyn D'An, Director, Enochian Biosciences and Summer Infant, Inc., presented the "Call to Action for Equity and Inclusion in the Boardroom," which WCD helped create as part of the Diverse Corporate Directors Coalition (DCDC) along with Ascend Pinnacle, the Black Corporate Directors Conference (BCDC), the Latino Corporate Directors Association (LCDA), and Out Leadership's Quorum.

"Every single one of us is a person of influence," said D'An. "It's time for directors to be part of the solution, to speak up, to ask the tough questions, to expect progress, and to create accountability for the results."

For more information, please contact Suzanne Oaks Brownstein or Trang Mar of Temin and Company at [email protected] or 212.588.8788.

About WomenCorporateDirectors Education and Development Foundation, Inc. 
The WomenCorporateDirectors Education and Development Foundation, Inc. (WCD) is the only global membership organization and community of women corporate directors. A 501(c)(3) not-for-profit organization, WCD has 76 chapters around the world. The aggregate market capitalization of public companies on whose boards WCD members serve is over $8 trillion. In addition, WCD members serve on numerous boards of large private and family-run companies globally. For more information visit www.womencorporatedirectors.org or follow us on Twitter @WomenCorpDirs, #WCDboards, #WCDGlobal2020 #WCDVisionary2020.

About WCD's Global Lead Sponsor
KPMG LLP is the U.S. firm of the KPMG global organization of independent professional services firms providing Audit, Tax and Advisory services. The KPMG global organization operates in 147 countries and territories and has more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.