29 Jun 2021
Looking at a company’s proxy statement, you’d quickly locate a message from their CEO, information for/ about their board of directors, details about their executive compensation, and a compilation of shareholder proposals. Today, what you’d also see, is a section dedicated to Diversity, Equity, and Inclusion (DEI) along with an area for Environmental, Social, and Governance (ESG) matters. When did these sections become so prominent? Where did we start?
To begin, we have to jump back to affirmative action. Affirmative action started back in 1963, as President Lyndon B. Johnson set in place a plan to make an effort to improve the employment or education opportunities for members of minority groups and women. Unfortunately, good intentions don’t always lead to good outcomes. The racial quotas and minority “set-asides” of the 70s led to court challenges, as affirmative action turned into a form of “reverse discrimination,” since white applicants were denied opportunities held for minorities. The 1996 California Civil Rights Initiative, Proposition 209, prohibited all public institutions/agencies from giving preferential treatment to individuals based on their race or sex, and other similar cases followed suit.
A switch away from race quotas and affirmative action led to diversity education and training in the 90s. What started as gender diversity education expanded to include ability, ethnicity, religion, and other worldviews. With this diversity training came an emphasis on inclusion as well, where those that might be excluded are brought into processes and activities that provide equal access to opportunities. The goal of diversity and inclusion is to encourage people to consider and welcome their colleagues, regardless of the diverse ways of identifying as cultural beings. Equity acknowledges the different (dis)advantages of individuals and promotes the allocation of resources and opportunities such that each individual has the same possible outcome.
Along with DEI, companies have been addressing their ESG matters as well. For example, the Environmental, Social, and Governance factors are used by investors to measure the non-financial performance details of a company, which helps them decide where to invest their money. Some environmental factors include waste, resource depletion, and emissions; some social factors are employee relations, diversity, and working conditions; and a few governance factors are tax strategy, board diversity/structure, and executive remuneration. These are just a few of the criteria that investors will use to analyze the company’s performance and the likelihood of your success as a shareholder.
A new focus has been placed on the non-financial side of a company’s performance. Shareholders are looking for more information than profits and losses, and companies keep up with the demand by publishing statements on their DEI & ESG goals.