Building diversity, equity, and inclusion (DEI) into organizational strategy has gained ground as a significant competitive advantage, because it indicates an organization's commitment to be transparent and accountable to its employees and customers and to take on social responsibility. A DEI strategy, complete with measurable outcomes and accountability, enhances the perception of an organization's trustworthiness and increases its ability to compete for employees and customers. Internal auditors, as providers of risk-based assurance and proactive advice, should help organizations consider both opportunities and risks associated with developing DEI strategies, goals, and metrics.
A Growing Priority
"I think a threshold was crossed last year, even in Trinidad," says Dr. Ravi Rampersad, senior manager in consulting at Deloitte's Trinidad office. "You saw for the first time a groundswell of public pressure on corporates. And employees, especially millennials and younger generations, want to make a social impact beyond their immediate jobs, as well. Companies are being called upon to help employees fulfill a sense of purpose."
Indeed, according to the Edelman Trust Barometer 2021 — an online survey of 33,000 respondents in 28 countries — the majority of people believe that CEOs should "do the right thing" and that "business" is the only institution that is both ethical and competent when compared with government, media, and nongovernmental organizations. Furthermore, respondents say that CEOs should "step in when the government does not fix societal problems" (68%), "take the lead on change rather than waiting for government to impose change on them," (66%), "hold themselves accountable to the public and not just the board of directors and stockholders," (65%), and "publicly speak out" about one or more societal challenges (86%).
The Edelman survey reveals that respondents most entrust their employer to do what is right (76%). Respondents who are employees indicate that since last year, it has become more important to them that employers build a diverse, representative workforce; communicate regularly; keep workers and customers safe; and provide job skills training.
T. Rowe Price researched the DEI actions of hundreds of companies in 2020 and published the results in "Diversity, Equity, and Inclusion in the Spotlight: From Tragedy Comes Unity and a Commitment to Improve," an article co-authored by T. Rowe Price's Donna Anderson, global head of corporate governance, and Maria Elena Drew, director of research for responsible investing. Based on their research, the authors state, "it is clear that those that do not regard DEI as a core value will likely struggle to compete for talent and [will] see their market share eroded."
Measuring Diversity Can Be Complicated
While investors and other stakeholders including employees want organizations to promote DEI in a measurable way, a lack of comprehensive and comparable data has made it difficult to assess, according to Anderson and Drew. "Applying a quantitative lens to DEI remains very challenging given most companies do not yet provide comprehensive disclosure about their policies and programs to foster diversity, nor do they publish sufficiently detailed information about the present composition of their workforces," they write.
Comparing the metrics is complicated further by the specifics of geographical context and legal jurisdiction, since "underrepresented minority populations" and privacy and employment laws vary by region and country. "There are regions where employers are prohibited from collecting information on the racial or ethnic identities of their employees," the authors note.
Speaking to Internal Auditor, Anderson also points out that while companies may be working to improve DEI, change happens gradually. "Seeing changes in the numbers takes a very long time," she says. "Board and staff diversity have been climbing steadily but slowly in many companies and industries. However, everybody should settle in for a long journey to actually see the results of this focus."
Yet, Anderson and Drew report that the trends are encouraging, with "dozens of larger U.S. companies" agreeing to accommodate investors' requests to publicly report more detailed diversity information, such as their EEO‑1 data, which breaks down their U.S. employee populations by seniority, gender, race, and ethnicity. The authors expect "a marked improvement in disclosure rates" in final 2020 statistics and beyond.
Bringing to Life the "E" and "I" in DEI
Assessing the workforce composition in terms of gender, racial, ethnic, and other characteristics may give some indication of diversity, but it does not tell the whole story. How do organizations achieve not just diversity but also the equity, inclusion, and lasting changes that advance positive outcomes for women and those who historically have been marginalized, discriminated against, and underrepresented?
"Organizations that do well start by building DEI into the corporate strategy, governance structure, and performance management structure," says Aneesa Ruffudeen, national workplace culture and conduct leader for risk advisory with Deloitte Canada. She advises that internal auditors may provide assurance and advice to organizations at early stages of DEI maturity, initially checking to ensure compliance controls are in place, but then quickly turning their attention to assessing and enriching the culture and conduct aspects of governance.
Trust: Vital to an Inclusive Culture
Building an inclusive culture extends beyond achieving compliance with diversity quotas. An inclusive workplace accepts, respects, and values employees for their unique qualities, skills, and perspectives and encourages them to participate fully and authentically, write DEI researchers Dr. Ella Washington and Camille Patrick in the Gallup white paper, Three Requirements of a Diverse and Inclusive Culture — and Why They Matter for Your Organization. Inclusive workplaces embrace collaboration, flexibility, and innovation.
Trust is essential for building an inclusive environment, Ruffudeen says, and requires attending to employees' needs for physical and psychological safety. Organizations can create trust with transparency and openness, where employees can speak up without fear of reprisal, she explains. "Leaders that do it well recognize that it's OK to be vulnerable and to tell truth as it is," she says. Additionally, leaders should build relationships with their employees that facilitate informally gathering input on an ongoing basis. Other ways to gather feedback and gauge perceptions include surveys, open-forum town halls, and focus groups.
Ownership and accountability among leaders is vital to an inclusive culture, Ruffudeen emphasizes. Organizations should establish expectations for culture and conduct through well-considered policies as well as education at all levels on such topics as unconscious bias as well as management training on inclusive leadership. A grievance reporting and management system (hotline) and measurable performance indicators are tools to support accountability.
Achieving Social Equity
But building social equity involves more than just education, training, and ensuring pay equity, explains Rampersad, whose Ph.D. research focused on social justice and the marginalization of vulnerable groups in society. To achieve social equity, leaders need to help employees in historically marginalized groups to establish social capital — that is, to network with and be mentored and sponsored by those with the organizational clout to help them obtain exposure to opportunities and experiences to which they otherwise would not have access.
The Society for Human Resource Management advises listening to employees, forming dedicated DEI groups that include senior leaders, and providing the resources and access needed to support and advance those traditionally underrepresented in positions of power.
Rampersad cautions that discriminatory practices may be quite subtle and difficult to identify, especially in cultures that tend not to acknowledge race- and gender-related problems. Also, he says, global industries and organizations should be aware of the various regulations that apply to the locations in which they operate in addition to those that apply to the country where their corporation is headquartered. He notes that corporate social responsibility is one of the first areas to be defunded when a company encounters troubling economic times, as many did in 2020. For these reasons, he advises integrating corporate social responsibility "into the DNA of the company," so that issues like DEI remain on the radar and become assimilated into training and culture. This practice, he adds, will prepare the company to be proactive, collaborative, and constructive, rather than reacting only after an issue occurs.
Anderson says internal auditors can help management and the board carefully consider the implications of their policy choices in the light of DEI considerations, thinking through the potential outcomes. For example, companies still early in their development of DEI may have poor diversity numbers. However, a policy of disclosing DEI metrics, even when a company's numbers are not good, shows a commitment to transparency that investors expect.
Another example is the use of forced arbitration clauses that limit transparency. "Longstanding practices need to be looked at through a new lens if the company really is committed to DEI," Anderson says, "because they might have had a good business use, but they might also have unintended consequences in the DEI context."
She also points out that companies may need to adapt their cultures to embrace the voices of employee resource groups, DEI councils, and the like and to be prepared to enable the requested changes — potentially a big adjustment for companies that are unaccustomed to this type of employee involvement. Internal auditors can help management think through scenarios from different perspectives, anticipate risks, and adapt strategies.
Getting It Right Takes Commitment
The extremely disruptive environment between 2019 and the present may have resulted in some attempts at quick fixes or may have initiated reevaluations of current strategies, Ruffudeen acknowledges. "A key risk is that the motivation is there to start, but then employees don't see changes," she warns. "Once an organization opens the door to making change, it has to be able to follow through and demonstrate impact."
Organizations should reflect, think holistically, and commit to DEI as part of their long-term strategies, Ruffudeen advises, and they should communicate transparently about progress and shortfalls along the way. Bringing DEI to life requires governance tools and a framework that focuses on leader ownership, metrics, and creating a culture of accountability, she says. "This is how we ensure everyone is living by those values."