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Getting a
grip
on diversity
It's on everyone's lips these days: Diversity in the boardroom and workplace. As the voices calling for change gain support, businesses have realized it's a topic that cannot be ignored.
With the help of Thandi Dyani, Lisbeth Damm, and Siri Terjesen, we set out to explore why diversity is such a hot topic at the moment, what it takes to make it work, the pitfalls, and how businesses and employees may benefit from it.
“EVERY COMPANY IS LIKE A SAMPLE OF SOCIETY. IT'S NOT ENOUGH TO BE REPRESENTED IN THE WORKPLACE; WHEN YOU'RE THERE, YOU SHOULD FEEL LIKE IT'S OK TO BE YOURSELF.”
– Thandi Dyani
Escaping the box
“Discrimination takes many shapes,” says Thandi Dyani. Born to a Danish mother and a father who came to Denmark from South Africa as a political refugee, she knows first-hand what it feels like to grow up being viewed as an outsider.
“People want to put others in boxes, and the box for someone who looks like I do is quite small. It's frustrating. I never believed I would be able to finish an education because my teachers in grade and high school had me thinking I wasn't good enough. In my youth, I traveled a lot to places like the US, the Caribbean, and Africa in search of a place where I could be part of a majority and not feel like I had to justify my presence,” Thandi Dyani explains. Her journeys only offered temporary relief, however. Every time she returned to her native Denmark, she found herself fighting the same sticky web of everyday obstacles:
“It's the small everyday things. Shop assistants always stopped me to check my bag as if I stole something. I internalized many feelings that weren't part of me as a person. After graduating from university, I must have sent out more than 200 applications without getting a single reply. I thought I was on the same level as my fellow graduates, but we really weren't, because the world receives you in a different way when you're light-skinned with a traditional Danish name, so I conducted an experiment: I have both Danish and African names, and I tried sending out two identical applications to the same company, but using different names. Sure enough, only one of them got me an interview,” she recalls.
Today, she works independently using her cross- cultural experience as a keynote speaker and leadership workshop organizer for clients like BMW's Quandt Foundation on equality and diversity matters.
“Without diversity, it's impossible to solve complex challenges.”
– Thandi Dyani
Diversity & Inclusion
Having a staff photo that looks like a '90s Benetton advertisement is no guarantee that a company will reap tangible benefits from diversity or that minorities feel invited to contribute. Diversity itself is not enough; the glue that binds diversity and business into a viable plan is inclusion. If a firm only talks the talk when it comes to diversity, minority employees will feel like tokens who are taken aboard only to improve the corporate image. Looking closer, it's an ugly, dishonest picture, and employees who are tokenized tend to take the nearest professional exit and leave disappointed. Companies that might otherwise have benefited from their presence are left to reap the consequences of lost opportunities. In order for workplace diversity to be effective, companies must walk the walk, which means true inclusion, writes Dana Brownlee, a consultant and keynote speaker, in her 2019 Forbes column: "Indeed, many organizations add a few women or people of color to a board or executive team and feel they’ve checked the box and can return to business as usual. That mentality is arguably naïve, misguided, and truly dangerous because there are real risks associated with focusing primarily on diversity and largely ignoring inclusion. The uncomfortable truth is that diversity without inclusion may be perceived as 'tokenism' which can ignite a negative boomerang effect on the most well-intentioned organizations," she asserts.
Tokenism is not just a bad look for companies; it also reveals the narrow view that diversity is simply a matter of obvious differences like skin color, gender, or age. The fact is that diversity is more than skin-deep; if we want to address human diversity in a greater variety of facets, we need to look beyond visual characteristics. The defining difference, after all, is what's in our hearts and minds, and whether this facilitates or hinders our interactions.
Diversity, like any other company policy, can be something you say or something you do, and the risks in getting it wrong are immense, says Thandi Dyani: “Every company is like a sample of society. It's not enough to be represented in the workplace; when you're there, you should feel like it's OK to be yourself. The hardest nut to crack for companies is their work culture because it attracts and retains employees. People often say that diversity is troublesome, but actually, it's a fact of life.” It's basic hospitality: If people are invited in, they must feel welcome and on equal footing with their co-workers. But due to the blinders that majorities tend to carry, a lack of inclusion is not necessarily a conscious decision. It happens because no one in the organization has yet thought to take them off, says Lisbeth Damm, the CEO of Potential Co., a consulting firm to companies wishing to improve their diversity metrics:
“You only notice privileges when you don't have them. If you do a workplace survey, a majority of men will say that there is no sexism in the office, because they don't experience it. The relations and dynamics that develop in the workplace are the true measures of success when it comes to diversity. If you can achieve that, you will have better results. If not, diversity can be messy,” she points out. “All employees must feel psychologically safe – a sense of belonging and that someone has your back, no matter who you are. This increases loyalty, productivity, well-being, and people want to do their best.”
“DIVERSITY ITSELF IS NOT ENOUGH; THE GLUE THAT BINDS DIVERSITY AND BUSINESS INTO A VIABLE PLAN IS INCLUSION”
Taking off the blinders
Across the globe, companies have been embarrassingly slow to appoint women and minorities to leadership positions in numbers that are even remotely representative of the general population. According to a recent survey, a mere 69 of the top 1000 Danish business leaders are women, and ethnic minorities of any description are virtually non-existent.
It's an expensive majority myopia. ISS Diversity Council has estimated that a lack of diversity costs businesses an average of 12.6 percentage points in revenue per year – a number too big to ignore. Owners and managers see this and recognize the need to prioritize diversity as an essential item on the long-term agenda, that is if they wish to survive in a global market of people who don't look and think like themselves.
There is plenty of support for diversity in the world of international high finance. Goldman Sachs has pledged $10 billion of direct investment capital to its One Million Black Women initiative to support start-up black-owned businesses; consultancy firms like McKinsey and Boston Consulting Group have made diversity a selling point to their global clients with the dual argument of social justice and increased revenue. Barron's, a renowned US- based investment publication, sees diversity as a safe bet. A diversely managed company, or one staffed primarily with minority groups, can increase opportunity by identifying investment avenues that may otherwise go overlooked, Barron's argues in an essay on their website:
“The returns on our investments with more than two dozen firms owned and managed by women and people of color are indistinguishable from those of other firms. Why, then, is there such a reluctance among investors to trust their funds to diverse firms?” Barron's concludes.
With so much at stake morally and on the bottom line, diversity is an important strategic challenge, not just corporate window dressing, explains Thandi Dyani:
“If you want to be relevant to your customers, you must understand and represent them in some way. The Clubhouse platform (social network app, ed.) is a good example. It was based on black voices and black activism, but they initially only developed the app for iOS, which cut out most of their Android-using target audience in Africa and the Americas.”
How come we are having this conversation now? With the rise of the digital age, companies operating in an increasingly networked global environment have faced growing scrutiny by consumers wishing to know that their hard-earned cash does not support undesirable social or environmental effects. Many firms report that the much-publicized instances of police violence against minorities in the US have served as a stark reminder that something is skewed. The voices calling for change are legion, and they are louder than ever. A little invention called the Internet is helping them spread their message and be heard, and companies wanting to thrive need to listen up, says Thandi Dyani:
“The world is so much more interconnected, and now we all have access to voices that used to be overshadowed by the old media monopolies, so it's easier to understand those perspectives. For global companies, this means that they can be strongly affected by events far down the supply chain. If a Congolese child has to work in a mine to extract your raw materials, you may have to answer for that eventually. It has always been a hot topic to the global majority, but there has been a rather sudden shift of power that forces companies to address these issues seriously.”
How do we get there?
“Feminism has chosen the wrong path to equality,” says Lisbeth Damm. She argues that rather than trying to fit women into prevailing categories of success and prestige, women should carve out their own space and claim it.
“When the struggle for gender equality began, we accepted the premise that men were the norm and that women should be 'fixed' rather than being themselves,” she states. “We have tried speaking with deeper voices, wearing suits and all kinds of things to make women more masculine. That strategy will not get us to the goal. If we take a binary perspective for simplicity, men and women should have their separate standards, and they should be equally valued, or women will never be equal participants alongside men.”
Scandinavian countries score at the top of the charts when it comes to freedom of choice and equal access to education. Still, there are clear gender distributions across the educational field. A majority of men join the police and fire departments and outnumber female entrepreneurs; they also dominate the field of IT development. When it comes to female- dominated departments it is well-known to be related to social services as nurses and caretakers. But what do such differences bode for the future of diversity? “Despite our high rankings on equality scores, it's still mom who takes care of the home while dad goes to work, generally speakingLisbeth Damm says. This, I think, is a significant motivator for gender distribution across educations. The expectation that women are homemakers and men are providers affects us early in life, which leads to my other point: These choices are based on our genderized understanding of society and self, because we have fixed ideas about men and women and act accordingly. It's possible that women are better at relations and caregiving and so on. But if we could heighten the prestige around these values and speak of them as important, women could have their own position. Let's face it, we're not the same, and people will never be the same in terms of behavior and cognition, but in my utopian society, I would like to see that everyone's unique contributions are valued equally. The conversation has already begun, and I really believe we can get there,” Lisbeth Damm adds.
It's a bold vision, and such a transformation of our value economy is unlikely to happen overnight. So how, then, are women supposed to get ahead in positions of power right here, right now? And when will we actually have a fully diverse working culture, if that's even possible? “By building strong portfolios and social connections,” says Siri Terjesen, a Professor & Associate Dean for Research and External Relations at FAU Business. She cites 40 years of accumulated business studies on what it takes for women to reach top leadership positions: “Women need to gain human capital in areas like finance, strategy, law, communication, and industry- specific knowledge,” Siri Terjesen explains. “They need reputational capital by going to the best possible schools. When you look at women who have
succeeded at the highest levels of power, they are more likely to have fewer children and never have been married. For women of my generation, I'm 46 now, it was definitely a choice between trying to optimize one's career or home life. But that's changing.”
Workplace diversity is both a social cause and a corporate policy with the potential to swing the bottom line either way, and the intersection between the two is where things get interesting. Done correctly, diversity is a strong asset. Done wrong, it's nothing but trouble, and that's why companies must pay attention, says Thandi Dyani:
“It begins with us, people; we make up the staff and carry the corporate culture. The greatest obstacles to deep change are the leaders and team managers because they are in charge of hiring. Diversity and inclusion are no different than working with other types of corporate change, and there's much resistance because people want to retain their power and hold on to their narrow perspectives,” Thandi Dyani adds. “There's a lot of competition for talent, so if firms can't keep the best people around, it's a problem. Without diversity, it's impossible to solve complex challenges.”
“SCAPEGOATING THE WHITE GUYS IN THE OFFICE IS NOT THE SOLUTION."
- Lisbeth Damm
We got into this thing with the best intentions
In late 2020, the board of the New York-based Nasdaq stock exchange approved a new set of diversity rules. It is a far-reaching policy, and the first of its kind in the sector: Almost 3,000 Nasdaq-listed companies will have to add at least one woman to their board of directors, along with one person from a racial minority or who identifies as gay, lesbian, bisexual, transgender, or queer.
“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders,” Nasdaq Chair Gary Gensler wrote in a 2021 press release. Nasdaq also cites studies correlating boardroom diversity with increased profits, but critics like law professor Jesse M. Fried of Harvard University have been quick, and correct, in pointing out that correlation is not causation.
“While Nasdaq claims these rules will benefit investors, the empirical evidence provides little support for the claim that gender or ethnic diversity in the boardroom increases shareholder value. In fact, rigorous scholarship much of it by leading female economists suggests that increasing board diversity can actually lead to lower share prices. Adoption of Nasdaq’s proposed rules would thus generate substantial risks for investors,” he wrote in a working paper in April 2021. Nonetheless, the new rules were approved in August.
As Siri Terjesen says, diversity in the boardroom can be an advantage, but forcing it on companies is not the way to go. First of all, because diversity quotas often do not have the advertised effect, she argues: “When we mandate quotas, it's the perfect opportunity for the owner's daughter who already has a board seat to then get a seat at another firm. It's not a chance for a girl born on the wrong side of town who has worked her way up through business school and has far greater competence. We'd love it to be a meritocracy, but it isn't always the case,” she says. The Nasdaq policy has some bark, but little bite: the penalty against companies for non-compliance is having to issue a name-and-shame statement as to why they cannot meet the quotas – hardly a significant deterrent.
“Why on earth would a really cool firm that does neat software and has global clients want to be publicly listed and make itself subject to this additional level of scrutiny and priorities?” Siri Terjesen asks rhetorically. “I have a cousin who's a lawyer for one of Norway's biggest publicly traded companies. He's been there for 20 years and is fantastic at what he does and has gotten them out of some horrible situations, but he can't get on the board, because he's not a woman. He's gay, but he would never want a board seat just because of that.”
In the state of California, diversity quotas have been mandated by law since 2018. A 2020 study by von Meyerick et al. shows that the announcement of the law caused stock prices of affected firms to drop, with a mean loss of $328.31 million. In Norway, a gender quota law has been in place since 2003 with similar effects as outlined in a 2009 report by Ahern and Dittmar published in Quarterly Journal of Economics: An immediate 3.5% decrease in the stock value of male-run companies. The negative effect lingered for years. Why? Investors expected firms to replace male directors with less experienced female ones. With such wide-ranging implications, you're wrong if you think such mandates can't affect you personally, Siri Terjesen explains.
“It's not just about some rich, old shareholders sitting in their mountain chalets; the owners of these public firms are everyone who's working,” she adds.
Speaking from the other side of the Atlantic, Lisbeth Damm sides with Nasdaq on the topic of quotas, albeit with some reservations.
“People talk about toxic masculinity, but it certainly exists in all-female groups as well. I view any type of overrepresentation as an issue, no matter who's the majority. The democratic problem arises when all those in powerful positions to dictate how the world is managed are men. I go back and forth on the issue of mandatory diversity quotas. At the moment, I'm leaning toward 'yes', because progress is so slow, but it could be done with a provision that the law should undergo review after, say, three years,” Lisbeth Damm says.
Unlike publicly traded companies, privately owned firms are not subject to diversity quotas. A company may choose to remain private in order to retain full control of its hiring policy, and public companies can go off the stock exchange and take ownership back into private hands. That conversation is taking place right now, according to Siri Terjesen:
“I know of wealthy investors and start-up people who have these discussions, saying 'do we really want to go public?' And when they remain private, it means that the equity firms that are already flush with cash can buy those companies, but private investors like you and I can't. We will only be able to buy public shares in companies that bow down to these policies. That's a problem.”
Laws can be changed with the stroke of a pen; culture is malleable and can be influenced in both direct and subtle ways by debate, arguments, even propaganda, but it's like a supertanker that takes time to turn around. As we descend further into the recesses of the human mind, attempts at change become gradually more difficult and intrusive. The big question right now is how far societies and companies want to go in their pursuit of social justice – and whether they appreciate the consequences.
Getting a
grip
on diversity
It's on everyone's lips these days: Diversity in the boardroom and workplace. As the voices calling for change gain support, businesses have realized it's a topic that cannot be ignored.
With the help of Thandi Dyani, Lisbeth Damm, and Siri Terjesen, we set out to explore why diversity is such a hot topic at the moment, what it takes to make it work, the pitfalls, and how businesses and employees may benefit from it.
“EVERY COMPANY IS LIKE A SAMPLE OF SOCIETY. IT'S NOT ENOUGH TO BE REPRESENTED IN THE WORKPLACE; WHEN YOU'RE THERE, YOU SHOULD FEEL LIKE IT'S OK TO BE YOURSELF.”
– Thandi Dyani
Escaping the box
“Discrimination takes many shapes,” says Thandi Dyani. Born to a Danish mother and a father who came to Denmark from South Africa as a political refugee, she knows first-hand what it feels like to grow up being viewed as an outsider.
“People want to put others in boxes, and the box for someone who looks like I do is quite small. It's frustrating. I never believed I would be able to finish an education because my teachers in grade and high school had me thinking I wasn't good enough. In my youth, I traveled a lot to places like the US, the Caribbean, and Africa in search of a place where I could be part of a majority and not feel like I had to justify my presence,” Thandi Dyani explains. Her journeys only offered temporary relief, however. Every time she returned to her native Denmark, she found herself fighting the same sticky web of everyday obstacles:
“It's the small everyday things. Shop assistants always stopped me to check my bag as if I stole something. I internalized many feelings that weren't part of me as a person. After graduating from university, I must have sent out more than 200 applications without getting a single reply. I thought I was on the same level as my fellow graduates, but we really weren't, because the world receives you in a different way when you're light-skinned with a traditional Danish name, so I conducted an experiment: I have both Danish and African names, and I tried sending out two identical applications to the same company, but using different names. Sure enough, only one of them got me an interview,” she recalls.
Today, she works independently using her cross- cultural experience as a keynote speaker and leadership workshop organizer for clients like BMW's Quandt Foundation on equality and diversity matters.
“Without diversity, it's impossible to solve complex challenges.”
– Thandi Dyani
Diversity & Inclusion
Having a staff photo that looks like a '90s Benetton advertisement is no guarantee that a company will reap tangible benefits from diversity or that minorities feel invited to contribute. Diversity itself is not enough; the glue that binds diversity and business into a viable plan is inclusion. If a firm only talks the talk when it comes to diversity, minority employees will feel like tokens who are taken aboard only to improve the corporate image. Looking closer, it's an ugly, dishonest picture, and employees who are tokenized tend to take the nearest professional exit and leave disappointed. Companies that might otherwise have benefited from their presence are left to reap the consequences of lost opportunities. In order for workplace diversity to be effective, companies must walk the walk, which means true inclusion, writes Dana Brownlee, a consultant and keynote speaker, in her 2019 Forbes column: "Indeed, many organizations add a few women or people of color to a board or executive team and feel they’ve checked the box and can return to business as usual. That mentality is arguably naïve, misguided, and truly dangerous because there are real risks associated with focusing primarily on diversity and largely ignoring inclusion. The uncomfortable truth is that diversity without inclusion may be perceived as 'tokenism' which can ignite a negative boomerang effect on the most well-intentioned organizations," she asserts.
Tokenism is not just a bad look for companies; it also reveals the narrow view that diversity is simply a matter of obvious differences like skin color, gender, or age. The fact is that diversity is more than skin-deep; if we want to address human diversity in a greater variety of facets, we need to look beyond visual characteristics. The defining difference, after all, is what's in our hearts and minds, and whether this facilitates or hinders our interactions.
Diversity, like any other company policy, can be something you say or something you do, and the risks in getting it wrong are immense, says Thandi Dyani: “Every company is like a sample of society. It's not enough to be represented in the workplace; when you're there, you should feel like it's OK to be yourself. The hardest nut to crack for companies is their work culture because it attracts and retains employees. People often say that diversity is troublesome, but actually, it's a fact of life.” It's basic hospitality: If people are invited in, they must feel welcome and on equal footing with their co-workers. But due to the blinders that majorities tend to carry, a lack of inclusion is not necessarily a conscious decision. It happens because no one in the organization has yet thought to take them off, says Lisbeth Damm, the CEO of Potential Co., a consulting firm to companies wishing to improve their diversity metrics:
“You only notice privileges when you don't have them. If you do a workplace survey, a majority of men will say that there is no sexism in the office, because they don't experience it. The relations and dynamics that develop in the workplace are the true measures of success when it comes to diversity. If you can achieve that, you will have better results. If not, diversity can be messy,” she points out. “All employees must feel psychologically safe – a sense of belonging and that someone has your back, no matter who you are. This increases loyalty, productivity, well-being, and people want to do their best.”
“DIVERSITY ITSELF IS NOT ENOUGH; THE GLUE THAT BINDS DIVERSITY AND BUSINESS INTO A VIABLE PLAN IS INCLUSION”
Taking off the blinders
Across the globe, companies have been embarrassingly slow to appoint women and minorities to leadership positions in numbers that are even remotely representative of the general population. According to a recent survey, a mere 69 of the top 1000 Danish business leaders are women, and ethnic minorities of any description are virtually non-existent.
It's an expensive majority myopia. ISS Diversity Council has estimated that a lack of diversity costs businesses an average of 12.6 percentage points in revenue per year – a number too big to ignore. Owners and managers see this and recognize the need to prioritize diversity as an essential item on the long-term agenda, that is if they wish to survive in a global market of people who don't look and think like themselves.
There is plenty of support for diversity in the world of international high finance. Goldman Sachs has pledged $10 billion of direct investment capital to its One Million Black Women initiative to support start-up black-owned businesses; consultancy firms like McKinsey and Boston Consulting Group have made diversity a selling point to their global clients with the dual argument of social justice and increased revenue. Barron's, a renowned US- based investment publication, sees diversity as a safe bet. A diversely managed company, or one staffed primarily with minority groups, can increase opportunity by identifying investment avenues that may otherwise go overlooked, Barron's argues in an essay on their website:
“The returns on our investments with more than two dozen firms owned and managed by women and people of color are indistinguishable from those of other firms. Why, then, is there such a reluctance among investors to trust their funds to diverse firms?” Barron's concludes.
With so much at stake morally and on the bottom line, diversity is an important strategic challenge, not just corporate window dressing, explains Thandi Dyani:
“If you want to be relevant to your customers, you must understand and represent them in some way. The Clubhouse platform (social network app, ed.) is a good example. It was based on black voices and black activism, but they initially only developed the app for iOS, which cut out most of their Android-using target audience in Africa and the Americas.”
How come we are having this conversation now? With the rise of the digital age, companies operating in an increasingly networked global environment have faced growing scrutiny by consumers wishing to know that their hard-earned cash does not support undesirable social or environmental effects. Many firms report that the much-publicized instances of police violence against minorities in the US have served as a stark reminder that something is skewed. The voices calling for change are legion, and they are louder than ever. A little invention called the Internet is helping them spread their message and be heard, and companies wanting to thrive need to listen up, says Thandi Dyani:
“The world is so much more interconnected, and now we all have access to voices that used to be overshadowed by the old media monopolies, so it's easier to understand those perspectives. For global companies, this means that they can be strongly affected by events far down the supply chain. If a Congolese child has to work in a mine to extract your raw materials, you may have to answer for that eventually. It has always been a hot topic to the global majority, but there has been a rather sudden shift of power that forces companies to address these issues seriously.”
How do we get there?
“Feminism has chosen the wrong path to equality,” says Lisbeth Damm. She argues that rather than trying to fit women into prevailing categories of success and prestige, women should carve out their own space and claim it.
“When the struggle for gender equality began, we accepted the premise that men were the norm and that women should be 'fixed' rather than being themselves,” she states. “We have tried speaking with deeper voices, wearing suits and all kinds of things to make women more masculine. That strategy will not get us to the goal. If we take a binary perspective for simplicity, men and women should have their separate standards, and they should be equally valued, or women will never be equal participants alongside men.”
Scandinavian countries score at the top of the charts when it comes to freedom of choice and equal access to education. Still, there are clear gender distributions across the educational field. A majority of men join the police and fire departments and outnumber female entrepreneurs; they also dominate the field of IT development. When it comes to female- dominated departments it is well-known to be related to social services as nurses and caretakers. But what do such differences bode for the future of diversity? “Despite our high rankings on equality scores, it's still mom who takes care of the home while dad goes to work, generally speakingLisbeth Damm says. This, I think, is a significant motivator for gender distribution across educations. The expectation that women are homemakers and men are providers affects us early in life, which leads to my other point: These choices are based on our genderized understanding of society and self, because we have fixed ideas about men and women and act accordingly. It's possible that women are better at relations and caregiving and so on. But if we could heighten the prestige around these values and speak of them as important, women could have their own position. Let's face it, we're not the same, and people will never be the same in terms of behavior and cognition, but in my utopian society, I would like to see that everyone's unique contributions are valued equally. The conversation has already begun, and I really believe we can get there,” Lisbeth Damm adds.
It's a bold vision, and such a transformation of our value economy is unlikely to happen overnight. So how, then, are women supposed to get ahead in positions of power right here, right now? And when will we actually have a fully diverse working culture, if that's even possible? “By building strong portfolios and social connections,” says Siri Terjesen, a Professor & Associate Dean for Research and External Relations at FAU Business. She cites 40 years of accumulated business studies on what it takes for women to reach top leadership positions: “Women need to gain human capital in areas like finance, strategy, law, communication, and industry- specific knowledge,” Siri Terjesen explains. “They need reputational capital by going to the best possible schools. When you look at women who have
succeeded at the highest levels of power, they are more likely to have fewer children and never have been married. For women of my generation, I'm 46 now, it was definitely a choice between trying to optimize one's career or home life. But that's changing.”
Workplace diversity is both a social cause and a corporate policy with the potential to swing the bottom line either way, and the intersection between the two is where things get interesting. Done correctly, diversity is a strong asset. Done wrong, it's nothing but trouble, and that's why companies must pay attention, says Thandi Dyani:
“It begins with us, people; we make up the staff and carry the corporate culture. The greatest obstacles to deep change are the leaders and team managers because they are in charge of hiring. Diversity and inclusion are no different than working with other types of corporate change, and there's much resistance because people want to retain their power and hold on to their narrow perspectives,” Thandi Dyani adds. “There's a lot of competition for talent, so if firms can't keep the best people around, it's a problem. Without diversity, it's impossible to solve complex challenges.”
“SCAPEGOATING THE WHITE GUYS IN THE OFFICE IS NOT THE SOLUTION."
- Lisbeth Damm
We got into this thing with the best intentions
In late 2020, the board of the New York-based Nasdaq stock exchange approved a new set of diversity rules. It is a far-reaching policy, and the first of its kind in the sector: Almost 3,000 Nasdaq-listed companies will have to add at least one woman to their board of directors, along with one person from a racial minority or who identifies as gay, lesbian, bisexual, transgender, or queer.
“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders,” Nasdaq Chair Gary Gensler wrote in a 2021 press release. Nasdaq also cites studies correlating boardroom diversity with increased profits, but critics like law professor Jesse M. Fried of Harvard University have been quick, and correct, in pointing out that correlation is not causation.
“While Nasdaq claims these rules will benefit investors, the empirical evidence provides little support for the claim that gender or ethnic diversity in the boardroom increases shareholder value. In fact, rigorous scholarship much of it by leading female economists suggests that increasing board diversity can actually lead to lower share prices. Adoption of Nasdaq’s proposed rules would thus generate substantial risks for investors,” he wrote in a working paper in April 2021. Nonetheless, the new rules were approved in August.
As Siri Terjesen says, diversity in the boardroom can be an advantage, but forcing it on companies is not the way to go. First of all, because diversity quotas often do not have the advertised effect, she argues: “When we mandate quotas, it's the perfect opportunity for the owner's daughter who already has a board seat to then get a seat at another firm. It's not a chance for a girl born on the wrong side of town who has worked her way up through business school and has far greater competence. We'd love it to be a meritocracy, but it isn't always the case,” she says. The Nasdaq policy has some bark, but little bite: the penalty against companies for non-compliance is having to issue a name-and-shame statement as to why they cannot meet the quotas – hardly a significant deterrent.
“Why on earth would a really cool firm that does neat software and has global clients want to be publicly listed and make itself subject to this additional level of scrutiny and priorities?” Siri Terjesen asks rhetorically. “I have a cousin who's a lawyer for one of Norway's biggest publicly traded companies. He's been there for 20 years and is fantastic at what he does and has gotten them out of some horrible situations, but he can't get on the board, because he's not a woman. He's gay, but he would never want a board seat just because of that.”
In the state of California, diversity quotas have been mandated by law since 2018. A 2020 study by von Meyerick et al. shows that the announcement of the law caused stock prices of affected firms to drop, with a mean loss of $328.31 million. In Norway, a gender quota law has been in place since 2003 with similar effects as outlined in a 2009 report by Ahern and Dittmar published in Quarterly Journal of Economics: An immediate 3.5% decrease in the stock value of male-run companies. The negative effect lingered for years. Why? Investors expected firms to replace male directors with less experienced female ones. With such wide-ranging implications, you're wrong if you think such mandates can't affect you personally, Siri Terjesen explains.
“It's not just about some rich, old shareholders sitting in their mountain chalets; the owners of these public firms are everyone who's working,” she adds.
Speaking from the other side of the Atlantic, Lisbeth Damm sides with Nasdaq on the topic of quotas, albeit with some reservations.
“People talk about toxic masculinity, but it certainly exists in all-female groups as well. I view any type of overrepresentation as an issue, no matter who's the majority. The democratic problem arises when all those in powerful positions to dictate how the world is managed are men. I go back and forth on the issue of mandatory diversity quotas. At the moment, I'm leaning toward 'yes', because progress is so slow, but it could be done with a provision that the law should undergo review after, say, three years,” Lisbeth Damm says.
Unlike publicly traded companies, privately owned firms are not subject to diversity quotas. A company may choose to remain private in order to retain full control of its hiring policy, and public companies can go off the stock exchange and take ownership back into private hands. That conversation is taking place right now, according to Siri Terjesen:
“I know of wealthy investors and start-up people who have these discussions, saying 'do we really want to go public?' And when they remain private, it means that the equity firms that are already flush with cash can buy those companies, but private investors like you and I can't. We will only be able to buy public shares in companies that bow down to these policies. That's a problem.”
Laws can be changed with the stroke of a pen; culture is malleable and can be influenced in both direct and subtle ways by debate, arguments, even propaganda, but it's like a supertanker that takes time to turn around. As we descend further into the recesses of the human mind, attempts at change become gradually more difficult and intrusive. The big question right now is how far societies and companies want to go in their pursuit of social justice – and whether they appreciate the consequences.
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© 2020 Headlight Journal. All rights reserved.
Blegdamsvej 6, 1st floor
Copenhagen, Denmark
Telephone +45 3232 3232
journal@weareheadlight.com
© 2020 Headlight Journal. All rights reserved.