Utilizing ESGs and the EEOC to Increase Diversity at Top Levels of Fortune 500 Companies

Posted on Apr 13, 2023

Morgan Raquel Martin

Introduction

Environmental, Social, and Governance analysis (ESG) includes non-financial factors considered by stakeholders to ensure that large publicly traded corporations’ policies are responsible in a variety of areas. These policies relate to sustainability, environmental impact, ethics, and more. The “S” factor, social, typically includes diversity, equity, and inclusion (DEI) policies. The goal of DEI policies is generally to create a more diverse workforce and to create more opportunities for people of color. However, measuring a company’s DEI efforts and results can be incredibly difficult. The current ESG framework leaves room for interpretation of the “S” factor, leading to variability amongst corporations as to how to approach DEI efforts. This variability leads to vast differences in efforts, stifling growth in diversity and progress in an industry that is already slowly progressing and lacking in equity.

Current DEI Challenges

Despite various efforts to increase DEI by some companies, particularly after various movements and upheaval in 2020 after the murder of George Floyd, diversity in Fortune 500 companies remains low. For example, in 2022, only 31 percent of board members at Fortune 500 companies were women and only 7 percent were non-white women.[1] While diversity has increased since 1995, when the list of Fortune 500 companies was created, the rates of growth have been slow. Analysis from  Deloitte and the Alliance for Board Diversity indicates that “it will take more than 50 years for minorities to comprise 40% of Fortune 500 board seats.[2]” It is clear that ESG goals alone are not an entirely effective mechanism for diversifying corporate America. One potential solution could be more government intervention through the Equal Employment Opportunity Commission (EEOC). The EEOC is a federal government entity responsible for enforcing federal laws that make it illegal to discriminate against an employee on the bases of protected characteristics, including race, sex, religion, and national origin.[3]

Current Statistics

Business Insider conducted a report on the top Fortune 500 companies.[4] The top companies based up 14 equally weighted metrics were Microsoft, Centene, Target, Gap, and Biogene. The reporting was based upon percentages of the workforce and further in-depth analysis on the percentage of people of color in managerial and director roles. According to 2020 data, 47% of Microsoft’s workforce are people of color, with a majority of managers being white. Only 29% of its employees are women and approximately 26% of its managers are women.[5] However, Microsoft has pledged it double the number of black managers and senior employees by 2025.[6]

Proposed Solution

In order to increase diversity in Fortune 500 companies, companies should aim to conduct individual analyses of what each of their companies requires to achieve success. Each company has its own corporate culture and company policies. Diversity it not one-size-fits all and in order to achieve diverse leadership at the top, companies must ensure that they are eliminating various barriers to entry.[7] These barriers can include an exclusionary corporate culture, including “boys clubs,” or forms of nepotism. Of course, it may be impossible to remove these characteristics entirely, but companies should try to as much as possible. In her piece Second Generation Employment Discrimination: A Structural Approach, Susan Sturm discusses first-generation and second-generation discrimination.[8] First-generation discrimination describes blatant forms of discrimination in which minority groups are not allowed in certain places or are not offered equal opportunities to their majority counterparts[9]. Second-generation discrimination includes subtle biases and obstacles that are not as easy to identify but that do prevent issues for people in the work place.[10] In her article, she conducts a case study of several major companies that made poignant efforts to reduce discrimination and patterns of exclusionary behavior.[11] These companies included Deloitte and Home Depot: both conducted their own research and created completely different systems to improve the corporate culture of their respective companies in order to make them more inclusive places to work.[12] This is important to consider because while recommendations can be made to companies, each respective company will have to put in efforts to achieve their own company benchmarks.

It is also important to consider the role of the EEOC. In her piece Addressing Systemic Discrimination: Public Enforcement and the Role of the EEOC, Pauline Kim describes the EEOC as being “uniquely situated to address problems of systemic discrimination.” [13] The goal of the EEOC is to “eradicate discrimination in employment” making the EEOC the perfect institution to promulgate goals for increasing diversity at top levels by the largest employers of the country. Congress created the EEOC as the agency to investigate and resolve issues of discrimination in the work place. Given this, the EEOC’s directives are to reduce discrimination claims and promulgate guidelines that encourage practices that increase diversity. The EEOC is “empowered to pursue litigation targeting employer policies and practices that systematically limit opportunities for women, racial minorities, and other protected groups.”[14]

A possible solution to the DEI challenges outlined above is to utilize the EEOC to promote and promulgate recommendations for Fortune 500 Companies to reach the goal of diversity at all levels.[15] Under this solution, the EEOC’s recommendations would not be substantive law but they would be given deference as the leading source of authority on employment discrimination.[16] These recommendations would be recommend prioritization of the ”S” factor of ESG policies through the implementation of mentorship programs, pipeline programs, monetary donations, and more. Given that the EEOC, “works to prevent discrimination before it occurs through outreach, education, and technical assistance programs,” they have the authority to promote these policies.[17]  The EEOC could not promote quotas—as that is against the ruling in Ricci v. Destefano[18]—but could promote benchmarks for companies to reach to achieve true diversity. In Ricci v. DeStefano the court held that an employer cannot take race into consideration unless they can show that without taking the action, they will be susceptible to liability.[19] In Ricci, the exam in question was found to be necessary for the job and there was no less discriminatory alternative to be found. Ricci further tightened the requirements for affirmative action plans, emphasizing that employers must have a strong basis in evidence that race-conscious hiring practices will have an unconstitutionally disparate impact before deciding to implement the practices[20]. The goal would be for companies to adhere to the recommendations, eventually making them the norm. These solutions would hope to target companies who minimize their DEI efforts and would encourage increases in efforts that would have a large impact over time. Understanding that not all companies have resources to fund particular DEI efforts, the goal would be small changes that could be made by everyone.

Another component of the solution would be a ranking system by EEOC. This ranking system would calculate the most diverse Fortune 500 companies based upon percentage of workers at all levels of the company. This ranking would also be based upon compliance with the recommendations which would incentivize companies to comply with the recommendations. Companies could then advertise that they have a top ranking with the EEOC. This could in turn benefit the company by attracting more consumers who are concerned with ESG issues[21]. Solving the issue of systemic racism with Fortune 500 Companies requires multiple changes to business practices.

The issue cannot be resolved in one step. In order to move our country to true equity and equality, underrepresented groups must have opportunities in all facets of life, including in corporate America. There are two steps that must be considered: hiring underrepresented groups in mostly lower-level positions and failing to promote underrepresented groups to upper-level positions. These actions maintain the status quo and continue to increase the wealth gap. Because the Civil Rights Act of 1964 prevents a direct mandate of hiring practices to avoid discrimination and violating the of rights of employers, companies must be intentional and creative about practices to promote diversity efforts[22]. It is clear that some companies will not take steps towards those efforts and require more incentives than others. In order to into increase equity and equality in the United States, government intervention must promulgate practices to reach this goal.

 

[1]Marie Leech “Report finds a continued lack of diversity on boards of Fortune 500 companies” Biz Journals (Aug. 3, 2022), https://www.bizjournals.com/bizwomen/news/latest-news/2022/08/mogul-women-boards.html?page=all#:~:text=Just%2031%20percent%20of%20board,and%2078.5%20percent%20are%20white.

[2] Alliance for Board Diversity, Missing Pieces Report: The Board Diversity Census, Deloitte, (June 8, 2021),  https://www2.deloitte.com/us/en/pages/center-for-board-effectiveness/articles/missing-pieces-report-board-diversity.html.

[3] Equal Employment Opportunity Commission, Who Is Protected from Discrimination, https://www.eeoc.gov/employers/small-business/3-who-protected-employment-discrimination.

[4] Marguerite Ward, “Microsoft tops the list of most transparent companies for diversity data. Here's how far the top 5 have come — and how they can still improve.” Business Insider (June 7, 2021) https://www.businessinsider.com/top-fortune-500-companies-addressing-diversity-and-inclusion-2021-6#5-biogen-1.

[5] Id.

[6] Jessica Guyan “Microsoft Plan to Increase Black Representation in its U.S. Workforce Probed by Labor Department,” USA Today (Oct. 6, 2020, https://www.usatoday.com/story/tech/2020/10/06/microsoft-diversity-african-americans-black-department-of-labor-trump-george-floyd/5902478002/.

[7] Mihaly Nagy, “One-Size-Fits-All Approach Doesn’t Work Where Diversity Is Concerned” HR-Congress (Feb. 6, 2022 https://hr-congress.com/2022/02/06/one-size-fits-all-approach-doesnt-work-where-diversity-is-concerned/.

[8] Sturm, Susan, Second Generation Employment Discrimination: A Structural Approach, 101 Colum. L. Rev 458 (2001).

[9] Id.

[10] Id.

[11] Id. at 493

[12] Id. At 495–512 (Developed new automated hiring and promotion system that expanded access to information and training needed to advance within the company).

[13] Kim, Pauline T , Addressing Systemic Discrimination: Public Enforcement and the Role of the EEOC, 95 B.U. L. Rev. 1133,  1143 (2015).

[14] U.S. Equal Opportunity Commission, https://www.eeoc.gov/overview.

[15] Id.

[16] Id.

[17] Id.

[18] Ricci v. DeStefano, 557 U.S. 557 (2009).

[19] Id.

[20] Id.

[21] Pamela Brown, The Rise of the Inclusive Customer, McKinsey & Company, (Feb 8th, 2022) https://www.mckinsey.com/industries/retail/our-insights/the-rise-of-the-inclusive-consumer.

[22] Equal Employment Opportunity Commission, Civil Rights Act of 1964, https://www.eeoc.gov/statutes/title-vii-civil-rights-act-1964.