The next big threat to corporate diversity success is here

And by cool kids, I mean the people who control the money.

According to PwC’s 2021 Annual Corporate Directors Survey, ESG is the number one topic investors most want to discuss with board members during shareholder meetings. Further, 64% of directors now say ESG metrics are linked to company strategy—a 15-point increase from the year before. Ninety-five percent of S&P 500 companies now publish some sort of ESG data, and nearly 60% use ESG metrics as part of their executive compensation plans in 2022, primarily tied to bonuses.

And the big winner in the governance category is diversity and inclusion. Now one of the most commonly focused-on metrics, it appears to be emerging as a proxy measure to fast-track ESG progress.

This all sounds like good news…until you think about it.

Alison Taylor, an adjunct professor at NYU Stern School of Business and executive director of its Ethical Systems research platform, and Brian Harward, a lead research scientist at Ethical Systems, are skeptical. “The current state of ESG efforts by corporations is disappointing but understandable,” they write in this opinion piece. “Investors pressurise them into what amounts to a box-ticking, virtue-signalling exercise – and it shows.” Most companies have it backward. “Declaring diversity an ESG target rather than a baseline expectation appears to be a self-serving strategy to generate positive PR.”

Taylor and Harward suggest that this is already leading to window-dressing behavior that ignores deep systemic issues that any responsible company should face.

They cite the “human capital” metrics that McDonald’s instituted last year, which tethered executive bonuses to increased representation of women and “minorities” in senior leadership. Laudable on its face, sure. “[U]ntil you read reports that the company had been practising a form of redlining with Black franchise owners” for many years, shunting Black operators into poorer Black and Hispanic neighborhoods and lower lifetime earnings. A lawsuit was settled last year, a necessary measure that describes the problem that these human capital metrics are too late to solve. “Was there any relationship between the lack of diversity in senior leadership and this litigation? More broadly, why should executives be given bonuses for meeting intrinsic goals that ought to be central to any company’s values and mission?”

Widespread adoption of ESG reporting is sure to increase the burden on already under-resourced diversity professionals, who are responsible for the kinds of breakthroughs that typically require a massive culture change to be successful. (Here’s my deep dive into the challenges currently faced by some 100 DEI practitioners I met with this spring. Spoiler alert: CEOs, the lack of progress will be on you.) And there are a lot of them now. Last year, Russell Reynolds Associates found that new chief diversity officers within the S&P 500 nearly tripled.

I expect it will also be a problem for exhausted employees who are pressed daily to explain inclusion to the dominant culture leaders who aren’t really on board—while not, you know, acting too “diverse.” A recent report from DEI consultancy Every Level Leadership found that 72% of Black women report having to code-switch at work to advance their careers, and more than half of respondents said they feel responsible for teaching their co-workers about diversity, equity, and inclusion.

With all eyes on the new ESG prize, what will it take for companies to make meaningful progress? Stop thinking short-term. When a company decides that diversity is essential to its core purpose, it’s a matter of “striv[ing] to meet customer, supplier and employee expectations over the long term,” say Taylor and Harward.

Well-compensated executives don’t need new bonuses to do their job, they argue. “Executives could then do what they were hired to do: bring new ideas to the table, assess the risks of their actions and lead others,” which means tapping relevant new perspectives. “They should be asked to create plans for how their division or function can address the diversity imperative, and encouraged to compete with each other and test micro innovations.”

Embedding diversity in every part of a business in this way minimizes the incentive to game the system.

“[T]here are many ways to hit a quantitative target that miss the point,” they write.

Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com

This edition of raceAhead was edited by Ashley Sylla.

On point

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CHRO Daily

Once again, Jordan Peele is number one Peele’s third film Nope is expected to earn about $44 million on its opening weekend, making it his third feature to hit number one. The long-awaited film was shrouded in mystery, and if reviews (and my own eyes) are to be believed, it did not disappoint. While box office heft is always a popular indicator, the truth is that Peele’s work has a habit of getting all the way under the cultural skin. "When it comes to Jordan Peele, it's not so much about the opening weekend as much as it's about building that word of mouth," Paul Dergarabedian, senior media analyst at Comscore (SCOR), told CNN Business. "His movies are in it for the long haul."
CNN

Justice Ketanji Brown Jackson may be preparing for her first vote The first Black female Supreme Court justice had pledged to sit out the case that will rule on the use of race in college admissions since she serves on the board of Harvard, one of two schools named in a suit claiming discrimination against Asian American students. Now, the cases have been split, so she may weigh in on the case involving the University of North Carolina, a state school. It’s likely to make little difference given the conservative makeup of the court. Both schools filed briefs in support of affirmative action. “The framers of the Fourteenth Amendment understood that race may be considered to advance overriding governmental objectives, rejecting more absolute language [Students for Fair Admissions] would have preferred, and both state and federal authorities at the time enacted race-conscious measures to promote African Americans’ equal participation in society,” said Harvard’s brief.
PBS

The wig industry gets an A.I. boost The custom wig industry primarily serves women of color, and is estimated to be a $13 billion annual juggernaut. Enter Parfait, a new start-up that aims to use technology to streamline the lengthy and challenging process of finding and creating the right wig. Co-founder sisters CEO Isoken Igbinedion, CTO Ifueko Igbinedion, COO Marlyse Reeves, and CMO Simone Kendle just completed a $5 million seed investment led by Upfront Ventures. “For all of us, it really started with a problem that’s experienced by many women of color, all of us included, and that’s managing and caring for textured hair,” says Isoken Igbinedion. It’s an impressive founding team—two have MBAs from Wharton, and two earned PhDs from MIT.
Tech Crunch

A new study shows decades of funding disparities at the National Science Foundation The NSF has one core job, to fund worthy proposals for research and education that forward scientific knowledge. (This includes the social sciences, which we clearly need.) The independent federal agency has an $8 billion annual budget and funds about 25% of all federally supported basic research at colleges and universities in the U.S. Four researchers reviewed over a million proposals submitted between 1996 and 2019 and found an alarming, racist trend. “White principal investigators (PIs) are consistently funded at higher rates than most non-White PIs,” a disparity that has been increasing over time. “Disparities occur across all disciplinary directorates and are greater for research proposals,” which has a chilling effect on any promising academic career since nothing can happen without grant support. These grants also confer “economic stability and social capital to individuals and institutions.”
NSF Funding Disparities

On background: Take care of yourselves and each other

How to support a colleague who is sick or grieving S. Mitra Kalita comes to this advice with some experience, having recently lost her mother-in-law and her own recovery from COVID. With pandemic challenges now an ongoing health crisis, getting this right is vital. She suggests how to help the people in your life, masterfully tailored to consider the unique needs of parents, the self-employed, and those facing long-haul illnesses. And then, there’s this: a corollary to the mourning period and uncertainty as well. “Two cards we recently received – literally months after my mother-in-law died – exemplify another meaningful gesture: to show up for people long after the funeral and let them know you know it’s still hard.”
Time

How to deal with the really problematic people in your life This is a fascinating review of a book I confess to having only skimmed that combines organizational psychology, negotiation science, conflict resolution, and counterterrorism expertise to help anyone manage the thorniest, recurring conflicts in your life. Optimal Outcomes, a book by organizational psychologist Jennifer Goldman-Wetzler, offers eight practices that, if mastered, sound promising. You’ll learn what an “optimal outcome” is, how rational problem solving won’t help you get there, and how to draw a “conflict” map, which helps identify key players and the forces that pressure them. But the concept of “shadow values,” based on Jung’s concept of the shadow self, or the parts of our psyche that we suppress, is really fascinating. But if you want to understand the “weird” behavior of others, understanding their unstated values is a good place to start. 
Quartz

When work tests your sobriety For anyone who is newly sober, boozy work functions—increasingly making a comeback in a pandemic-weary world—can be a test for the ages. This poignant and funny essay takes on the culture of drinking, how difficult it is to stay healthy, and the hard, cold realization that you’re surrounded by misogynistic jerks at work. When you turn yourself into the minority, the transition can be sobering.
Medium

What of the anxious Black girls? If you have three minutes and twenty-seven seconds to spare, then spend some time with this spoken word piece that is the best, most inspiring, most on-point explanation of anxiety I’ve ever heard. It’s by a poet named Jae Nichelle, and she will make your heart soar. “So my anxiety and I have what you might call a friends with benefits relationship…” she begins. Bring tissues. Follow her here.
Jae Nichelle

Parting words

"A great example of colorism is to believe I can be compared to anyone. I’m the youngest talk show host ever. The first Black woman to star in her own show on Nickelodeon, & the youngest & first Black Cinderella on broadway. I’m an incomparable talent. Baby, THIS, is Keke Palmer."

—Keke Palmer, responding to charges of colorism affecting her career.