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Corporate diversity, inclusion needs focus on middle management, influential employees - NY Fed webinar

NEW YORK(Thomson Reuters Regulatory Intelligence) - *To read more by the Thomson Reuters Regulatory Intelligence team click here: bit.ly/TR-RegIntel

Employees work at a desk in the Lloyd's of London building in the City of London financial district in London, Britain, April 16, 2019. Picture taken April 16, 2019.

Increasing diversity and inclusion in corporations requires special attention to the role of middle management and employees seen as having influence within their organizations, experts said this week in a webinar hosted by the Federal Reserve Bank of New York.

While clear communications from top executives over diversity and inclusion (D&I) policies are essential for employees to understand the objectives of a company’s program, there also needs to be a focus on certain groups and individuals who can often serve as role models and leaders.

“Are there particular people in an organization that can influence a culture?” asked Betsy Levy Paluck, a professor of psychology at Princeton University. “The people who can do this are the people who are most watched in an organization.”

Paluck, who also leads Princeton’s Center for Behavioral Science & Policy, said research has found that by using social network analysis one can identify so-called “influencers” within organizations who shape and define cultural norms.

Studies conducted among middle-school students, for example, found that if one can identify such influencers and encourage them to change their behavior, “it would change other students’ perspectives as well,” said Paluck.

The same type of influential employees could be found at many organizations, Paluck said.

Erika Irish Brown, chief diversity officer at Goldman Sachs, agreed, and emphasized that incentives and middle managers played an important role in reforming attitudes towards diversity and inclusion.

“The rewards system has to be in line with the behavior you want to encourage,” Brown said. “I believe you can educate people and give them tools to be more inclusive leaders.”

“You can’t change people per se, but you can inform them . . . and I completely agree with the focus on influencers,” Brown said.

Senior people “have to set some level of accountability and have to role model that behavior,” she added. At the functional leadership level, there should be a focus on “mid-level managers.” The goals and objectives for such managers “have to be cascaded and enforced and measured as part of a manager’s performance.”

INFLUENCING OTHER STAKEHOLDERS

While much of the focus of the New York Fed’s session was on companies’ internal policies, other steps can help companies demonstrate their seriousness on diversity and inclusion issues, particularly in relation to the outside world.

For example, in February 2020, Goldman Sachs announced that it will only underwrite initial public offerings for U.S. and European private companies that have at least one diverse board member. The rule became effective on July 1, 2020, and starting in 2021, Goldman Sachs will raise its target to “two diverse candidates for each of our IPO clients.”

The commitment relates to any private company looking to hire Goldman to underwrite its initial public offering. The diversity requirement is mandatory, but it is implied that there is discretion as to what qualifies as “diverse.”

“We have also tried to put policies in place that help people we do business with,” Brown told the webinar, noting that D&I issues were growing in importance among institutional investors.

“When capital allocators are making policies that are saying this is important to us, people respond,” Brown said. “We need to pull every lever available to us.”

Many of the D&I initiatives in corporate America have focused on diversifying boards of directors. Some experts argue while these efforts should be applauded, the real challenge, as those highlighted in the New York Fed’s discussion, is to penetrate deeper into the employees of companies.

In a new research paper by Chris Brummer of Georgetown Law and Leo Strine of Columbia Law school{link is:here}, the authors argue for reforms that target the entire workforce.

“[V]irtually all of the major reforms thus far introduced, focus almost exclusively on boards. None target the diversity of senior and middle management—or the broader workforce as a whole,” write Brummer and Strine.

“The most charitable reading of their scope would be that they speak to the holes in federal employment law discrimination. But, the bulk of opportunity that corporations provide for Americans to improve their lives, engage in fulfilling work, and interact with customers and communities, is at the other levels of the firm where line workers, middle managers, and contracted workers collaborate to serve the company’s customers.”

Brummer is reported to be a leading candidate to chair the Commodity Futures Trading Commission under the Biden administration. Meanwhile, Strine was previously chief justice of the Delaware Supreme Court where he wrote hundreds of opinions impacting U.S. corporate law and is now active in advocating for corporations to shift their focus towards stakeholder capitalism.

(Henry Engler, Regulatory Intelligence)

*To read more by the Thomson Reuters Regulatory Intelligence team click here: bit.ly/TR-RegIntel

This article was produced by Thomson Reuters Regulatory Intelligence - bit.ly/TR-RegIntel - and initially posted on Mar. 4. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters

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