All stated their opposition to the bill, but the damage was done, and as the heat started to rise, the governor signed the bill into law, bringing Tennessee into the circle of states that affirmatively oppress their LGBT citizens.

The corporate reaction to our questions was swift but after the fact. I think most companies’ headquarters were genuinely surprised by the actions of their colleagues on the chamber’s board.  That leads us to a “teachable moment”—here are some ground rules I’ve learned by observing companies closely:

1. Decision making is best by having clarity on your values.
Credibility received for your professed values is dependent on your decisive execution of actions based on your values. This does not preclude empathy and forgiveness for mistakes, but values cannot be parsed without exposure to repercussions.

2. Your best possible business outcome is dependent on your ability to equitably execute on fair and equitable treatment.
People treated fairly have a better relationship with you—better relationships transcend commodity pricing and increase the quality of your revenue stream. Better relationships also increase employee engagement and productivity—as well as reduce regrettable loss.

3. In the age of Facebook and Twitter, you cannot hide.
Your actions will be publicly evaluated and the resulting addition or subtraction from your brand image will have an impact on your business.

Here is some food for thought regarding human rights, business and our LGBT neighbors:

Rights afforded to one group that do not diminish another group’s rights are what this country is all about. This was the basis of women’s suffrage and the Civil Rights Act, Voting Rights Act and Americans with Disabilities Act—and it is the basis of the lawsuit that overcame the anti-LGBT Proposition 8 in California. The anti-LGBT forces could not produce a single expert who could show that same-sex marriage in any way diminished heterosexual marriage. Married couples have certain legal rights, and extension of those legal rights to same-sex couples does not hurt heterosexual marriages and does not force your house of worship to marry same-sex couples. Freedom from a state-run religion and freedom of religion from the state are part of our Constitution.

Here’s some personal advice if you think marriage is for one man and one woman: Don’t marry someone of your own sex.

Finally, especially for companies that are publicly traded and/or regulated by the government (which, in aggregate, includes just about every company), there are some things to keep in mind regarding communications, donations and membership:

1. Communications sent in “secrecy” are worse than no letter at all, as “secret” complaints constitute tacit approval.

2. An organization cannot stink selectively. The chamber’s actions were anti-LGBT rights, period. This cannot be parsed, and if your continued membership in an organization conflicts with your stated values, then you have a problem across the entire organization.

3. Conflict in values produces brand damage and potential exposure to lawsuits and is detrimental to shareholder equity. Your personal opinions or politics do not trump your organization’s need to do business properly. This is especially true for leaders.

Over the almost 14 years of publishing DiversityInc, we’ve seen the practice of managing diversity become more effective by orders of magnitude in the most competitive companies. Questions about diversity are now on 100 percent of DiversityInc Top 50 companies’ requests for proposals (RFPs). This directly communicates a statement of values. The ripple effect of diversity values is aggregating into a bow wave as globalization is enhanced by web and cell communications.  This gives companies unprecedented opportunities—and unprecedented responsibilities—that transcend nations.

This creates seemingly complex challenges—but I don’t think they’re all that complex: If you have clarity on your values, then don’t violate them; if you’re doing business with a company that violates your values, you are violating your values; and if you make a donation or support an organization that has facets that violate your values, then you are violating your values.

We will all make mistakes. As Dr. Cornel West said at one of our events, “We are all cracked vessels,” and the public is very forgiving of a speedy and forthright apology, particularly if it’s backed by redemptive action. Such as, for example, resigning from the Tennessee Chamber of Commerce.

Luke Visconti’s Ask the White Guy column is a top draw on DiversityInc.com. Visconti, the founder and CEO of DiversityInc, is a nationally recognized leader in diversity management. In his popular column, readers who ask Visconti tough questions about race/culture, religion, gender, sexual orientation, disability and age can expect smart, direct and disarmingly frank answers.

The post Ask the White Guy: Decision Making, Clarity of Values & What to Do When It Goes Horribly Wrong appeared first on DiversityInc.

There is a distinct need for diversity in skill sets, expertise, experience and viewpoints on boards, driven by evolving strategic goals and market challenges. Board effectiveness demands robust debate in which norms are challenged and a breadth of perspectives inform board strategic discussions and actions. Indeed, a high-performing board is now, by definition, diverse.

In this report, Ernst & Young reviews the progress made to increase gender diversity on US corporate boards by comparing board composition of S&P 1500 companies at the time of the 2012 annual meeting to the 2006 annual meeting. The report focuses on a broad universe of companies to tell a more complete story since the boards of large companies tend to be more diverse. The report is also unique in that it looks at the roles women have once they join boards, and reviews the backgrounds and qualifications of women directors. Overall, Ernst & Young finds that the rate at which women are joining boards as a percentage of new board members is increasing and that boards that already have at least one female director are most likely to add more.

>> Click here to download a PDF of the Getting on Board report from Ernst & Young.

* This article features contributed content and has not been fact-checked or copy-edited by DiversityInc.

The post Getting on Board: Women Join Boards at Higher Rates, But Progress Comes Slowly appeared first on DiversityInc.

Now in its 11th year, the CEI is a credible, fact-based assessment of corporate commitment to LGBT workplace issues. This year, 688 companies participated, including 293 of the Fortune 500 companies. The HRC toughened its criteria last year, assessing four areas: equality of benefits for same-sex partners and spouses; transgender benefits; organizational competency (training, resource groups); and public commitment to the LGBT community.

“HRC has long rejected the idea that LGBT people should have to depend exclusively on the ballot box to guarantee equal protections in the workplace, and our corporate allies have surged well ahead of lagging legislation to afford these crucial workplace protections,” the organization stated.

Companies that score 100 percent receive a Best Places to Work for LGBT Equality designation from the HRC. Fortune 500 companies had an average score of 81, with 110 of the 293 (37.5 percent) receiving a perfect score. By comparison, DiversityInc Top 50 companies had an average score of 96.8, with a total of 38 (76 percent) receiving a perfect score compared with 28 (56 percent) last year.

What Sets DiversityInc Top 50 Companies Apart 

Looking at the criteria of the HRC, the DiversityInc Top 50 companies do better on every front compared with the Fortune 500.

• Have same-sex domestic-partner healthcare benefits: 100% vs. 62%
• Prohibit discrimination based on sexual orientation: 100% vs. 88%
• Prohibit discrimination based on gender identity: 96% vs. 57%
• Have LGBT resource groups: 96% vs. 83%
• Offer organizational cultural-competency practices such as training with measurable results: 100% vs. 42%
• Have public commitment to LGBT issues (recruitment, marketing, philanthropy): 100% vs. 48%

All of the companies on the DiversityInc Top 10 Companies for LGBT Employees received 100 percent CEI ratings.

Here is a list of the 38 companies in the DiversityInc Top 50 that received a 100 percent CEI rating:

PricewaterhouseCoopers (No. 1 in the DiversityInc Top 50)
Sodexo (No. 2)
Kaiser Permanente (No. 3)
AT&T (No. 4)
Ernst & Young (No. 6)
Kraft Foods (No. 7)
Deloitte (No. 8)
Prudential Financial (No. 9)
Johnson & Johnson (No. 11)
Accenture (No. 12)
Novartis Pharmaceuticals Corporation (No. 13)
American Express (No. 14)
MasterCard Worldwide (No. 15)
Merck & Co. (No. 16)
IBM (No. 17)
Cummins (No. 18)
KPMG (No. 22)
Aetna (No. 24)
Dell (No. 26)
Automatic Data Processing (No. 27)
General Mills (No. 28)
Eli Lilly and Company (No. 29)
Target (No. 30)
Bank of America (No. 31)
Starwood Hotels & Resorts Worldwide (No. 32)
Wells Fargo (No. 33)
Booz Allen Hamilton (No. 36)
Medtronic (No. 38)
Verizon Communications (No. 39)
Time Warner (No. 40)
Toyota Motor North America (No. 41)
Monsanto (No. 44)
Chrysler Group (No. 45)
The Coca-Cola Company (No. 46)
Capital One (No. 47)
Lockheed Martin (No. 48)
Kellogg Company (No. 49)
MetLife (No. 50)

The post CEI Index: Twice As Many Top 50 Companies Have 100% Ratings vs. Fortune 500 appeared first on DiversityInc.

Diversity-management case studies provide companies with insights into their competitors’ strategies. There is always volatility on The DiversityInc Top 50 Companies for Diversity list as the competitive set increases and improves in diversity management—and, simultaneously, as other companies lessen their commitment. When there is a major swing of more than 10 spots, it is usually attributable to a significant change in circumstances (e.g., a merger or a new CEO) or to a dramatic improvement or reduction in tracking or implementation of initiatives.

Consider these facts:

• 20 companies moved up this year; 24 declined
• 3 companies moved on to the list from DiversityInc’s 25 Noteworthy Companies list
• 2 companies made the list for the first time; 1 was participating for the first time

With competition increasing (participation, including the number of companies that completed the entire survey, is up 11 percent), our questions evolve each year to reflect cutting-edge diversity-management techniques and metrics to evaluate them. For example, this year we put more emphasis on resource-group and mentoring participation and the concurrent results demonstrated by the demographics of the top three levels of the organization. Watch our diversity web seminar on resource groups and our diversity web seminar on mentoring for best practices in these areas.

Here are case studies of four companies in two industries: consumer-packaged goods and financial services. In each industry, we look at one company that went up significantly and one that declined.

Case Study No. 1: Consumer-Packaged-Goods Company That Rose

Contributing factors:

• Visible CEO support; accountability for results
• Dramatically improved metrics/tracking
• Increased utilization of resource groups

Company A is a large, decentralized global consumer-packaged-goods business, with a wide variety of products and customers. The company has been on the DiversityInc Top 50 list multiple times but has had trouble moving into the upper echelon.

This year, the company made significant strides for three reasons: It reassessed the manner in which it tracked key diversity-management metrics of mentoring and resource-group participation, multicultural philanthropy and first promotions into management; it better assessed and communicated the CEO’s deep commitment to diversity; and the racial/gender diversity at the top three levels of the company improved.

IT STARTS AT THE TOP

The CEO has been a vocal proponent of diversity for years, but much of what he said and did wasn’t captured or directly connected to diversity management. In the past two years, the company’s leaders have become much more cognizant of the need to link their leader’s support more visibly, both internally and externally. He talks frequently about the nexus of diversity and global innovation, and this of late has become a hallmark of the company’s messaging. This essential point is also now included in the company’s simple and direct mission statement.

The CEO of this company is on the board of three multicultural nonprofits, and almost a third of the executives in the top two levels of the organization also sit on boards of multicultural nonprofits. In addition, this CEO meets with resource-group members at least quarterly. This CEO chairs the diversity council and holds senior executives directly responsible for results, with a significant portion of their bonus linked to diversity metrics. The council also sets company-wide goals, which are also linked to executive compensation.

In addition, this company has a very diverse board of directors, with good female representation as well as representation from Blacks, Latinos and Asians. As it seeks to understand the complex U.S. and global marketplaces, these strategic leaders from diverse backgrounds are even more crucial.

The representation in the top three levels of the organization has increased in both gender and racial/ethnic diversity in the past two years, showing that the talent-development and engagement efforts are paying off.

DOESN’T COUNT IF IT ISN’T TRACKED

This company demonstrates one of the clearest cases we’ve ever seen of an organization doing great work that no one was properly tracking in a consistent manner. The resource groups, which are used for recruitment, talent development and leadership training, have been instrumental in driving new business ideas for products directly relevant to underrepresented groups. However, until our discussions with the company this year, it did not institute a means of assessing how many employees were actually members of each group. Without the metrics to understand its participation and the result on engagement, retention and promotions, the company was not fully able to make the case to senior management for increased support for these groups. Watch our diversity web seminar on diversity metrics for best practices in tracking diversity goals.

Secondly, the company until this year was unable to measure its level of management participation in formal, cross-cultural mentoring. Many companies, especially larger ones, tell us they can’t track mentoring because they have so many kinds and so much “informal mentoring.” We ask them to measure participation of formal mentoring because that can be directly linked to business results.

Thirdly, the company had never been able to track the percentage of its philanthropic donations allocated to multicultural charities, which actually exceed the industry average by more than 15 percent. With new tracking tools in place, Company A was able to connect the dots both in our survey and publicly, telling communities exactly how much it supports them and raising loyalty of current and future employees, as well as consumers.

Recommendations for this company:

• Use resource groups to improve promotions into first management jobs. The company has improved its tracking of this key metric but still has some gaps for which resource groups can help identify reasons why people from underrepresented groups don’t seek to move into management.
• Use resource groups more formally for market research. This company surveys employees often about consumer trends/products but has never taken advantage of the formal groups to seek innovative marketplace solutions. Now that group membership is being tracked, the groups can contribute more directly to field work.
• Link mentee promotions to mentor compensation. Now that the company has a handle on who is in mentoring relationships, the next step is to tie mentee success to the mentor’s performance evaluation.

Case Study No. 2: Consumer-Packaged-Goods Company That Fell

Contributing factors:

• Top level all-white
• Lower percentage of resource-group participation
• Lower percentage of mentoring participation
• CEO doesn’t chair diversity council

Company B has been a mainstay in the DiversityInc Top 50 but has not dedicated the resources its competitors have to internal development and community outreach. The consumer-packaged-goods industry is one of the two most competitive industries we see for talent from underrepresented groups and, correspondingly, for multicultural customers. (The other industry is consulting.)

This company fell off the list because of several factors we put increased emphasis on that directly correlate to measurable results: resource-group participation, mentoring participation and demographics of senior executives.

NO REPRESENTATION, NO PROGRESS

This company is all white in the top level (CEOs and direct reports). The next two levels of management have some racial/ethnic diversity but considerably less than the other CPGs on the list. Five years ago, all of Company B’s competitors had pretty much the same white top demographics, but the top CPGs have instituted formal, cross-cultural mentoring, resource-group leader training and mandating diversity in their succession planning, resulting in increased diversity at the top levels.

Our research has shown that increased management participation in mentoring is the most significant factor in driving diversity to the top of the organization. We have been told repeatedly by people from underrepresented groups (and organizational research supports this) that the personal relationship, especially with senior executives, provides invaluable guidance to the corporate culture and individual plans for success. The data directly shows that when the percentage of managers in mentoring rises, racial/ethnic/gender representation in the top levels goes up. Company B does have a formal mentoring program, but the percentage of managers involved dropped significantly this year.

This company also lacks the accountability for results that we see in several of its industry competitors, especially in recent years. Almost all of the top CPG companies on the DiversityInc Top 50 list have their CEO chairing the executive diversity council, and they increasingly link executive compensation to company-wide goals that the council sets. Often, those goals are tied to increasing representational diversity, especially at the top levels. For more on top-level commitment and accountability, read CEO Commitment: Why Visibility & Accountability Matter.

At Company B, the diversity council is chaired by the head of diversity, who is only at the director level. The council does not link executive compensation to its goals.

INVESTING IN MARKETPLACE CONNECTIONS

For consumer-facing companies, understanding an increasingly multicultural marketplace is vital to sustainable business success, especially when it comes to product development and placement. While all of the other leading CPG companies have multicultural-marketing departments, this company does not.

Increasingly, top CPGs use their resource groups for market research and to take advantage of diverse views to create innovative solutions to reaching customers. Company B’s percentage of employees participating in its resource groups is one-third of what it was last year, while its competitors have dramatically increased their percentages. Our data shows direct correlations between resource-group participation and human-capital results, with companies with lower participation having less diversity in promotions into management, promotions within management, and demographics of the senior levels of management. For innovative diversity solutions, watch our diversity web seminar on innovation and watch the presentations from DiversityInc’s first Innovation Fest!.

In addition, the company has a very low percentage of supplier-diversity spend with businesses owned by Blacks, Latinos, Asians, American Indians, women, LGBT people and people with disabilities. Even in an industry not known for its high supplier diversity, this company’s supplier diversity is significantly lower, indicating it is not reaching vendors and community leaders of underrepresented groups.

When looking at this company’s philanthropy to multicultural organizations, it appears to be on par with the other top CPGs. However, this company has less than half the amount of top-tier executives (levels 1–3) sitting on boards of multicultural nonprofits as the average of the top CPGs. So the donations are the same, but the actual involvement, which builds relationships and community support, is much lower.

Recommendations for this company:

• Change diversity-council model to one chaired by CEO, with all direct reports involved. Have council set company-wide human-capital goals linked to senior executive compensation.
• Aggressively increase participation in and utilization of resource groups. Document benefits of taking on leadership roles (increased engagement, promotion). Offer groups recognition/rewards for customer-based solutions, including finding diverse suppliers.
• Connect participation in cross-cultural mentoring to compensation/performance reviews. Increase emphasis on networking, sponsorship and access to senior leaders for high potentials from underrepresented groups.

Case Study No. 3: Financial-Services Company That Rose

Contributing factors:

• Increased accountability (linking bonus to diversity goals)
• Ability to track, report mentoring
• Heightened emphasis on resource groups

Company C has an extremely committed CEO. He chairs the executive diversity council, which meets monthly. This CEO has increased philanthropic efforts to underrepresented communities and has been very visible in his public support of diversity management.

This company has been on the DiversityInc Top 50 list frequently but was not able to break out of the middle of the pack until this year. The difference is its increased ability to hold its executives accountable and to track and improve key best practices, especially mentoring. Read Ask DiversityInc: How Resource Groups, Mentoring and Accountability Drive Engagement for more on the benefits of mentoring.

DIRECT LINK TO COMPENSATION

Although the executive diversity council at this company is very active (and consists of the CEO and direct reports), the company has had difficulty in the past extrapolating how much of senior-executive compensation is actually linked to direct diversity-management results.

This year, the company put in place practices that enabled it to directly measure and reward the senior executives on the council based on individual factors, including sponsorship of a resource group, being a cross-cultural mentor and serving on the board of a multicultural nonprofit, as well as increased diversity in retention, engagement, promotion and procurement in the executive’s area of responsibility.

Company C now has measurable goals directly tied to diversity results at roughly the same average as the DiversityInc Top 50 of 12.2 percent. The bonus plan was approved by the board of directors, and the CEO is signing off on each executive’s diversity bonus. The CEO includes both the quantitative goals stated above as well as a qualitative assessment of the executive’s performance championing diversity throughout the organization.

The company is seeing specific results in its human-capital demographics. While its board and senior management have had relatively good representational diversity, diversity by race/ethnicity and gender in the two levels below the CEO and direct reports in first promotions into management has improved year to year. Relative to its industry, which has racial/ethnic gaps at the top on average, this company has significantly improved its competitive position.

WHAT GETS MEASURED GETS DONE

Company C is a large financial-services company, with business units across the United States and globally. The company has a variety of mentoring programs in place, some formal and some informal. These include group mentoring, reverse mentoring, on-boarding mentoring for new hires, peer mentoring and external mentoring. Until the 2012 DiversityInc Top 50 survey, this company had repeatedly said it was unable to measure the percentage of managers in its formal mentoring program and the percentage in cross-cultural relationships.

DiversityInc has increased the weighting of these percentages in the past two years because of the direct correlation to improved diversity in human-capital results, especially in management levels. Understanding that, and the importance of tracking these results as well as the long-term successes of mentoring in terms of engagement, retention and promotions, Company C determined a year ago that it should implement a better tracking system. The results? The company now reports that at least 30 percent of its managers are involved in the formal mentoring program, which compares with 39.7 percent of the 2012 DiversityInc Top 50 average. Company C believes the actual average across the entire organization will be higher next year as it more effectively collates its mentoring efforts. Read Mentoring Roundtable: How Mentoring Improves Retention, Engagement & Promotions for best practices in mentoring.

The company has also followed best practices established in our benchmarking practice to ascertain how to count resource-group membership and has doubled the percentage of employees who participate in those groups. Like many ethical companies, it was being overly conservative in its initial findings, and without a benchmark, it did not know what the standard was. It has been leveraging the ability to properly assess participation to garner more resources for the groups from senior management.

Recommendations for this company:

• Do not give 100 percent of eligible executives the diversity bonus. A bonus that everyone gets in full (as they did this year) doesn’t have credibility. The bonus should be awarded on a curve.
• Increase metrics to assess resource-group success. Although the company has increased its metrics on resource groups, it still lacks a consistent method of measuring promotions of those in groups versus those not, as well as membership in more than one group.
• Use groups to provide training/on-boarding for new employees. Company C does not have specific training to acclimate new hires, especially from underrepresented communities. Resource groups are critical in improving retention/engagement of new hires, our data shows.

Case Study No. 4: Financial-Services Company That Fell

Contributing factors:

• Lack of diversity at top
• No longer links bonuses to diversity goals
• No cross-cultural mentoring emphasis

Also a long-time member of the DiversityInc Top 50, Company D is a financial-services company that has been directly impacted by the economic and reputational turmoil occurring in its industry since the housing-boom bust of 2008. The company has undergone several organizational shifts and layoffs, but the diversity leadership has remained constant. However, this year, we note a drop in several key indicators, including linking executive compensation to diversity and senior-leadership demographics.

LACK OF ACCOUNTABILITY

For a company that has been in the public eye for its lack of accountability during the financial crisis, the decision to no longer link executive compensation to diversity results is surprising. Still, that’s what company D did between the 2011 survey and the 2012 survey.

Although the company continues to have an executive diversity council chaired by its CEO, it does not have the council set organization-wide diversity goals or hold the council executives responsible for reaching those goals—which 86 percent of the 2012 DiversityInc Top 50 companies do. As this company has reorganized in general, its efforts to pay bonuses at all have been jeopardized. But companies with deep commitments to diversity see this as crucial. Sodexo, for example, which has been in the top two in the DiversityInc Top 50 for the past three years, has a fund set aside for diversity bonuses that is the only one that is paid regardless of the financial performance of the company. And Sodexo links 25 percent of executive compensation of its senior leaders to diversity goals.

But Company D is not connecting compensation and diversity goals, and its top level of management (CEO and direct reports), which was all white last year but was almost half female, this year continues to be all white and is 10 percent less female. The next two levels of the organization also have little racial/ethnic diversity, a trend that seems to be getting more pronounced in the last three years. Read our Report on Executive Compensation.

MORE CULTURAL COMPETENCY: INTERNAL & EXTERNAL

Company D has been in the public eye for lending practices to lower-income consumers, many of whom are Black and Latino. Yet Company D does not have diversity prominently on its corporate homepage (unlike 82 percent of the DiversityInc Top 50 companies), and it has a lack of cultural-competency training for its mentors, mentees and executive diversity-council members. For best practices in training, read Diversity Training Goes Way Beyond Compliance.

The mentoring connection would be a crucial way for this company to increase its representation at the top. However, only 5 percent of its managers participate in mentoring, it does not have a cross-cultural component, and it has no formal evaluation or metrics associated with mentoring. By contrast, an average of 39.7 percent of DiversityInc Top 50 managers are in formal mentoring, 96 percent have a cross-cultural component and 84 percent have formal evaluations and metrics. All of those have increased significantly over the past six years.

The lack of formal cultural-competence awareness spills over into other areas directly impacting customer relationships. Company D has a very low multicultural-marketing budget—more than 20 percent lower than other companies in its industry, including Company C. A review of its recent public statements shows few mentions of diversity, while its closest competitor, another company in the DiversityInc Top 50, has increasingly tied its business results to diversity in its public messaging.

Company D’s decline on the DiversityInc Top 50 list is a direct result of its leaders’ decision to be less accountable for direct diversity results and to fail to emphasize the connection between diversity management and its increasingly multicultural consumer base.

• Reinstitute direct link between compensation and diversity goals. If no bonuses are paid, make the compensation part of executive evaluations and salaries.
• Include mandatory cultural-competence training for all mentors/mentees, executive-council members and anyone hiring or evaluating managers.
• Work with corporate communications and marketing to include diversity in business messages and to make the importance more prominent on homepage and in social media.

For information on the DiversityInc Top 50 companies, visit www.DiversityInc.com/top50.

–Barbara Frankel

The post Diversity-Management Case Studies Reveal Why Companies Rise & Fall in the DiversityInc Top 50 appeared first on DiversityInc.

Q. Why should my company care about whether the board of directors is diverse? And how do I, as a diversity practitioner, help make that happen?

A. Board diversity has several benefits. It gives organizations new ideas and innovative solutions at the strategic level; it helps attain and retain the best talent; and it helps organizations market and protect the brand.

Most companies have a great deal of difficulty getting gender and racial/ethnic diversity on their boards, even though the talent pipeline from those groups is growing. While 60.4 percent of master’s degrees went to women two years ago, according to the National Center for Education Statistics, and more than 15 percent went to Blacks and Latinos, the Fortune 500 is very low in board diversity.

According to the Alliance for Board Diversity, 15.6 percent of the Fortune 500’s boards are women. The DiversityInc Top 50, in comparison, averages 23 percent and the DiversityInc Top 10 averages 30 percent. Only 12.7 percent of the Fortune 500’s boards are Black, Latino and Asian. The DiversityInc Top 10 and Top 50 are close to 30 percent.

SEC Commissioner Luis Aguilar echoes the connection between board diversity and business results in an interview with DiversityInc CEO Luke Visconti. Aguilar states that “companies with better performance seem to have more diverse boards.” A new report by the Committee for Economic Development (CED) contends that giving women a seat at the table and providing adequate talent development not only can deliver measurable business gains but is the key differentiator in future global success.

Jim Turley, global chairman and CEO of Ernst & Young, No. 6 in the DiversityInc Top 50, acknowledged the link between board diversity and company performance, stating: “We have focused on diversifying our board because we know it enables our firm to perform better.”

With the best available talent, boards are more likely to identify and select diverse senior leadership. DiversityInc Top 50 data also shows a positive correlation between diverse boards and diverse executive-management teams. According to the EEOC, national senior leadership in private industry is 11 percent Black, Latino and Asian and 28.2 percent women. In comparison, the DiversityInc Top 50’s senior leadership is 17.7 percent Black, Latino and Asian and 24.1 percent women. The DiversityInc Top 10’s executive management is even more diverse.

Diverse boards can ensure that contributions align with company and shareholder values related to diversity and inclusion. In “Are Political Donations That Conflict With Your Diversity Policy a Shareholder Issue?” NorthStar Asset Management’s Julie Goodridge and Christine Jantz show how corporate political contributions that violate company values risk the company’s good name and shareholder value.

Best Strategies to Diversify Your Board

Based on our data and sustainable results, we recommend the following approaches:

1. Mandate diverse slates for every board opening.
2. Do not look at the “usual suspects,” those same women, Blacks, Latinos and Asians you see on so many corporate boards. Look down a level or two to people with great ideas who may be younger or have not yet achieved your “qualifications.”
3. Maintain clear communications between the board and your chief diversity officer so everyone understands diversity strategies and priorities. At 96 percent of DiversityInc Top 50 companies, the chief diversity officer presents directly to the board, up from 92 percent five years ago.

For more on board diversity and diversity in recruitment, view our Diversity Web Seminar on Recruitment: 5 Workforce-Diversity Strategies to Find, Engage & Retain Talent.

—Shane Nelson

The post Why Should My Company Care If Our Board Is Diverse? appeared first on DiversityInc.

Luke Visconti’s Ask the White Guy column is a top draw on DiversityInc.com. Visconti, the founder and CEO of DiversityInc, is a nationally recognized leader in diversity management. In his popular column, readers who ask Visconti tough questions about race/culture, religion, gender, sexual orientation, disability and age can expect smart, direct and disarmingly frank answers.

Question: How many companies now have CDOs?

Answer:
Of the companies that participate in the DiversityInc Top 50 competition, the percentage of companies that have a “chief diversity officer” (that specific title) has risen from 12 percent five years ago to 30 percent today. However, 96 percent of the DiversityInc Top 50 have a dedicated executive leading diversity efforts, versus 46 percent of the DiversityInc Top 50 companies five years ago. Further, 86 percent of the the DiversityInc Top 50 have diversity leaders with titles at director or above and including “diversity” in their title.

The numbers reflect a trend of increasing corporate interest in diversity management. In 2005, we only had 201 companies participate in the DiversityInc Top 50 process. Last year we had 535 companies participate. We define a participant as a company that asks for and receives a survey; not all of them can fill out the entire survey, but participation has risen an average of 17 percent year-on-year since 2004. To qualify to compete in the DiversityInc Top 50, the only qualification is that your organization has at least 1,000 employees. There are roughly 12,500 for-profit and nonprofit organizations with more than 1,000 employees in the United States.

Participating in the DiversityInc Top 50 competition is free—there’s no connection between being on the list and business conducted with us (we are not pay-to-play) and every organization that fills out enough data receives a free report card. Here’s a link to our FAQ.

Another way of measuring corporate interest is by data mining. We use a contact-management system that has a product to allow us to search a pool of contacts. This year, we pulled a list of 1,800 companies that have more than 1,000 employees and that also have a person who is responsible for diversity. We’ve added them to our database of companies that we invite to participate (once they download the survey, we count them as participants). Please click here if you want to make sure your organization receives an invitation. When we utilized data mining five years ago, only 500 companies had people with “diversity” in their titles.

In conclusion, the trend over the last five years, despite the economic crisis, has been a dramatic increase in the interest of organizations to purposefully manage diversity.

The post How Many Companies Have a Chief Diversity Officer? appeared first on DiversityInc.

Walmart’s Global Chief Diversity Officer Sharon Orlopp

This includes a hands-on diversity immersion course for Walmart and Sam’s Club managers, which gives associates a firsthand tour of civil-rights and other historical venues for diversity and inclusion, such as trips to Martin Luther King Jr.’s house in Montgomery, Ala., and to see the effects of border-patrol regulations on Latinos in San Antonio.

Orlopp discusses the importance of diversity immersion during this interview with DiversityInc CEO Luke Visconti, as well as her current responsibilities to improve global diversity and inclusion for all employees and Walmart’s plans for increasing accountability for its diversity goals.

Luke Visconti: You’ve been chief diversity officer for a little over a year, with a team of 14 people. What do you track on the diversity part?

Sharon Orlopp: We report once a quarter to the compensation, nominating and governance committee of the board. We track against our diversity-goals program. We look at the applicant pool compared with placements for our field for Walmart and Sam’s Club for quite a few goal positions. We look at representation. Then we look at our good-faith efforts and our mentoring programs.

We meet with key leaders and go through representation, new hires, promotions, departures. We look at the pipeline of management. Women, women from traditionally underrepresented groups, men from traditionally represented groups and total people from traditionally underrepresented groups are some of the typical diversity metrics.

We look at turnover. I am always very interested in women turnover compared with men, and also minority compared to non-minority, to see how we are standing.

Visconti: The organization has changed things over the years. What are your next steps in terms of measurement and what you’re going to do about it?

Orlopp: We are spending a lot of time talking about what’s next for diversity and inclusion. It seems like a lot of chief diversity officers are doing that right now.

We’ve had a program in place for the last eight years. We may move away from good-faith-effort activity, move away from diversity events and activities, and really incorporate diversity and inclusion into each business unit’s strategic plan and then measure against that.

Each business unit has different diversity needs. Each of them is in a different place on their diversity journey. Having them come up with what their specific plan is that links to their business strategy and then measuring against that is what we are looking at for next year. We are trying to flush out the template and how that would work.

Visconti: What specific things would you put in their individual strategic plans?

Orlopp: It would be a combination between quantitative and qualitative. There have to be some quantitative measurements, probably around representation, retention, promotion, etc. Then qualitative measurements would probably be around mentoring, recruitment and other diversity initiatives.

Accountability for Workplace Diversity Gains

Visconti: Since you are just starting, to what degree will you be tracking accountability for accomplishing these goals? Where would that reside?

Orlopp: One of the discussions we want to have is whether there should be both a carrot and a stick. We’ve had just the stick for the last eight years. We want to look at that piece and figure out what pieces are individual versus which are group-unit goals. I think you could do it both ways: have an overall goal and then an individual goal.

Visconti: What kind of stick have you been using in the past, and where do you think you are going to go with the carrot?

Orlopp: In the past, there were two components: the good-faith effort, which includes mentoring two associates and also attending diversity events, and the other component for our field organization, applicant pool versus placements.

We look at the end of each year whether there has been any disciplinary action around inappropriate comments, language, behavior in the workplace. If someone has met their good-faith efforts and attended their diversity events and mentored associates, done all that’s required of them, but their behaviors haven’t demonstrated it, they get marked that development is needed in that area. They can’t pass that performance-evaluation section.

The performance-evaluation accountability is 10 percent. The bonus accountability is up to 15 percent. If people fail to meet their goals on that, then we do both a quantitative review and qualitative review.

Visconti: Can people ask for help if they are not making their goals and they have self-identified?

Orlopp: We have a helpline. We have email access, phone access. The reporting is available all the time. People know where they’re trending.

We do a lot of follow-up. We watch very closely who’s not hitting their metrics and we do one-on-one phone calls. We also reach out to some parts of the organization that may be having concerns.

Visconti: Then you coach them and help them. How deep down is this going in the organization?

Orlopp: It goes all the way down to the assistant managers in our stores and clubs. We track 60,000 people.

On specific turnover in a store, there are HR people out in the field that would probably notice that and call them. We’re looking more for how their good-faith efforts look. All the HR representatives and all the business units pay very close attention to it and are helping drive it and have those discussions.

Visconti: Do you ever get a chance to speak to senior management?

Orlopp: All the time. We meet with them regularly on their metrics. Half of my job is diversity, inclusion; another half is corporate HR. I support five of our CEO Mike Duke’s direct reports. I have regular face time with them. 

Diversity Metrics: Measurable Talent-Development Results

Visconti: What has this discipline resulted in over the years?

Orlopp: We made a lot of progress in talent development in our Walmart stores and Sam’s Clubs. Some examples: When you look at our management-trainee program over the past five years, we’ve put about 12,000 women through that program. It’s entry-level management. Eighty-five-hundred people from traditionally underrepresented groups have gone through a management-trainee program over the last five years.

Walmart has more than 3,000 stores in the United States. Our percentage of female store managers has grown 39 percent in five years. Our percentage of people-of-color store managers has grown 31 percent. Our female assistant managers [percentage] is 47 percent. Those are huge increases on a huge base.

It’s a combination of very strong, strategic recruiting efforts, but a lot of internal development. We’re seeing people being pulled through the talent pipeline.

Last year, our EVP promotions for traditionally underrepresented groups were 100 percent from within. We’re just seeing people moving through the talent pipeline, and the same with entry-level management on up to the various levels of management and in clubs and stores.

Visconti: Do you think that’s changed your sales in the stores? Have you been able to track an effect yet?

Orlopp: We haven’t been able to track an effect. But I think it makes a difference from a customer relevance and from an associate relevance. Our associates are from all over the world, from so many different backgrounds, and the same goes for our customers.

You have to have an associate population that serves them in order to be relevant. We currently don’t have any tracking mechanisms that say because we’re more diverse it’s driven sales up. 

A Family of Advocates 

Visconti: What in your background led you to this job?

Orlopp: When I was growing up in Colorado, my parents were very strong advocates of the civil-rights and women’s-rights movements. When I was 12, they made one of the most purposeful parenting decisions that impacted who I became as a person: They moved us to a neighborhood that was predominantly African American and Hispanic.

I was the only white girl there. We weren’t welcome in the neighborhood. We had our yard set on fire, our home vandalized. My parents had a small landscaping business in the community; it was also vandalized.

Our family lived in that neighborhood for 30 years. I was never afraid, even though all this was going on. I just wanted to make friends.

My parents said whatever you learn socially will far outweigh anything else. I think it made me the person that I am. It made me a champion of diversity. It gave me this internal radar whenever I feel people are being excluded. I feel like I lived through it a little bit. I spent about 25 years supporting this industry. I am comfortable if I’m the only woman in the room, the only white person, the only straight person. You just have to be comfortable with who you are but also be loving and accepting of everybody else.

Diversity Training Through Experiential Learning 

Orlopp: I came here nine years ago. I was head of HR for Sam’s Club and Doug McMillon was the CEO of Sam’s Club. I kept thinking about how I could teach adults about diversity and inclusion. I kept going back to my childhood: My parents immersed me in the situation.

I kept asking how I could give them these “aha” moments or how I can teach them from my heart so that it changes behaviors. I came up with what I call diversity-immersion trips.

Our signature trip was to Montgomery, Ala., for two days. We took the CEO of Sam’s Club, all his leadership team, about 20 to 25 associates, a very diverse group [in position] as well as ethnic, gender and background. We started with the Rosa Parks Museum. We went to the Martin Luther King church, his home where he lived. We went to the Interpretive Center where the voting-rights march was done. Everyone on this trip was incredibly moved. Our CEO came back and said he wanted to put every single Sam’s Club manager through it.

We host two annual large manager meetings, and he said to see if we can do it in Montgomery and let’s go to all the venues.

When we had gone on this tour, we met a young man. He had been 15 in the voting-rights march with his 16-year-old brother. Their parents were sharecroppers. When they returned from the march, they got kicked off the land. The family of five lived in a tent for two and a half years. (At this Interpretive Center, there’s a big plot of land where a lot of families lived in tents since 1965.)

This man came to speak for us at Sam’s Club in Montgomery. We turned the stage into a tent and he showed photos from when his family lived in a tent.

We brought in Morris Dees, the founder of the Southern Poverty Law Center. We did a 90-minute training session about what this trip had been like. Later, we showed that same training program in the home office and broadcasted it to clubs and stores. About 6,000 people went through it.

Every six months we held a different diversity-immersion trip. The next one was on Latino culture. We went to San Antonio and then we went to McAllen, Texas. We worked with the border patrol and they took us to the wall that was being built between Mexico and the United States. Because of labor cost, the wall is being built by people of Mexico to keep people in Mexico out of the United States.

We talked to the people in the community. We talked to our customers. We talked to people who had walls right in their backyard. We went up and felt the wall. That was really powerful and interesting. We had a lot of associates share their personal stories about coming into the country and what they went through.

The third one was around women. We met with Indra Nooyi [chairman and CEO of PepsiCo] and talked to her about her role and raising two daughters.

Then we did a trip to San Francisco around people with disabilities. We went to Lighthouse for the Blind. We went to this place where they make bicycles for people with different disabilities. We all rode different types of bicycles.

That creative approach to helping people understand led me to the path that came here. I want to take it to the next step, whatever that is, but I feel like we have a great story to tell. We still have progress to make, but it’s time to take it to a different level, and that’s what I am excited about.

The post How Walmart’s Chief Diversity Officer Gets Talent-Development Results appeared first on DiversityInc.

Luke Visconti’s Ask the White Guy column is a top draw on DiversityInc.com. Visconti, the founder and CEO of DiversityInc, is a nationally recognized leader in diversity management. In his popular column, readers who ask Visconti tough questions about race/culture, religion, gender, sexual orientation, disability and age can expect smart, direct and disarmingly frank answers.

Every business exists to make money. Profits are a return on equity. You see this in your own life as dividends at your bank. You put your money (equity) in the bank and they pay you a percentage of the profit they make (interest) when they reinvest your money in mortgages and car loans. Even not-for-profits must make money; without it, the work can’t be done.

Diversity management, properly implemented, drives profit. For most companies this shows up as decreased costs: Human-capital diversity efforts raise productivity, lower regrettable loss and increase recruiting efficiency. We call this Stage Two benefits. Human-capital gains are tangible, measurable and significant, but market-driven gains can quickly drive share price. There’s a reason why all of the Big Four accounting firms switched from having human-resources-based people to having revenue-driving partners be responsible for their diversity efforts over the past five years. There’s a reason why their CEOs have spoken at our events. It’s not about singing “Kumbaya,” it’s about profits.

Here are some “best practices” for diversity executives to successfully get budget:

1. You must stay close to the revenue stream. If your presentations aren’t full of facts and figures—if they don’t speak the language of business—you’re going to fail.
2. Don’t hang out with losers. Look closely at the people in your “consortium” or “council.” Do any of them have budget? You’re going nowhere if you share “best practices” with other people who can’t develop enough of a business argument to get budget from their respective companies.
3. Demand to be measured. Get concurrence on setting goals and the accountability to achieve them.
4. Being repetitively asked to prove “the business case for diversity” is a cue to find another job. Spending your life answering asinine questions from the obstinately oblivious isn’t going to ever be rewarding.

Let’s get back to “Kumbaya.” Success in diversity management is contingent on aligning values with actions. Diversity management is about building the ability to have strong, trusting relationships with people as they are—organizationally and personally. It’s about getting your organization to strip away the unproductive behaviors that block its ability to build meaningful relationships with internal and external stakeholders.

You can’t do that without an honest connection to the people around you both in your community and communities around the world. Now we’re talking about philanthropy and corporate citizenship. The most successful entrepreneurs I personally know are extremely philanthropic (see our article on Steve Colson, one of the biggest donors to the Rutgers Future Scholars).

DiversityInc Top 50 participants donate an average of 2 percent of their gross revenue, and nearly half of their donations go to multicultural groups. DiversityInc also donates 2 percent of its gross revenue.

Getting budget for your diversity program is directly relative to how your company values connect with the community. Philanthropy is an excellent leading indicator of corporate (and personal) intent. Diversity and profitability are about relationships. Making that connection is your key to getting budget for your diversity programs.

The post Best Practices to Get Budget for Your Diversity Departments appeared first on DiversityInc.

In this “Corporate Political Spending: Why Shareholders Must Weigh In” white paper, NorthStar Asset Management’s Julie Goodridge and Christine Jantz reveal the complex history behind shareholder activism, the controversy and repercussions of several headline-making company gaffes and the steps that leaders need to take to ensure their company contributions don’t create a values conflict with diversity and inclusion.

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources.

INTRODUCTION

Beginning with the divestment campaigns of the 1970s, shareholder pressure on companies to disclose their impact on global communities has been broadening and increasing.  Shareholder resolutions addressing toxic waste, executive compensation, the inclusion of gender identity in Equal Employment Opportunity (EEO) policies, and most recently corporate political contributions, have created consumer, stakeholder and employee awareness of the impact of corporate behavior on public perception and company value.  In response to this type of stakeholder engagement, as well as media coverage of corporate impact on communities, many public companies have chosen to preempt concerns about their environment, sustainability and corporate governance (ESG) records.  Rather than simply adhering to local or federal laws as standards for good behavior, these companies have hired teams of employees to develop, identify, and broadcast corporate values and “good works” to investors and consumers alike.

However, do stated company values truly act as the moral compass for company behavior?  Or does marketing hype create a screen for companies to appear as good citizens, while relying on government regulation as the minimum guideline for appropriate behavior?  We believe that a company takes the high road when their values are clearly defined, and their activities in the global community reflect adherence to their self-defined values.  As shareholders, we invest in companies because we make a choice, based on available data, to participate in the profit from the company’s sales of goods and services.  When the data we examine is misrepresented, shareholder value is put at risk.  As socially responsible investors, we do not limit our scope of concern to corporate accounting scandals.  We examine stated company values and the degree to which those values are reflected in company behavior. When we identify discrepancies, we seek stakeholder engagement as a remedy.  Most recently, we have focused on the nexus of company values and their political contributions.

Given the huge public policy outcry related to the Supreme Court decision in the 2010 Citizens United v. Federal Election Commission case, our firm, NorthStar Asset Management, Inc., examined the treasury and Political Action Committee (PAC) contributions of the companies on our firm’s “buy list,” as compared to the voting records of politicians who received their contributions. At each company, we examined the EEO policies related to protections in the area of sexual orientation, as well as the company’s stance on environmental concerns.  We found that stated company values were not reflected in the voting records of the companies’ supported politicians, and in many cases the stated views of the supported politicians were in direct opposition to company values.

We believe that if corporate political contributions violate  company values, then corporations are risking the good name of the company and, consequently, shareholder value.  Corporate contributions that contradict company values pose a direct and immediate risk to shareholder value.  Our perspective is that in order to minimize risk to shareholder value, corporate standards for political giving must include a congruency analysis between anticipated political spending and the company’s values.  And further, that because it is shareholders who are placed at risk through poor management decisions on political spending, the onus is on shareholders to pre-approve political spending decisions.

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources.

HISTORY

For several years, shareholder activists have engaged companies regarding their corporate political spending. Since the Citizens United v. Federal Election Commission ruling in 2010, corporate exposure surrounding political giving has been reported on widely and in some cases has led to public scrutiny, criticism and diminished shareholder value. Historically, shareholder resolutions have asked exclusively for disclosure of political spending. These resolutions are essential, but just as shareholder rights around issues of corporate executive compensation progressed from seeking simply disclosure to insisting upon shareholder advisory votes, which increased “accountability, transparency, and performance linkage of executive pay,” shareholder input regarding political contributions can provide checks and balances.

Unfortunately, it appears that the singular focus of past shareholder resolutions on disclosure has led to a phenomenon in which companies believe that disclosure is the most stringent requirement by which they must abide.  Corporations seem to believe that if management or company political action committees (PACs) simply disclose in arrears the extent of their political giving, then this is sufficient for shareholder and consumer satisfaction.  Our firm’s engagement with corporations and correspondence with the Securities and Exchange Commission indicates that the misconception that we are simply requesting disclosure prevails.

Currently, there is no process to hold management accountable for actual disclosed contributions to candidates working against company values. Shareholder reaction or public outcry against particularly egregious violations is happenstance. The focus of shareholder resolutions solely on disclosure has failed because it does not provide shareholders a way to voice an opinion on political contributions – hence the company (management and the board) not only assumes it can spend company resources promoting its views of what constitutes corporate “interests,” but in our experience the company may not know that these candidates uphold political policies divergent from company values. Given our concerns and fiduciary duty to protect our clients’ assets, and because of the close relationship between the company value and company values, we feel shareholders must weigh in on all corporate political activity in advance of the actual contribution.

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources. 

WHO DECIDES WHERE THE MONEY GOES?

The burden of making appropriate political contribution decisions from both the general company treasury (state, local and private political committee giving) and the company PAC (state, local, federal and PAC) are at the discretion of management despite the fact that poorly used funds ultimately impact shareholder value. Corporations are permitted to contribute to federal elections only via PAC contributions.  Only eighty-eight companies in the Fortune 500 disclose their company treasury electioneering contributions, and all Fortune 500 companies disclose their PAC contributions as required by law.

Unfortunately, after our examination of underlying values as self-described by corporations in their publically available media as well as employee policies, with their political contributions through both treasury (where available) and PAC funds, we found glaring inconsistencies in corporate values and the values inherently expressed by support of various candidates for political office.  This was true not only in corporations who disclose their treasury contributions, but even in those companies who denounce treasury contributions in favor of PAC contributions. In each case, while well-meaning management teams supported candidates who were deemed to be working in the best interest of the company, corporate values relating to employment non-discrimination policies, environmental standards, and immigrant rights were consistently violated when contributions were made. Management apparently lacked the skills and knowledge to evaluate candidates based on support or opposition of the comprehensive goals and values of their own contributing business. 

Despite the fact that the corporate standard advocated by The Conference Board (TCB) in their recently published “Handbook on Corporate Political Activity” recommends corporations review their political expenditures to “examine the proposed expenditures to ensure that they are in line with the company’s values and publicly stated policies, positions, and business strategies and that they do not pose reputational, legal, or other risks to the company,” our firm has yet to find one corporation that regularly compares its values to an analysis of the politicians and political groups it supports.

We again consider the fact that perhaps the solitary focus of disclosure in past shareholder engagement with corporations is partially at fault as it has failed to encourage corporations to do anything more than consider disclosing these contributions. In our engagement efforts, it has been clear that the novel idea of congruency with self-defined corporate values had never been considered previously, despite volatile public issues such as the 2010 clash between Target Corporation’s political contribution and the backlash suffered due to that donation’s clearly values-incongruent nature (further described below). Because the board of directors and other upper management officials make all decisions regarding the destinations of company treasury and company PAC contributions, management must take into account potential discrepancies between company values and supported politicians, as well as the fact that sets of contributions risk company brand name, reputation, and shareholder value. While these officials seem to be slowly coming around to the idea of disclosing these contributions, they are failing to understand that political contributions must reflect company values.

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources.

SPECIFIC VIOLATIONS OF COMPANY VALUES 

Target Corp.: In July 2010, Target Corporation donated $150,000 to the political group Minnesota Forward, which ignited a major national controversy with demonstrations, petitions, threatened boycotts, and substantial negative publicity. [For DiversityInc’s coverage of this issue, which involved donations to a gubernatorial candidate who did not support gay rights, visit www.DiversityInc.com/targetpac.]

This controversy, combined with the huge public policy outcry related to the Supreme Court decision in the Citizens United case, caused us to carefully examine the treasury and Political Action Committee (PAC) contributions of the companies on our firm’s “buy list” (those corporations with stated company values) as compared to the voting records of politicians who received their contributions. We uncovered patterns of political activity that were inconsistent with companies’ policies of non-discrimination based on sexual orientation, gender identity or expression:

Home Depot’s Corporate Political Contributions: One particularly unfortunate donation was in support of Governor Bob McDonnell, whose objective was to eliminate non-discrimination protections for LGBT state workers in Virginia.  McDonnell was successful in this regard. We also identified a number of other particularly egregious donations that are detailed in NorthStar’s no-action letter response published on the Security and Exchange Commission’s (SEC) website.

FedEx PAC:  David Vitter for U.S. Senate received $6,500 in 2009/2010from FedEx. As a sitting US Senator, David Vitter was an original co-author of and voted for the Federal Marriage Amendment that would have effectively eliminated same-sex marriage in all states where it is currently legal and have prevented any states from adopting same-sex marriage legislation in the future.  This position against same-sex marriage stands in direct violation of the FedEx commitment to provide same-sex domestic partner benefits and same-sex marriage benefits (in states where it is legal) to all U.S.-based employees by January 1, 2012.

Eight additional co-sponsors of the anti-LGBT “Marriage Protection Amendment” in the U.S. Senate also received contributions from the FedEx PAC including Senators Brownback, Chambliss, Crapo, DeMint, Enzi, Isakson, Roberts, and Thune. Furthermore, candidates receiving FedExPAC contributions voted against hate crimes bills and against the repeal of the “Don’t Ask, Don’t Tell” policy that prohibits LGBT service members from serving openly.

Procter & Gamble PAC:  David Vitter received $2,000 in 2009 and another $3,000 in 2010. He not only co-authored the Federal Marriage Amendment, but in July 2007, Vitter was “identified as a client of a prostitution service” and continues to serve in the Senate. Chuck Grassley has been written about as having ties, as far back the 1980s, to the “C Street” radical right anti-gay group pushing the “Kill the Gays Bill” in Uganda. And another five senators receiving PAC money signed onto the Federal Marriage Amendment as co-sponsors including Senators Burr, Crapo, DeMint, Isakson, and Kyl. Many of the officials supported by P&G PAC contributions also voted for the Federal Marriage Amendment and voted against hate crimes bills and the repeal of the “Don’t Ask Don’t Tell” policy. [For Procter & Gamble’s response, visit www.DiversityInc.com/goodridge.]

A company’s EEO policy, non-discrimination policy, and values statements comprise the company’s set of public values, and hence, to abide by the “Handbook on Corporate Political Activity,” all corporate political activity and contributions should reflect these values whether contributions are made to political organizations or directly to political candidates. Yet even the above examples, focusing only on EEO values, indicate that management has acted in violation of stated company values.  We believe that because management and/or the company board of directors is responsible for determining the recipients of company PAC giving as well as corporate treasury political spending decisions, and yet the above types of incongruent decisions are commonplace, stakeholders must ensure that management does not blindly approve political contributions that contradict company values.  Disclosure of political contributions after the fact does not repair harm created by inconsistent actions. We believe that a company’s political activities become our concern when:

1. Company resources of any kind are used to make or direct political contributions for any reason.
2. A contribution to a candidate actively works against the values of the company or creates potential damage to the company and its employees, customers, or shareholder value.
3. We bring concerns about risks created by political giving to management’s attention and management fails to address (or in the case of Home Depot, even notice) the brand, reputational, or legal risks to the company.
4. Investment managers with a fiduciary responsibility to address significant risks to shareholder value with management, the board of directors, and the owners rubberstamp approval on incongruent corporate expression of values.
5. Supreme Court opinions like those expressed by Justice Kennedy in Citizens United insist that we, as shareholders, correct misdoings by management, through the “procedures of corporate democracy.”

Inconsistencies shown between corporations’ publically stated values (environmental policies, health care policies, compensation, pension, and employee benefit issues) through support of specific candidates whose public policy and government regulation is in violation of company values can directly harm shareholder value.  

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources.

A VOTE ON CORPORATE POLITICAL SPENDING

When NorthStar began to take a harder look at the political activities of companies in our portfolio, we took into consideration approaches pursued by the Center for Political Accountability (CPA) and other social investors, notably Walden Asset Management and Trillium Asset Management. We concluded, as mentioned above, that disclosure of political spending alone does not sufficiently address discrepancies between corporate values and the values of endorsed candidates or political entities.

As fiduciaries, we are concerned that political spending decisions by management, which are intended as beneficial to company value, may work at cross purposes.  In addition, Justice Kennedy’s majority opinion for the court in the Citizens United decision placed the onus on shareholders in a corporate democracy to keep management’s political activities in check, such that we, as representatives of shareholders in the proxy process, must use our votes to uphold or dissuade management from potential conflicts.  As a result of that investigation, NorthStar crafted and filed its first round of shareholder proposals at Home Depot, FedEx, and Procter & Gamble (P&G), for the 2011 shareholder meetings,  decrying corporate political activity incongruent with publically stated values and seeking a shareholder vote on corporate political activity.  We have similarly pursued eight companies on the same issue for the 2012 shareholder meetings (Chubb, Intel, Google, Home Depot, Praxair, Ecolab, Johnson and Johnson, and Western Union).

Our perspective is that corporate standards for political giving must include an analysis of anticipated political spending for congruency with the company’s values to minimize risk to shareholder value.

Support for this approach is evidenced by:

• When the 2010 Supreme Court ruling in Citizens United v. Federal Election Commission interpreted the First Amendment right of freedom of speech to include certain corporate political expenditures involving “electioneering communications,” striking down elements of the previously well-established McCain-Feingold law, the decision itself required the remedy of “potential abuses” through “procedures of corporate democracy.”
• NorthStar’s decision to seek a shareholder vote on political contributions was lauded by John C. Bogle, founder of the Vanguard Group, in making the case for a shareholder vote on political contributions in a New York Times Op-Ed: “In the Home Depot case, which was brought by NorthStar Asset Management, a Boston money manager, a vigilant S.E.C. [Securities and Exchange Commission] has allowed our shareholders to take that first step toward [corporate] democracy.” Bogle argues that self-interested managers “exploit provisions in the law…to make lavish political contributions without disclosure… and subvert our political system,” which can only be corrected by imposing a requirement for a binding “supermajority” (75%) shareholder vote on political contributions. Bogle also addresses the concern that “our nation’s money managers now hold[ing] 70 percent of all shares of American corporations…have not always honored [the] responsibility to vote,” pointing out that “mutual funds, our largest holders of stocks, are now required to publicly report how they voted during the year,” finally giving shareholders the means to hold financial institutions accountable as well.
• “The standard (under Delaware corporate law) requires a unanimous shareholder vote to ratify a gift of corporate assets other than for charitable purposes.”
• In allowing NorthStar’s resolution, the SEC agreed with NorthStar’s view that seeking an advisory vote on electioneering contributions is a shareholder right.  Importantly, the SEC’s decision to allow the Home Depot resolution also established that NorthStar’s proposal was a significant social policy issue of concern to shareholders, addressed issues outside the ordinary business of the firm, was clearly defined, and that giving shareholders a vote goes beyond disclosure.
• On July 13, 2011, congressional leaders Rep. Michael Capuano, Sen. Robert Menendez and Sen. Richard Blumenthal re-introduced the Shareholder Protection Act; a bill that would allow shareholders of public companies to vote annually on political spending. NorthStar signed a coalition letter to Congress supporting the Shareholder Protection Act. The coalition letter stated: “Responsible corporate governance requires the involvement of informed shareholders and is not a partisan issue. We believe that holding management accountable and ensuring that political spending decisions are made transparently and in pursuit of sound business is important for both the market and for democracy.”

Increasingly, shareholders are asking for more accountability and even evidence of value received for corporate political expenditures. When contributions are made to candidates via corporate treasury funds or through PAC funds that violate the same corporation’s policies and values, shareholder value is put at risk. Greater oversight requires that shareholders and their fiduciaries be allowed an opportunity to weigh in on all of the company’s political contributions before incongruent contributions occur.

In our experiences, company management states that compliance with election laws is the standard for directing contributions to political candidates–even when candidates’ political positions violate the company’s policies and publically stated values. However, guidance provided by the CFA Institute’s Code of Ethics and Standards of Professional Conduct states “in the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation.” We believe this must include the company’s own internal governing policies so as to avoid bias that reflects personal views and interests rather than those of the company as stated in company policies. As owners, we believe that the criteria for the company’s political activities should be the higher of company standards or legal requirements, rather than the minimum (legal) standard referenced by management.

Furthermore, some of our colleagues have asserted that corporate PAC contributions should not be subjected to shareholder scrutiny through an advisory vote.NorthStar maintains that PACs carry the same brand and reputational risks to shareholder value as any other corporate political activity. PACs are formed by the company, expenses are paid by the company, the name or brand of the company is used in association with the PAC, the PAC solicits both shareholders and salaried employees for contributions to the PAC, and senior management exercises discretion over the money. Therefore, we maintain, shareholder scrutiny and input in advance of these PAC contributions is necessary to mitigate risk and safeguard shareholder value. 

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources.

SUMMARY

We believe that there is a need to hold companies accountable for all aspects of their public actions. Incongruities in their public actions–whether or not we have had successful prior shareholder engagements; whether the source of the contribution is from a Political Action Committee (PAC) or by the company–are inherently problematic.

Shareholder value can be diminished by negative publicity associated with political giving that is incongruent with company values. Political spending decisions that are wholly dependent on the will and vision of a management without oversight to ensure that these decisions are in line with company values exposes the company to unnecessary risk.  Governing policies that allow management to exercise personal views and interests rather than reflect corporate values potentially serve to harm company image and increase shareowner risk. As shareholders and fiduciaries, we believe that the criteria for the company’s political activities should be based upon not solely legal requirements, but also on considerations of the company internal values as a higher standard. At this time of heightened public scrutiny of corporate political involvement, all shareholders need to the opportunity to evaluate management’s decisions and vote on political spending to avert potential loss of shareholder value.

The Target Corporation debacle of the summer of 2010 resoundingly demonstrated that shareholder value is at risk when contributions are made in violation of company values.  As investment advisers, financial professionals, and shareholders, we must exercise our fiduciary responsibility and weigh in to provide checks and balances on corporate political activities.

Download the “Corporate Political Spending: Why Shareholders Must Weigh In” PDF to view footnotes and sources.

Company Comments

DiversityInc contacted the companies cited in the whitepaper. Comments from Procter & Gamble, No. 5 in the DiversityInc Top 50, and Target, No. 30, were given earlier this year in response to a Q&A with Goodridge in DiversityInc’s 2012 Talent Development & Mentoring issue. The Home Depot did not respond. FedEx declined to comment.

Procter & Gamble: P&G’s commitment to diversity and inclusion is unwavering. Our aim is to provide a work environment, which fosters a culture of inclusion for all, so that everyone is valued and included. Our Company Purpose is to touch and improve lives, beginning with our employees. Without exception, we value all of our employees and respect their right to be who they need to be.

Target: Following the 2010 election, Target conducted a thorough evaluation of our processes and established a Policy Committee to review and provide greater oversight to future corporate political giving. Moving forward, we will evaluate our giving based on business, team member and stakeholder objectives. Target believes that engaging in civic activities is an important part of operating a national retail business and believes we operate best when working with policy makers on both sides of the aisle.

NorthStar Asset Management, Inc. is a socially responsible investment firm based in Boston, Massachusetts.  

Julie N.W. Goodridge is the President, CEO, and founder of NorthStar Asset Management, Inc. She holds a B.A. from Boston University and an Ed.M. from Harvard University.

Christine Jantz, CFA is the Investment Analyst at NorthStar Asset Management. Her education includes an MBA in Financial Management from the MIT Sloan School of Management, and she also holds an MS in Statistics from the University of Iowa and a BA in Mathematical Sciences from Bethel College.

REFERENCES

Bogle, John C. “The Supreme Court Had Its Say. Now Let Shareholders Decide.” New York Times, 15 May 2011. Web.

“Capitol Hill ‘C Street house’ connected to ‘kill the gays’ Evangelicals in Uganda [video].” Metro Weekly, September 23, 2010. Web.

Center for Constitutional Rights. Uganda’s ‘Kill the Gays’ Bill Back in Play and Could Be Law By End of Week. New York: CCR, May 11, 2011. Web.

Center for Political Accountability. Center for Political Accountability, n.d. Web.

“CFA Institute Code of Ethics and Standards of Professional Conduct.” CFA Institute, 2010.

Citizens United v. Federal Election Commission. Supreme Court of the United States, n.d. Web.

Coates, John. “What Effect Will Citizens United Have on Shareholder Wealth?” Harvard Law and Economics Discussion Paper No. 684, 21 September 2011. Web.

Corporate Political Contributions. The Home Depot, 2010. Web.

DeNicola, Paul, Bruce F. Freed, Stefan C. Passantino, and Karl J. Sandstrom. “Handbook on Corporate Political Activity.” The Conference Board, November 2010.

Edgar System. Securities and Exchange Commission, n.d. Web.

Federal Election Commission. United States Government, n.d. Web.

Ferri, Fabrizio and Maber, David A., “Say on Pay Votes and CEO Compensation: Evidence from the UK” (November 24, 2011). Review of Finance, Forthcoming. Web.

Hyatt, James. “Shareholders Press for Political Spending Disclosure” Business-Ethics.com, 29 June 2010. Web.

Keilar, Brianna, Sean Callebs, Steve Brusk and Ninette Sosa. “Hustler says it revealed senator’s link to escort service.” CNN Politics, July 11, 2007. Web.

Martiga Lohn. “Target CEO defends Minn. GOP contributions.” MSNBC, 27 July 2010. Web.

Sharlet, Jeff. The Family: The Secret Fundamentalism at the Heart of American Power. New York: Harper Collins Publishing, 2008. Print.

Trillium Asset Management. Target & Best Buy Announce New Policies on Political Spending Following Controversy about Minnesota Forward Contributions. Boston: Trillium Asset Management, Feb 2011. Web.

Tracking the United States Congress. Civic Impulse, LLC, n.d. Web.

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Success, according to McDonald, is dependent on being a proactive catalyst of positive change. For him, that includes running a profitable global business that improves people’s lives. In this exclusive interview, he reveals how a firm commitment to empathy and foundational values helps the company bridge cultural gaps, promote corporate diversity and innovate products that directly satisfy customer needs.

LUKE VISCONTI: Tell me about Procter & Gamble’s emphasis on values, what they mean to the organization and how you conduct business globally.

BOB MCDONALD: Procter & Gamble was founded with a purpose: improving people’s lives. During the Civil War, people shipped short-weighted products or clothing that didn’t last very long. This company said, “We’re not going to do that. We’re going to be known as the company that prides in high-quality products.”

It wasn’t until the mid-1980s when John Smale, our CEO, asked John Pepper, our president at that time, to lead a group of leaders to write down the values that we were trying to lead. It was serendipitous and necessary—at that time we were globalizing very quickly. As you move in to another culture, the difficulty is bringing your values with you.

We ascribe to keep the purpose and the values of the company consistent globally, but you have to be willing to change to stay relevant to your consumer and grow. We formulated the purpose about touching and improving lives and giving back to the communities in which we live and work.

Five values—leadership, integrity, ownership, passion for winning and trust—are critical to the success of the company. Leaders can personalize those values by bringing the experiences they had in life that cause them to form different beliefs. We teach people how to do that so that they can share that with their organizations and be introspective as leaders.

Creating Experience & Empathy Through Corporate Diversity

We’ve discovered that people join this company because their personal purpose is about improving lives. It gives them a way to execute that purpose on a bigger stage with more resources. This purpose is what provides meaning to their lives. That means if I as a leader can tie every behavior the person has back to that purpose, their life would be fulfilled.

You don’t compartmentalize that. The more pervasive we make our purpose of improving lives, the more fulfilled the people are and the better the business results. What we’re really trying to show is the virtuous cycle, where companies do well financially and do good at the same time.

What you should do as a company is provide opportunities for employees to do community service—through that, they become more fulfilled. They improve lives but they also have an experience.

We sent a team of people to Mexico to build homes for Habitat for Humanity. We sponsored the trip. People came back totally fulfilled—a life-changing experience. They learned about low-income consumers in Mexico. When we go to hire people around the world, we need to give them opportunities to learn how the majority of the world lives.

LUKE VISCONTI: You’re leading the diversity council personally. Why is this important to you and your corporate-diversity goals?

BOB MCDONALD: It’s so fundamental with everything that we do. If your purpose is to improve lives, you’ve got to have the leadership, the strategies, the system and the cultures to do that. You can’t ignore diversity.

Diversity for us is a strategy. If I’m trying to improve someone’s life, wouldn’t I be better off having somebody in the organization who is of that representation so they can help the company be empathetic to the consumer? Consumers can never tell us exactly what they need. We’re trying to find the unarticulated need. That’s where we develop our best products.

We believe that we have five strengths: consumer knowledge, innovation, branding, go-to-market and global scale. That innovation strength is the primary way we improve lives. The more diverse your organization, the better your innovation. We try to be very deliberate about setting up diverse teams of people in order to accelerate the innovation that comes from them.

I’m a big believer in the work of a fellow named James Burke, who wrote a book called “American Connections” and a TV show called “Connections.” He says the greatest innovations in the history of the world have never happened in a linear way. Alexander Graham Bell invented the telephone to help hearing-impaired people; [Guglielmo] Marconi invented the radio for two ships to communicate at sea; Tom Watson said someday the United States might only need two or three computers.

How do we create conditions that allow people to bring their diversity to work and have their diversity become the modes that provide the potential for these innovative connections? That’s what we’re really trying to do.

Trust: A Synergistic Effect

LUKE VISCONTI: What do you expect out of your diversity council? 

BOB MCDONALD: A much more deliberate goal, objectives, strategies. We’ve done that. We’ve put together a scorecard. The other thing that comes out is insights.

Procter & Gamble always cared about diversity. But why haven’t we achieved the results? We did a deep dive on the advancement of women as an example. Everybody was well intended but we weren’t happy with the results.

We promote from within, and in any company, leaders tend to attract individuals that they know to work for them. We’d always insist that you get a diversity candidate. Unsurprisingly, the diversity candidate wasn’t selected enough because people didn’t know the candidate. We had to put in place a much more deliberate system of making sure the diversity candidates get exposure.

Secondly, we had to join hands as a leadership team, saying, “I trust you. I’m going to take a risk on this person because you know them and I don’t.” The way to do that is to bring people together and create that trust.

LUKE VISCONTI: A synergistic effect by having everybody in the room? Do you think that it adds to not only awareness but accountability for corporate diversity?

BOB MCDONALD: There’s nothing stronger than accountability. In a combat situation, people perform heroically; they don’t think they’re heroes. They say, “I did this because I didn’t want to let my buddies down.” The same thing happens in a corporation.

I’ve seen attitudes totally shift. I’ve seen individuals who were skeptical of diversity become the biggest advocates. I don’t think it’s simply because of a feeling of hierarchy and me being in the room. I do think it’s the group dynamic. Everybody has good intentions, but it takes more than that.

Connecting With Consumers

LUKE VISCONTI: How have you seen this connection manifest between this diversity council, more disciplined corporate-diversity efforts and your successes around the world?

BOB MCDONALD: We are in the fast-moving consumer goods of business. We have no alternative but being empathetic to consumers; no alternative but to have a diverse workforce that represents those consumers.

We talk a lot about the importance of knowing the culture, knowing the language. In my own experience, it gives you an empathy that you couldn’t otherwise get.

LUKE VISCONTI: How are you leveraging this empathy? What are you structurally doing to make sure that you’re not making mistakes when you go into a place?

BOB MCDONALD: The challenge for us is we have to innovate for everybody on the economic pyramid. We don’t just innovate for the people on the top and dilute that product for the people on the bottom.

For example, in the Philippines, people really want clean clothes. They wash by hand and use soap suds as a surrogate for cleanliness. It takes the average Filipino five buckets of water to rinse their clothes.

Water in the Philippines is very expensive. Water runs by your house generally 30 minutes a day. You have a high horse-powered pump on the street; you pump the water into your water tank. If you miss that 30 minutes, you don’t have water.

We developed a product called Downy Single Rinse. It sequesters the suds and allows you to rinse with one bucket of water, an innovation particularly designed for people at the bottom of the economic pyramid.

Finding Purpose, Improving Lives

LUKE VISCONTI: What do you expect to flow through at the end of the day—the tangibles to the bottom line of the business?

BOB MCDONALD: It’s developing and delivering sustainable, outstanding business results, being in the top third of our peer group and total shareholder return sustainability, and doing that through a workforce that represents the consumers we’re trying to serve, the lives we’re trying to improve. Importantly, people are performing at their peak.

For people to perform at their peak, we’ve got to be empathetic to their needs and improving employees’ lives while we’re working to improve the lives of the world’s people.

If you ask me what success is, every person in the world uses a Procter & Gamble product. It’s every employee reporting to us, that they’re working at their full potential and that we’re helping provide meaning in their lives.

I love Viktor Frankl’s “Man’s Search for Meaning.” He wrote the book right after World War II. He was in the Auschwitz concentration camp and what he discovered was a new school of psychology.

Freud was all about looking in the past and basing your future behavior on what happened in the past. Frankl was about developing a vision of the future, recognizing the control you have over that vision. He would convince people in Auschwitz that how they reacted to those guards was in their control, that they could have a positive vision of the future that would determine the positive nature of their future.

I believe what we do in this company in improving lives is giving people meaning in their lives. I went to West Point because I wanted to free the people who were living in un-free societies. I joined P&G because I wanted to make a difference in the world.

When I go to college campuses today, the students tell us they want to work for a company where they can have meaning, where they can make a difference. I think that’s the opportunity we provide.

LUKE VISCONTI: In your bio, there’s a long list of organizations that you serve. Can you talk about how important that is to you?

BOB MCDONALD: I’m trying to help people understand what their individual purpose is in life. I have a set of 10 leadership beliefs: No. 1 is living a life driven by a purpose, compared with simply meandering through life without direction. With technology the way it is today, everyone is time starved. It’s possible to go through life reacting to external forces.

I’ve given this speech maybe 300 different times, maybe every college campus almost in the world. For me, it’s a calling. If I can help students understand how to make a difference in the lives of others and if that is a higher purpose, then they should set that purpose now rather than simply reacting to what affects them.

The point is people like to do what they’re good at, and they’re good at what they like to do. We naturally gravitate to certain things, and that may lift the veil a bit on what your purpose is.

It’s the No. 1 thing, in my opinion, that differentiates those who succeed at Procter & Gamble versus those who don’t, or those who succeed in life versus those who don’t. It’s maintaining the ability to learn.

I often tell people, “When you graduate, you’re not done learning. That’s the beginning of the learning journey.” No one can predict the future with certainty, particularly in today’s world which we at P&G call a VUCA world (volatile, uncertain, complex and ambiguous). How do we prepare ourselves for that future to make the right decisions in real time? The way to do that is to continue the ability to learn.

The leadership challenge today is so different with so many generations that are so diverse. The people complain about not text messaging and other things like that, which is all true.

What is going to be the analogy for the young person today? Twenty or 30 years from now, they’re going to face the same challenge. The older you get, the harder it is to learn new things. Reverse mentoring becomes a very powerful concept: forcing yourself to learn things that are new or very difficult is a powerful concept. If we don’t do that, we won’t get the most out of life.

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