Racial Inequality is Bad for Everyone. Investors Must Demand Corporate Accountability For Diversity.

Wealth inequality negatively affects our economy, harming more than just Black people. The wealth gap between Black and White Americans is dramatic. Systemic obstacles in the labor market have led to the massive wealth gap. Increasing racial diversity and providing equal pay for all in corporations will decrease the wealth gap and increase profitability. Corporations must be held accountable for taking action to increase racial diversity and provide equal pay. Investors must demand corporate accountability for racial diversity and equal pay.

Why Does Wealth Inequality Matter?

This post will not discuss the moral imperative of fighting for racial justice. We will instead point you to “America, This Is Your Chance” by civil rights advocate Michelle Alexander or the Black Lives Matter Toolkit by Micaela Pierce.We will instead discuss how wealth and other forms of inequality affect our economy and financial system.

In “Unbound: How Inequality Constricts Our Economy and What We Can Do about It”, renowned economist Heather Boushey chronicles how inequality undermines economic growth in three ways. 

  1. It obstructs the supply of talent, ideas, and capital as wealthy families monopolize the best educational, social, and economic opportunities. 
  2. It subverts private competition and public investment. Powerful corporations muscle competitors out of business, in the process costing consumers, suppressing wages, and hobbling innovation, while governments underfund key public goods that make the American Dream possible, from schools to transportation infrastructure to information and communication technology networks. 
  3. It distorts consumer demand as stagnant wages and meager workplace benefits rob ordinary people of buying power and pushes the economy toward financial instability.

Wealth Gap Between Black and White Americans

The Washington Post published 14 charts showing the depth of the economic gap between Black and White Americans and how little the gap has changed in decades. 

The first graph shows how white wealth has skyrocketed since the 1950s while black wealth has struggled to increase.

This second graph looks at black and white wealth at every education level. Even when Black Americans have bachelor’s or advanced degrees, and the same level of degrees as White Americans, there is a huge gap in wealth.

Systemic Obstacles to Well-Paying Jobs for Black Americans

One of the many complex reasons for the wealth gap between White and Black Americans is the challenges that Black Americans face in getting and keeping well-paid jobs. 

Black people often face outright discrimination in the labor market. In one study, white names received 50 percent more callbacks for interviews. Among those who worked full time all year in 2018, Black women earned 61.9 cents for every dollar that White men earned. In comparison, Black men earned 70.2 cents for every dollar earned by White men, and White women earned 78.6 cents.

As has been confirmed during the economic crisis from COVID-19, Black Americans are often hardest hit during recessions. This results to Black Americans losing jobs first and spending more time finding a new job than White Americans.

What Happens if We Increase Diversity and Decrease Inequality in Corporations?

Positive results are demonstrated from increasing racial diversity in corporations and, subsequently, decreasing inequality. A McKinsey study found that ethnically diverse corporations are 35% more likely to outperform those in the bottom quartile. Additionally, the biggest takeaway from a BCG survey of 1,700 corporations found that diversity in management translated to innovation. Innovation revenue of corporations with diverse management was 19 percentage points higher than that of corporations with below-average leadership diversity.

Corporate Accountability for Racial Diversity and Equal Pay

It is time that corporations are held accountable for increasing racial diversity and providing equal pay. A limited number of corporations report on racial diversity metrics.

Refinitiv, an environmental, social, and governance (ESG) ratings company, published in 2019 “Measuring Diversity and Inclusion Progress”. The report provides insight into corporations’ transparency of diversity and inclusion. 3,652 corporations around the world were analyzed for the report. It was found that only:

  • 31% of corporations report on board diversity
  • 39% of corporations report on diversity and opportunity policies
  • 17% of corporations report on diversity and opportunity targets.

Investors must demand corporate accountability for racial diversity and equal pay

For the sake of the economy, improved financial performance, and being on the right side of history, corporations must be held accountable to increasing racial diversity and providing equal pay for all. Investors must demand corporate accountability for racial diversity and equal pay.

John Streur, the CEO of Calvert Research and Management, a leading sustainable investment fund manager, wrote a blog post stating that Calvert will call on corporations to provide the information required to accurately assess their racial diversity. Streur also stated “More open and forceful action is required by investors and by corporate leaders and boards.”

We investors should heed the call. Contact your fund managers. Demand that they commit to asking corporations to disclose data about racial diversity and pay metrics. A sample letter can be found below.

Sample Letter

Dear Fund Manager,

As an investor, I demand that you ask corporations in your funds for greater transparency around racial justice. 

A McKinsey study found that ethnically diverse corporations are 35% more likely to outperform those in the bottom quartile. The biggest takeaway from a BCG survey of 1,700 corporations found that diversity in management translated to innovation. Innovation revenue of corporations with diverse management was 19 percentage points higher than that of corporations with below-average leadership diversity.

In addition to potential improvement in financial performance due to increased racial diversity, corporations have a moral imperative to improve racial diversity. Empty social media posts of “black lives matter” is insufficient.

Calvert Research and Management has committed to asking corporations about racial diversity metrics. I demand that you do the same. 

Corporations should be asked to provide data about:

  • Racial diversity on board and in workforce
  • Pay equity disclosure across race and gender
  • Diversity and opportunity policies
  • Diversity and opportunity targets.

The time to take action is now. Be on the right side of history.

Sincerely,

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