A while back, there was discussion of whether the “war on woke” presented a new risk to companies with DEI policies. Read over my proxy from Coca-Cola, which is part owned, last I knew, by that well known “Communist”, Warren Buffet. Found this shareholder proposal.
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Aside from the legal risk…
Isn’t there a risk to the corporation if it doesn’t hire the best employees based purely on competence?
Wendy
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You’re assuming that in the past only the white males were competent, and that today women and minorities are not.
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No, Wendy asked about the effect not hiring the best employees. If you want/need the best then other criteria (nationality, race, sex, political belief, etc.) can easily get in the way.
DB2
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Yes, DEI policies (well, all policies) have legal risk. You pointed out the possibility of being sued for discriminating against white employees. Another risk would be not meeting your fiduciary responsibilities in your investment choices. A few weeks ago I posted these numbers:
3-yr
price chg
XOM (oil) +105%
LNG (lng) +137%
BTU (coal) +478%
TAN (solar) - 61%
FAN (wind) - 38%
If they had been limited to investing in renewables and not fossil fuel companies over the last three years they would have done a financial disservice to their clients.
DB2
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This policy was proposed by the National Center for Public Policy Research, which owns 2,000 shares of Coca-Cola.
If you go to their web site, today’s headline is:
SCOTUS SHOULD REVERSE FDA APPROVAL OF DANGEROUS ABORTION DRUG MIFEPRISTONE
Thankfully, all our SC Justices have advanced medical degrees.
I’m quite sure the NCPPR is just looking out for Coca-Cola’s best interests.
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Thing is, Coke is entirely dependent on it’s public image for success. The US is in a moral inversion, where bigotry is fashionable, and white privilege is the imperative. The pressure to conform was implicit in my question whether Virgin Atlantic will be banned in Florida for having unisex uniforms, rather than binary male/female outfits. Can Coke stand the blowback from hiring or advancing anyone, other than straight, white, Christian, people?
This is the company’s response to the proposal.
Steve
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Absolutely not! Clearly, society has changed radically since the bad old days. For one thing, more women than men are graduating at all levels of education now. Setting up a “bad old days” straw man doesn’t change the truth that the most competent person for the job, regardless of extraneous factors, is the best choice for any position, whether a corporate employee, friend, mate, etc.
Wendy
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Who are the best employees? “Best” is subjective. For some roles, it may be more beneficial to have someone from a diverse perspective. Education and resume can’t replace that.
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I agree that all policies have legal risk.
Do you think it’s possible that DEI policies might be a way companies are managing risk? Sure, wonderbread straight dudes could sue the company, but so can women, minorities, and LGTBQ employees when they feel they’re being targeted. Hiring practices are only one part of DEI policies. Those policies also touch on how to create a workplace environment where everyone feels respected and included.
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And, seems some states want to criminalize such a workplace. We have already seen some states, like Florida, West Virginia, and Texas, exclude Blackrock from state financial operations, due to that company’s DEI policies. Would Florida ban Coke products from all government owned buildings in the state, including city and county buildings, school buildings, and government financed sports stadiums?
Steve
Another DEI risk to corporations may be lower financial results. Research by Green and Hand:
Abstract:
In a series of very influential studies, McKinsey (2015; 2018; 2020; 2023) reports finding statistically significant positive relations between the industry-adjusted earnings before interest and taxes margins of global McKinsey-chosen sets of large public firms and the racial/ethnic diversity of their executives. However, when we revisit McKinsey’s tests using data for firms in the publicly observable S&P 500® as of 12/31/2019, we do not find statistically significant relations between McKinsey’s inverse normalized Herfindahl-Hirschman measures of executive racial/ethnic diversity at mid-2020 and either industry-adjusted earnings before interest and taxes margin or industry-adjusted sales growth, gross margin, return on assets, return on equity, and total shareholder return over the prior five years 2015–2019.
Combined with the erroneous reverse-causality nature of McKinsey’s tests, our inability to quasi-replicate their results suggests that despite the imprimatur given to McKinsey’s studies, they should not be relied on to support the view that US publicly traded firms can expect to deliver improved financial performance if they increase the racial/ethnic diversity of their executives.
DB2
You understand that DEI doesn’t require that you hire unqualified foreigners or minorities, right? It just requires that you expand the corporate hiring pool beyond your “golf buddies” at the country club, and the “fraternity brothers” at your alma mater. Seems reasonable to me.
I believe that less than 2% of Fortune 500 companies have had a woman as CEO. Is that a testament to the incompetence of women, or might other nefarious behaviors be in play?
intercst
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To be frank, I would not expect there to be any reason for improved financial performance due to DEI. Why would there be? You are hiring a qualified individual for a job/position. Black/White/Green/Pink should make NO difference in the outcome of the hire. Failure to be able to perform the job might lead to reduced financial performance, but that would be a hiring failure, not a DEI failure.
JimA
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I wanted to learn more about the workings of the Econjwatch.org group.
Check out the photo of their “founding meeting” from 2003 at the bottom of this page. That women, seated second from left in the first row looks like a hostage.
intercst
So, there is no opportunity costs imposed by running a company ethically, vs being scum? Great! With equal performance, I would always choose the ethical company.
Steve
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Don’t confuse DEI with scum or anti-scum. There is an opportunity cost if you don’t hire the best person for the job. The interesting finding is that there was no statistical difference based on racial/ethnic diversity.
That’s the “D” part of DEI. On the “E” side look at the 3-yr performance numbers of investing in fossil fuels and wind/solar. Being restricted there would definitely make a difference.
A study out of Europe looking at the paper industry found that what would now be called DEI had a negative impact on economic results. Not surprising. There are trade-offs, and DEI requirements can conflict with fiduciary responsibilities.
“This paper…reports the results of an empirical study carried out in the European paper industry. Findings fit better with ‘traditionalist’ reasoning about the relationship between environmental and economic performance, which predicts the relationship to be uniformly negative.”
https://onlinelibrary.wiley.com/doi/abs/10.1002/csr.22
DB2
wrt the environmental issues, yes, cleaning up after yourself would probably cost more than making a mess, but making a mess shifts the cleanup costs to others. In the macro view, environmental issues have no cost. The only difference is in the micro case: who pays for cleanup/consequences.
Steve
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DEI isn’t dead, but employers must tread carefully
https://www.reuters.com/legal/legalindustry/dei-isnt-dead-employers-must-tread-carefully-2024-04-05/
In one such case, Duvall v. Novant Health, the 4th U.S. Circuit Court of Appeals in March affirmed a multi-million-dollar judgment against an employer. The Duvall decision shows how an aggressive DEI campaign can backfire against an employer, especially when it leads to negative consequences for employees based on race.
The plaintiff, David Duvall — a white man — worked for Novant Health for five years as its Senior Vice President of Marketing and Communications. He reported to a Black man. The evidence at trial showed that Duvall had performed well. But he was still fired in July 2018, and he was permanently replaced by a Black woman. Duvall sued, alleging that he was a victim of discrimination because of his status as a white man…
The evidence about Novant Health’s DEI program and the actions of Duvall’s superior convinced the jury that his termination was racially motivated. While there was one bright spot for Novant Health — the court reversed the jury’s award of punitive damages — that will be small consolation, because Duvall will still recover more than $3 million in front and back pay.
DB2
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Econ Journal Watch is a semiannual peer-reviewed electronic journal established in 2004. It is published by the Fraser Institute.
The Fraser Institute is a libertarian-conservative Canadian public policy think tank
Both taken from their Wikipedia pages.