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    Sunday, July 21, 2024

    Critics of corporate diversity efforts emerge, even as initiatives falter

    Members of the Missouri House debate legislation on March 21, 2023, at the state Capitol in Jefferson City, Mo. State lawmakers on Thursday, March 30, 2023, voted along mostly party lines in favor of a proposed $45 billion state budget blocking funding for diversity, equity and inclusion. The restrictions also would apply to public colleges and universities. (AP Photo/David A. Lieb, File)
    Rep. Jeremy Trebas, R-Great Falls, takes notes during a meeting in the State Capitol in Helena, Mont., on Jan. 14, 2021. Trebas, a Republican, is sponsoring legislation to ban diversity training for state employees if it is aimed at having the employee believe that members of one class are responsible for and must feel guilty for historical injustices. The bill has passed the Montana Senate and was heard by a House committee on Monday, March 20, 2023. (Thom Bridge/Independent Record via AP)

    Companies' diversity efforts have been dragged into the culture wars lately - but corporate commitments to those initiatives already were declining.

    Under public pressure after George Floyd's murder in 2020, companies around the world spent an estimated $7.5 billion on diversity, equity and inclusion programs that year, making vocal commitments to diversity and equitable treatment within their ranks. But since then, firms have been backpedaling.

    A report from the workforce intelligence company Revelio Labs found that attrition rates for DEI roles have been outpacing those of non-DEI positions in more than 600 U.S. companies that laid off workers since late 2020 - and the attrition rates have increased in the past six months.

    "It seems like companies are just shedding these DEI teams more and more," said Ben Zweig, chief executive of Revelio.

    Hiring of chief diversity officers declined 4.5 percent from 2021 to 2022, according to recent LinkedIn data, and some large employers cut positions. Amazon, Twitter, Wayfair, Nike and Intel are among big companies that slashed DEI jobs recently amid larger waves of layoffs.

    In separate statements to The Washington Post, Amazon and Intel both said they remained "committed" to increasing diversity in their workforces. (Amazon founder Jeff Bezos owns The Post.) A Nike statement described DEI as a "top priority."

    But these commitments can sound hollow to people who have worked in the corporate DEI space.

    Frankie - whom The Post is identifying by a nickname so that she can speak freely without backlash from potential employers - was laid off from a DEI recruiting position in March. She wasn't surprised, because she's seen firsthand how companies tend to back off these initiatives in economic downturns. She's looking for another job but is not particularly hopeful about finding a new DEI position soon.

    There's a disconnection, Frankie said, between companies' public statements on diversity and inclusivity, and their willingness to follow through. Years of working in DEI, she said, showed her that even well-intentioned companies often hesitate to invest seriously in areas such as employee resource groups, recruiting and onboarding improvements, and DEI training and certification.

    "Companies only want to talk about it or do the work when it's profitable or when it looks good for them to do so," she said.

    Despite the recent reductions, DEI has been attacked by conservative critics recently. At least a dozen states are considering legislation that would attack DEI spending and overhaul hiring initiatives in higher education.

    Corporations that conservatives consider "woke" are increasingly a target of the ire of prominent Republicans, including Florida Gov. Ron DeSantis, who recently introduced legislation that would prohibit Florida's state and local governments from using investment strategies that consider environmental, social and governance (ESG) factors. U.S. Rep. James Comer, R-Ky., the chairman of the House Oversight Committee, suggested that Silicon Valley Bank's high-profile collapse occurred because that institution was "one of the most woke banks" - an assertion that has been repeated by many right-wing figures rallying against ESG. (DEI is generally included under the "social" category in ESG.)

    DeSantis is not alone. Republican officials nationwide have been launching investigations into investment firms pushing portfolio companies to embrace ESG principles. They have moved in six states to pull a total of more than $3 billion from BlackRock, the behemoth fund manager that has taken a lead in demanding corporate leaders more heavily factor climate change into their decision-making and disclosures. And on Friday, 21 GOP attorneys general sent a letter to BlackRock and 52 other investment firms, warning them against "pressuring companies to reduce emissions in economically destructive ways."

    At its core, ESG is the idea that businesses should make decisions and be evaluated on the basis of more than just their financial performance, according to Sukhbir Sandhu, an associate professor of sustainability and ethics at the University of South Australia. Several decades ago, this was a common stance, Sandhu said.

    But in the 1970s, the influential economist Milton Friedman popularized the idea that companies' only duty was to maximize shareholder profit. The argument by Friedman, who was awarded a Nobel Prize in 1976, became "the gospel truth" for U.S. companies, Sandhu said.

    Demand and support for ESG efforts has been growing among shareholders, regulators and employees in recent decades. The term as currently understood emerged in the mid-2000s, when then-United Nations Secretary General Kofi Annan approached CEOs of major financial institutions about developing "guidelines and recommendations on how to better integrate environmental, social and corporate governance issues in asset management, securities brokerage services and associated research functions."

    The backlash against ESG is a "uniquely American phenomenon," according to Erica Salmon Byrne, CEO of Ethisphere, which specializes in defining and measuring the outcomes of corporate ethical standards.

    "When I talk to European companies about the backlash to this, they look at me like I'm bonkers," she said.

    In Europe, ESG has become enshrined in best business practices, Byrne said. Performance on issues such as diversity and sustainability are seen as contributing to corporate success on the continent, according to Byrne.

    Critics argue that issues such as how companies treat their employees, manage their relationships with stakeholders and respond to climate change are independent of business performance. ESG and DEI are "political movements unmoored from financial performance and, perhaps not coincidentally, also popular with corporate C-suites where managers can claim 'success' on matters irrelevant to investor returns," the Republican minority on the Senate Committee on Banking, Housing, and Urban Affairs said in a December white paper.

    Successful business expansion requires DEI efforts, advocates say. "Demographics are shifting in the world and in the U.S. more broadly," said Daniel Oppong, the founder of The Courage Collective, a consulting company specializing in diversity, equity, inclusion and belonging. "No brand can say they have a growth strategy if they're not considering historically underrepresented and marginalized folks."

    Researchers are studying the financial and investing effects of ESG. But measuring outcomes has been difficult. For diversity efforts specifically, exploring their value for shareholders is a hot topic for academics who study business and investing, said Wei Cai, an assistant professor of business at Columbia Business School. But it is also difficult to measure and analyze in a standardized way, Cai said.

    "It's a black box," she said. "It's extremely hard for researchers to observe what's really going on within a company."

    Meanwhile, those efforts have become a political talking point, according to Johnny C. Taylor Jr., the CEO of the Society for Human Resource Management.

    "Before, we could have rational conversations about the benefits of DEI and ESG," Taylor said. "Now that we are heading into an election year, clearly, both sides see political advantage in either pumping up wokeness or attacking wokeness. Whatever we see now, the war is on."

    Regulatory support for ESG has been building in the United States under the Biden administration. The Securities and Exchange Commission, for example, is planning to require enhanced disclosures by private companies on the topic of climate risks. But these efforts are drawing resistance from lobbyists and Republican legislators, with top GOP leaders refusing meetings with the U.S. Chamber of Commerce and establishing a working group "to combat the threat to our capital markets posed by those on the far-left pushing environmental, social, and governance (ESG) proposals."

    In recent weeks, President Joe Biden used his first veto to block a bill that would have prevented retirement fund managers from considering ESG factors in investment decisions.

    Younger generations of workers are especially passionate about DEI efforts, according to Columbia's Cai. Oppong said he feels optimistic about the pressure employees are putting on their employers to be accountable about those issues.

    But it's been bizarre and "disheartening" to watch conversations about ESG and DEI become a political pinball, Oppong said.

    "Our collective awareness has increased," Oppong said. "But there's some apathy and ambivalence that has set in."

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    The Washington Post's Evan Halper contributed reporting.

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