Some of the world’s largest companies and most influential leaders have made promises for racial equality. Yet critics question if consistent and long-term actions will match those words and intentions. In light of this, analysts have an unprecedented opportunity to break the mould, support their ideals, and hold companies accountable.
Retail and Wall Street investors alike are increasingly pressuring companies to release and discuss their performance on environmental, social, and governance (ESG) benchmarks. According to Deloitte, ESG-mandated assets in the United States are set to grow almost 3x faster than non-ESG assets, comprising half of all professionally-managed investments by 2025.
For those who care about living in a just society, and who are in the position of being an equities analyst, there is a unique opportunity to leverage the current Zeitgeist and step up, making some of the world’s largest employers answerable for their diversity initiatives and actions.
Here are eight questions that financial analysts should ask on earnings calls.
1. Do you have plans to formally quantify and share your diversity and inclusion efforts publicly?
Analysts have an opportunity to set a precedent for how companies report on their company diversity metrics. Much like what has been achieved with mandatory reporting on Greenhouse Gas Emissions, now is the time to encourage these corporations to increase transparency and make their racial equality efforts publicly available. At a time when only 3% of Fortune 500 companies share full diversity data, analysts can cite competitors and peers in the industry who are reporting their efforts to encourage others to take reporting more seriously.
2. From Wall Street to Silicon Valley, companies are pledging to hire more Black employees, minorities and women. What are your plans and projections on the bottom line YOY?
Despite investing millions into corporate diversity efforts, U.S. companies still lag in racial diversity on their executive leadership teams. There have been several examples so far in 2020, revealing that large technology corporations like Facebook, Snapchat, and Twitter are showing modest, but relatively inconsequential progress in their diversity efforts. By asking for plans and projections, investors and analysts can put pressure on these companies to increase transparency into their hiring practices and diversity metrics.
3. Given the political climate, has the company reconsidered its suppliers and vendors and placed preferences on those who have policies for equality and diversity?
It is the corporation’s responsibility to vet their suppliers’ measures to address racial equality and ensure that they are in line with the values that these companies are holding themselves to. By implementing processes like Supplier Diversity Certifications, companies like Ernst & Young have built inclusive supply chains that support their broader diversity goals. By asking about the companies process for vetting suppliers, analysts put pressure on the corporation to critically assess their supplier and vendor networks.
4. What percentage of your board will be people of colour a year from now?
In 2019, the state of California implemented the Board Gender Diversity Mandate, (SB 826), which at the time sent many Silicon Valley companies scrambling to increase diversity on their boards. Of the 330 public companies that had filed a 10-K corporate disclosure statement, 282 reported that they were in compliance with the board gender diversity mandate. But these statements only note male/female diversity, omitting the topic of racial diversity. A study by The Latino Corporate Directors Association found that 233 Californian publicly-traded companies had all white boards. Corporations must be held accountable for taking an active and continued approach to improving diversity on their boards.
5. Do you expect your customer base to shift based on the current political environment?
Corporations must show that they are taking steps to proactively understand and cater to their customers’ beliefs and ideals and remain agile as the conversation continues to shift. For Levi Strauss & Co, this took the shape of a corporate blog post acknowledging its shortcomings in diversity. At the same time, Nordstrom released a letter to its employees, detailing its current diversity and inclusion initiatives while accepting that the company has a long path ahead.
6. How has BLM impacted current and future revenue forecasts?
Some corporations may have seen a direct impact on their current and future revenues as a result of the BLM movement. Nike’s bold moves to support and own the diversity narrative faced protests and boycotts, but also won public acclaim for its defiant stance on racial issues and saw a jump in sales in response. Asking companies to assess and address how the movement has affected their business forces them to think about how their actions will affect the future of the business.
7. What are your BLM actions and updates on those commitments?
Companies should be able to address the following in regards to racial justice initiatives: What they have done, what they are working on, and what their initiatives are for the next year, and the next decade. AdAge released a regularly-updated report tracking brands’ responses to racial justice, which has become a key resource for consumers and brands alike.
8. For Retailers: What are your revenue forecasts for opening up 15% shelf space across stores for Black-owned businesses? Are these all locations? Specific shelf space? For how long is this sustainable?
Shelf space is contingent on supply and demand, but just like enterprise corporations, retailers should be vetting their suppliers and vendors to ensure that they too are upholding their racial equality commitments. Some large companies like Nike, Sephora, and Amazon have pledged to provide 15% shelf space for minority-owned businesses, which represents a small step toward sharing economic opportunities for minority-owned businesses.
US corporations like Nike, Nordstrom, and Levi Strauss & Co have made tangible steps towards addressing and changing the racial diversity in their businesses. But many other companies, like Facebook and Google still have a long path ahead to enact and sustain real and systemic change.
By asking these questions, financial analysts can increase transparency and accountability in the market and encourage business leaders to assess their own progress critically to build a more equal and fair working environment for minority communities.
What are your thoughts on the matter? Are there other questions you think should be asked? All feedback is welcome.
By Josh Levin, Co-Founder and CSO, OpenInvest
