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< | Incentivizing Corporate Diversity through Commercial Transactions |
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> | Incentivizing Corporate Diversity through Debt Finance |
| | -- By BrandonHolt - 13 Mar 2022
Introduction |
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< | When the video of Derek Chauvin murdering George Floyd commanded the attention of the world in May 2020, many corporations, particularly in the United States, released statements decrying police brutality, anti-Black racism, and their organization’s systemic failure at employee diversity. Corporations publicly revealed their employee demographic data, which exposed an abysmal lack of diversity attainment across Black, Latinx, queer, and women employee populations. The general sentiment of these data releases and public statements was, “We need to do better. We will do better.” This left a longing question of when those changes would be realized. |
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> | When the video of Derek Chauvin murdering George Floyd commanded the attention of the world in May 2020, many United States corporations released statements decrying anti-Black racism and their own systemic failure at employee diversity. Corporations disclosed their demographic data, exposing the lack of diversity attainment across Black, Latinx, queer, and women employee populations. The general sentiment of these disclosures was, “We need to and will do better.” |
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< | Fast forward two years and there is still the same want of diversity. While challenges to a corporation’s lack of diversity are more acceptable in corporate talk, actions that produce meaningful diversity attainment are sparse or do not produce expedient results. This introduces the question to be explored here: how can corporations be incentivized or compelled to expediently diversify their workforce? |
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> | Now, two years later, there is still the same want of corporate diversity. While challenges to a corporation’s lack of diversity are more acceptable in corporate talk, actions that produce meaningful diversity attainment are sparse or do not produce expedient results. This introduces the question to be explored here: how can corporations be incentivized to expediently diversify their workforces? |
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< | Expedience is an important component of this inquiry because demands for diverse workforces by marginalized employees were not new to May 2020. In general, these demands were, and are, met with requests for patience, which punted any meaningful efforts to diversify. |
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> | Multiple industries at all levels of seniority remain inaccessible to diverse employees. Demands to diversify need to be attached to an incentive structure that compel corporate change. Morality––or the market shame that results from lack of adherence to a moral position––is an unmoving, or at best slow yielding, corporate incentive. Conversely, financial stipulations that impact a corporation’s bottom-line necessarily dictate a corporation's strategy. |
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< | Multiple industries at all levels of seniority continue to be inaccessible to diverse employees. Should demands to diversify be serious, they have to be attached to an incentive structure that compels corporate change. Morality––or the market shame that results from lack of adherence to a moral position––is an unmoving, or at best slow yielding, corporate incentive. Alternatively, financial stipulations that impact a corporation’s strategic ability is more demanding. |
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> | Access to capital limits all corporations. Corporations routinely fund general corporate initiatives through debt finance, where they borrow money from a syndicate of banks. The credit agreements that set a borrower's and lender's obligations are based in private contract law, meaning the parties bargain for the terms by which they are bound. This includes important terms like at what interest rate a loan is repaid to lenders and what advisory fees a borrower owes to legal and financial advisors. Could corporate diversity materially and expediently improve if these rates and fees were attached to diversity attainment over the course of the loan? |
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< | A merger, acquisition, or strategic joint venture allows corporations to generate synergies that improve valuation and drive value for various stakeholders. These transactions share common stages, including due diligence, credit and financing, and shareholder and board approvals. What would it mean to incorporate diversity standards in these elements such that transactions could not proceed without adherence?
Due Diligence, ESG, and Shareholder Activism |
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> | ESG and Shareholder Activism |
| | Through due diligence, acquirers evaluate the risk profile of a target and balance those risks against their own risk appetite. An increasingly popular risk analysis is in ESG, Environmental, Social, and Governance. Climate-conscious investing is on the rise and is one of the most popular operational impacts to scrutinize through ESG. For example, when ExxonMobil? did not commit to a net-zero status goal like its peers BP and Shell, an ESG-activist hedge fund initiated a proxy contest against the company, which received institutional investor support and ultimately led to a shake up on the board of directors. The board is now exploring avenues for climate-friendlier operations. |