Corporate Racial Equality Investments—One Year Later

Robert Schwarz is a Senior Researcher at the Conference Board’s ESG Center. This post is based on his Conference Board report. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance and Will Corporations Deliver to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).

Executive Summary

Following the killing of George Floyd in May 2020, many large US companies committed to donating large sums to nonprofits to address racial inequality. [1] These financial commitments were in addition to pledges to address racial inequality through revising company policies, implementing internal education and development programs, increasing diversity and equity in their workforces and management ranks, and increasing their disclosures of racial/ethnic data—all of which also have a financial dimension.

One year later, some in the media and several advocacy organizations are questioning these external financial commitments, asking where the money has gone and what progress has been made. [2] Much of the criticism misses the mark, as it fails to appreciate what it takes for a company to commit to, design, implement, and monitor multimillion-dollar programs to address social problems.

The Conference Board held a roundtable discussion with 55 corporate citizenship executives and conducted a survey with 86 respondents on “Corporate Racial Equality Investments a Year Later.” We found that the hundreds of millions of dollars that companies have committed to nonprofits is just part of their overall effort to address racial inequality. Even more significantly, we found that the pace of spending to date reflects the seriousness with which companies are taking this issue. Companies made long-term financial commitments to address racial inequality, reflecting the fact that this is a long-term challenge. Further, companies have been actively laying the groundwork for a sustained effort: they have focused on deepening their expertise on racial inequality, building internal capacity, and forging external relationships to be able to deliver on their commitments.

Insights for What’s Ahead

There are numerous signs that corporate commitments to address racial inequality are serious, sustained, and intended to have real impact. Look for companies to ramp up their activity in the coming years.

Our research indicates that companies’ commitments to redressing racial inequality are:

  • Significantly supported by senior management—half of respondent companies say the commitment originates from their CEO;
  • Rooted in company values—84 percent make this financial commitment because it aligns with their company values;
  • Intent on making a real difference—51 percent finance these commitments because it allows them to make an enduring change, and 33 percent link at least half of their funding to specific quantified outcomes; and
  • Long term—50 percent of commitments are for at least five years or an indeterminate period.

At this stage, 85 percent of respondents are focused on marshaling their resources to address racial inequality over a sustained period. They are engaging with experts on racial equity, carefully listening to stakeholders, and co-creating solutions—including with employees. Companies are also assessing where their policies may have come up short in the past, and learning from the experiences of other firms whose credibility has taken a hit because stakeholders perceived their actions to be inauthentic.

We expect most companies to continue to adopt a hybrid approach in their financial commitments, focusing on both national and community-based organizations; 85 percent of the funding respondent companies provide is evenly split between the two.

With 43 percent of respondent companies’ funding going to national organizations, and 42 percent going to community-based groups, companies are taking a two-pronged approach to addressing racial equity through their nonprofit partners. This approach

is likely to prove effective: national organizations offer scale, scope, and advocacy, while community-based organizations offer the opportunity to have tailored impacts. Indeed, as a participant of our roundtable observes: “Racial inequality is a national issue that requires attention at the local level.” This approach is also likely to address critics’ concerns that companies are merely writing checks to address racial inequality.

Companies that have or are developing a strong culture of inclusiveness and constant learning are well positioned to “stay the course,” leading to enduring progress toward racial equity.

Factors that demonstrate this kind of culture are:

  • Featuring leadership and personal involvement of the CEO, including conversations about why the company is taking a stand;
  • Soliciting feedback from internal stakeholders on the company’s position and approach;
  • Engaging outside experts to collaborate with the company’s own corporate citizenship and diversity, equity & inclusion leaders so they can learn from each other and inform the company’s efforts across business units;
  • Co-creating aspects of community-based programs with employees; and
  • Adapting approaches from the company’s sustainability programs, which are also long-term efforts that involve constant learning and responsiveness to stakeholders.

With 85 percent of respondents forging their path alone, there is an opportunity for companies to step up their efforts to collaborate with each other—and with government—in addressing racial inequality.

Given the speed with which companies made statements—and financial commitments—to address racial inequality a year ago, it is not surprising that the vast majority of companies acted on their own rather than as part of a broader coalition. This approach is consistent with how companies traditionally handle natural disaster relief: they overwhelmingly pursue their social programs in collaboration with nonprofit organizations, but without significant collaboration with other companies. [3]

Companies thus have an opportunity to increase their impact by working with each other and with national and local public policymakers. This opportunity is accompanied by demand. Indeed, many stakeholders across cities have voiced their desire for companies to engage with city and state lawmakers to initiate policy change—leveraging corporate leaders’ influence and connections along the way to champion change that truly opens up opportunities regardless of race. [4]

A deeper, more candid dialogue with nonprofit partners may be advisable, given that more than 60 percent of respondents report no challenges with grantee organizations.

Companies point to a smattering of issues with nonprofit grantees, such as a lack of capacity, difficulty in reaching agreement on program goals, and sometimes refusal to accept corporate grants. But no single obstacle stands out. What does stand out is a clear majority of respondents’ reporting no issues with grantees—a yellow, if not red, flag for participants of our roundtable discussion, who suggest that rather than a lack of challenges, this result may indicate that companies are not hearing the full story from their nonprofit partners.

While at this point companies can measure success based on their progress in building capabilities to address racial inequality, they will need to progress to measuring and reporting on the outcomes of the programs they have committed to funding.

At this stage, many companies are building their internal capabilities and external relationships to mount a sustained effort to address racial inequality. As we look ahead, companies should begin reporting objective, empirical measures of their efforts to achieve substantive progress. No one expects racial inequality to be eliminated overnight, or even over the term of the financial commitments companies made in 2020. But companies and their nonprofit partners should be prepared to provide data on their progress, especially as slightly over half the committed funds are linked to achieving objective goals.

Companies should balance their desire to respond quickly with a statement on a social issue with their need to develop and socialize an action plan to follow through on their commitment.

While roundtable participants recognize the need for companies to respond quickly in the aftermath of events such as the killing of George Floyd, in hindsight, several note it would have been better to take more time to develop and socialize their response with both internal and external stakeholders. In the future, companies may wish to respond by referring to an existing statement of core business principles and values, giving themselves time to develop an action plan that has greater buy-in than they can achieve under rushed circumstances.

About This Report

In May 2021, The Conference Board ESG Center surveyed corporate citizenship, corporate social responsibility, corporate philanthropy, and diversity, equity & inclusion professionals at market-leading companies headquartered in the US to understand the progress they have made a year after their financial commitments to achieving racial equity following the killing of George Floyd.

We received 86 responses to our survey, 73 percent of which came from companies with annual revenues of $10 billion or more. In addition, The Conference Board held a roundtable discussion with 55 attendees from 46 companies, drawn from the members of our Corporate Citizenship & Philanthropy Councils; Diversity, Equity & Inclusion Council; and ESG Center members. We supplemented the survey and roundtable discussion with additional research.

Why Companies Made Commitments

Leading up to June 2020, companies had been under increasing pressure from multiple groups to do more to address social problems. [5] The killing of George Floyd was a catalyst for companies across the US to take a stand against racial inequality. Companies cited a variety of reasons for taking a stand: “alignment with company values” (84 percent), “ability to make an enduring change” (51 percent); “alignment with the company’s core business” (31 percent); and “pressure from employees” (22 percent) (see Figure 1).

Companies generally make decisions to take stands on social issues at the senior management level, [6] and that was true here. At 50 percent of the respondent companies, the CEO made the decision to take a stand. At most of the rest of respondent companies, the decision was split between the foundation board (15 percent); senior management (11 percent); and corporate citizenship (7 percent) (see Figure 2).

The Nature of Companies’ Commitments

Companies’ commitments have tended to be relatively long term: three to five years for 26 percent of respondent companies, and either indeterminate or greater than five years for 51 percent. By comparison, only 23 percent of respondent companies’ commitments span one to three years (see Figure 3). These results underscore companies’ intention to “stay the course” and have measurable impact.

Respondent companies’ varied approach to addressing racial inequality matches the interconnected nature of causes and consequences of racial inequality. From “racial-social justice advocacy” to “education” to “economic inequality” to “food insecurity,” [7] companies have committed to providing funding in a wide range of areas where racial inequality is present; while only 4 percent of respondent companies are pursuing public policy change with these financial commitments, there is a large contingent of companies pursuing this avenue of change (see Figure 4). [8]

As participants in the roundtable discussion note, there is potential for both corporations and their employee-funded political action committees to address racial inequality, and for companies to collaborate on addressing racial inequality through public policy initiatives. As it does with disaster philanthropy, [9] greater collaboration among companies remains an area of opportunity.

Companies’ funding is divided relatively evenly between national and community-based organizations, reflecting the fact that “racial inequality is a national issue that requires attention at the local level,” as one participant phrases it (see Figure 5). While national nonprofits can provide scale, scope, and powerful advocacy, community-based organizations can provide deep familiarity with local manifestations of racial inequality and novel approaches to addressing them. [10]

For example, one roundtable participant’s company donated at the national level to Big Brothers Big Sisters of America to support “youth of color” through the nonprofit’s mentorship and skills-building programs. At the same time, at the local level, the company developed a program that has enabled more than 15,000 employees to recommend racial equity-focused, community-based nonprofits for unrestricted grants. More than 2,000 qualifying nonprofits have received such a grant to date.

Companies have been providing more unrestricted grants to nonprofits since the advent of the COVID-19 pandemic, which put many nonprofits at risk of financial insolvency. [11] Forty-four percent of respondents in our survey say their grants will be entirely restricted, reflecting an ongoing desire to link grants to specific programs. At the same time, however, 15 percent of respondents are making exclusively unrestricted grants, and another 17 percent are making at least 50 percent of the funding unrestricted. In all, 32 percent of respondents are emphasizing unrestricted grants in addressing racial inequality (see Figure 6). [12]

Marshaling Internal Resources

Corporate citizenship teams have been tapped to lead the management of the commitments at 63 percent of respondent companies; 14 percent of respondent companies created a special team to manage the effort; and diversity, equity & inclusion teams will lead the effort at 13 percent of respondent companies (see Figure 7).

While 15 percent of respondents indicate they are not experiencing any internal challenges related to managing their commitment, most indicate they are. The most common ones are: “new crises and other commitments requiring attention” (15 percent), “engagement with multiple stakeholders is taking more time than estimated” (14 percent), and “competing pressure for financial support from other racial and ethnic groups” (12 percent) (See Figure 8). These challenges are understandable, as it is time consuming to coordinate efforts across a large company. Further, racial inequality is one of several social problems companies are addressing; it is also something many companies have not addressed as directly before in their nonprofit giving.

Steps companies are taking to marshal internal resources include:

  • The CEO putting his leadership team in charge of managing their firm’s commitment while remaining engaged at every step along the way. One roundtable participant notes that strong direction and engagement from the top, including conversations about why the company is taking a stand, has sped up internal alignment.
  • “Tak[ing] five steps back,” as one participant whose firm is acknowledged as a leader in this area says, to reassess how well the company is listening to communities and the nonprofits it works with about how best to proceed.
  • Engaging racial inequality experts to inform their efforts and freshen experienced internal executives’ perspectives, which one participant notes has “accelerated their work multiple years.”
  • Co-creating aspects of commitment-related, community-based programs with employees. Noting employees’ strong desire to be heard and participate in the company’s commitment, one participant explains that engaging locally through employees is a very effective means of maintaining credibility with employees and building relationships between retail locations and communities.
  • Adapting procedures from the firm’s sustainability program, including ongoing consultation with stakeholders, incorporating the company’s efforts into its ordinary business processes, and communicating that achieving racial equity is part of everyone’s job and in the long-term interest of the company.

Working With Grantees

Companies note a variety of challenges in working with nonprofit grantees, but no single obstacle is cited by more than 8 percent of respondents. Indeed, a fairly common challenge—”difficulty in reaching agreement on program outcomes”—was uncommon, mentioned by only 7 percent of respondents. Notably, 61 percent of respondents report having “no challenges yet” with grantee organizations in connection with managing the funding they provide (see Figure 9).

While it is possible that these figures reflect effective preexisting relationships with grantees, or the fact that companies have not yet committed funds to nonprofits, lack of feedback from grantees may in fact be a warning sign. [13]

Indeed, roundtable participants suggest that the lack of challenges may indicate that companies and grantees need to have more open discussions about their mutual needs and expectations. As one participant says, getting “tough feedback from grantees” is a sign of grantees’ trust and a valuable way to improve the efficiency and increase the impact of companies’ social programs. [14]

Measuring Success

Just under half of respondents say it is “too soon to know” how successful their efforts have been thus far, and 15 percent say they “cannot tell because we did not have clear expectations at the outset” (See Figure 10).

Roundtable participants tell us that success at this stage is based on how well they build internal understanding, establish and strengthen external relationships, build credibility, and engage with employees. Saying that success is, in part, “knowing where we failed,” two participants state they are looking to understand where they need to improve to fulfill their current commitment to racial equity.

Going forward, however, companies will want more objective, empirical measures for evaluating the success of their efforts. Some are positioned to have these; 12 percent of respondents have linked 100 percent of the funding they provide to specific quantified outcomes, and 21 percent have so linked at least half of the funding they provide (see Figure 11). Companies are now likely to face pressure to describe what they have accomplished, and they will want to present data to explain their achievements.

Lessons Learned

Because of the sense of urgency to take a stand against racial inequality following the killing of George Floyd, many companies focused on speed rather than on process when making financial commitments a year ago. Companies note that they could have done a better job of 1) grounding internal and external statements on their firm’s existing policies on inclusion, [15] and 2) having the patience to develop and vet their response internally before making a statement.

In emphasizing speed, one firm neglected to get input from all appropriate internal stakeholders, which had a negative impact on the program and required the company to involve those left out of the initial process after the fact. At other companies, the focus on Black people left other groups feeling overlooked, despite the companies’ portfolio of programs addressing racial inequality more broadly. These examples suggest the benefits of grounding responses to future events in a company’s existing efforts and being as inclusive as possible in developing and phrasing the company’s response.

Conclusion

We have found hallmarks of future success in companies’ overall efforts to address racial inequality, including: a strong level of commitment and engagement from the CEO and senior management; a concerted effort to understand the underlying causes and consequences of racial inequality and how companies have come up short in the past; a long-term focus, with a balance between national and local contributions; and an effort to build internal consensus and external relationships. At the same time, it seems clear that companies have an opportunity to collaborate more with other firms, to have even more candid dialogues with their grantee organizations, and to develop—and report on—specific goals and metrics to reflect the impact of their efforts.

Endnotes

1Reuters Staff, “Factbox: Corporations Pledge $1.7 Billion to Address Racism, Injustice,” Reuters, June 9, 2020; Ad Age Staff, “How Brands and Agencies Responded to Racial Injustice in the First Month Following George Floyd’s Death,” Ad Age, July 7, 2020.(go back)

2Mandy Price, Forest Harper, and Charles Thompson III, “How Corporate America Has Responded 1 Year Since the Murder of George Floyd,” Inc., May 25, 2021; Andrew Edgecliffe-Johnson and Taylor Nicole Rogers, “Are CEOs Living Up To the Pledges They Made After George Floyd’s Murder?” Financial Times, May 5, 2021; Ifeoma Ajunwa, “Can We Trust Corporate Commitments to Racial Equity?” Fortune, February 23, 2021.(go back)

3Robert Schwarz, “Disaster Philanthropy Practices: 2020 Edition,” The Conference Board, December 2020.(go back)

4Robert Schwarz, “How Companies Can Make an Enduring Difference in American Cities,” The Conference Board, June 2021.(go back)

5Robin Erickson and Amanda Popiela, “Higher Expectations: How Organizations Engage with Social Change Issues,” The Conference Board, August 2019; Tim Quinson, “The World’s Biggest Investors Get Louder About ESG,” Bloomberg Green, June 9, 2021.(go back)

6Paul Washington and Merel Spierings, “Choosing Wisely: How Companies Can Make Decisions and a Difference on Social Issues,” The Conference Board, June 2021.(go back)

7“Food insecurity” was the most common response written in for “other.”(go back)

8Schwarz, “How Companies Can Make an Enduring Difference in American Cities.”(go back)

9Schwarz, “Disaster Philanthropy Practices: 2020 Edition.”(go back)

10Schwarz, “How Companies Can Make an Enduring Difference in American Cities.”(go back)

11Robert Schwarz, “Corporate Citizenship: Navigating and Shaping the New Normal(s),” The Conference Board, August 2020.(go back)

12Schwarz, “How Companies Can Make an Enduring Difference in American Cities.”(go back)

13Schwarz, “How Companies Can Make an Enduring Difference in American Cities.”(go back)

14Robert Schwarz, “Listen to Lead,” The Conference Board, July 15, 2021.(go back)

15Washington and Spierings, “Choosing Wisely.”(go back)

Trackbacks are closed, but you can post a comment.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>