Before 2020, the term “racial equity” was hardly in the corporate lexicon. But in just few years, it has transformed into a hot-button topic on boardroom agendas. Since global protests accelerating calls for an end to systemic racism and inequality, corporations are stepping up with big-ticket commitments from $200 billion in financial commitments to racial equity to pledging 15% of their shelf-space to Black-owned businesses. However, a Washington Post analysis finds that most corporate commitments have failed to deliver measurable results. Without an entity tracking contributions or assessing whether they’ve delivered impact, corporate action on equity and justice and the accountability required to maintain its momentum are at risk.
That’s where racial equity audits come in. As independent, objective reviews of how corporate policies and practices affect underrepresented groups, they are vital to ensuring that companies become fairer and more welcoming places to work. Moreover, they can help illuminate whether companies have the right systems in place to monitor effectiveness and deliver on promises. Such data is critical for stakeholders—from consumers, employees, and investors to researchers, activists, and community leaders—to understand how businesses are advancing equity and justice. One added benefit? They can also highlight best practices which can, in turn, serve as examples for other organizations.
When audits do happen, it’s usually because executives are pressured by shareholders or the public to take action. But to realize the full benefits of these exercises, we recommend that companies take a proactive approach—and here are three reasons why:
1. Audits Can Help Accelerate a Whole-Company Approach
DEI is more than a set of HR policies, employee resource groups or supplier diversity criteria. It is in every input and output of your company—from marketing, product development and internal communications to policies, benefits, corporate philanthropy and environmental impact. It must thus be embedded in your core business strategy and in every business unit and function. While there’s no silver bullet to solving racial inequity, racial equity audits can help identify and reduce systemic and individual bias. They can also identify opportunities to better align different parts of the business or gaps in strategy that present opportunities for exponential impact.
In 2019, for example, Starbucks engaged former U.S. Attorney General Eric H. Holder, Jr. and Covington & Burling, LLP to assess how the company could advance civil rights, diversity, equity and inclusion internally and in the community. The report revealed that Starbucks partners did not feel equipped to help customers who were experiencing challenges like homelessness, substance use and untreated mental illness. In response, Starbucks is piloting a partnership with United Way through which the nonprofit will assign community outreach workers to select Starbucks stores. These recruits will talk with customers in crisis and, when necessary, help them access community resources or secure basic needs.
2. Racial Equity Audits Can Illuminate Opportunities for Risk Mitigation
ESG is moving from the purview of activist investors to become a priority issue for mainstream stakeholders. This trend is likely to accelerate as Gen Z becomes a larger share of the global population and DEI and related disclosures become more important to consumers, employees and investors. For example, in January 2022, New York’s state pension fund asked Amazon, Chipotle, Match, Dollar Tree and Dollar General to undertake racial equity audits.
Considering this rapidly shifting landscape, racial equity audits can help guard against risk by identifying and developing solutions to address discriminatory business practices. Take, for example, Rio Tinto’s 2022 external review of its workplace culture. The report identified disturbing evidence of bullying, sexual harassment, racism and other forms of discrimination throughout the company while providing a clear framework for action to address these challenges. By opening themselves up for scrutiny, companies across industries might interrogate where they’ve fallen short and how they can and must change.
3. Future-proofing is Where Great DEI Strategy is Built.
Traditional DEI reports play a critical role in fostering accountability; however, they are too-often retroactive and reflective, rather than forward-thinking and generative. By adopting a racial equity audit, companies take a systems-level approach to advancing equity that goes beyond a single year of data. These audits examine how companies wield their power and influence—both positively and negatively—to advance equity. That level of honest introspection can unlock opportunities to make a greater impact and foster trust amongst stakeholders who see leaders fighting for equity in the long term, well past the news cycle.
Opening yourself up to scrutiny can be a daunting prospect—especially for companies operating in industries like financial services, housing, insurance and health care, which have historically been tied to systemic inequities. However, we see two approaches for organizations embarking on their racial equity journey. To start, companies might assess their 2020 racial equity commitments and ask:
- How has our work met our stated objectives?
- Do we have the right systems in place to deliver and report on results?
- Can we take learnings to date and identify gaps in our progress or commitments? (J.P. Morgan recently launched a third-party racial equity audit of its $30 billion, five-year Racial Equity Commitment).
This is also a prime area for industry associations to play a leadership role. Industry-wide efforts to identify broad-based racial equity priorities, activate resources, and identify best practices that inform company-specific strategies could be essential tools for companies looking to get started and align with peers and emulate leaders.