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Race and equity audits: what boards need to know

By Jessica Tasman-Jones

This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards.

Shareholders are increasingly asking for audits on companies’ racial equity programmes, many of which have been in place since global protests over the murder of George Floyd by police in America two years ago.

In March Apple shareholders approved a proposal to conduct a third-party civil rights audit. Shortly afterwards Amazon, under pressure from investors, appointed Loretta Lynch, the former US attorney-general, to conduct a racial equity audit.

In the US eight proposals for racial equity audits went to a vote last year, receiving average support of just over 30 per cent, according to Alliance Advisors. These were unusually high percentages for a first-of-its-kind proposal.

Racial equity audits involve a third-party analysis of a company’s policies, practices and procedures. They study the effectiveness of diversity, equity and inclusion programmes as well as the treatment of customers. They also look at the effect of technology and products on racial minorities in the workforce as well as those who live near to company premises.

In the UK, diversity and inclusion audits are more common than specific racial equity audits but that is changing, says Karl George, partner and head of governance at RSM UK, a consultancy.

He points to Sport England and UK Sport as examples of good practice. Since December the two public bodies have required the 130 organisations to which they give funds to conduct audits as a part of diversity and inclusion initiatives.

Javed Thomas, co-founder of Race Equality Matters, a not-for-profit group, says British companies have to be accountable for public statements made in support of the Black Lives Matter movement.

“From our research nearly 100 per cent of those with lived experience felt [many of those statements] were done for PR, marketing and virtue signalling,” Thomas says.

In 2020 Audeliss, an executive search company, and INvolve, a diversity consultancy, created an open letter, published in The Sunday Times, "to ask UK business to back words of solidarity for [the Black Lives Matter campaign] with action for change".

Eighty companies added their signatures. Santander has since introduced a black talent programme while Sainsbury’s brought in ethnicity pay gap reporting in 2020, says Suki Sandhu, chief executive of Audeliss and INvolve. M&S has run a reverse mentoring programme between store employees and senior leaders, while Sodexo has introduced forums for staff to share experiences of being black in the workplace.

Amy Wilson, engagement lead at EOS, the stewardship division of Federated Hermes, an asset manager, says that while there are racial equity audits in the US, they are uncommon in Europe.

“We are generally supportive of these proposals although we carefully review the specifics of each,” says Wilson. In each case EOS looks at the company’s progress and the proponents’ intent before it decides whether to give its backing.

Beyond investor pressure, companies are driven to carry out audits by the risk to their reputation and the chance of litigation, says Laura Murphy, president of Laura Murphy & Associates, a specialist in the field.

Airbnb focused on the risk of third-party discrimination against users of its platform when it conducted an audit in 2016, while in 2019 Starbucks focused on the effects of implicit bias in retail.

Depending on the business, racial equity audits can focus on different areas, including the treatment of customers, senior management diversity, advertising of products, political contributions and racial bias in artificial intelligence.

Murphy says: “Generally, the auditor meets key executives on a confidential basis, asks for data and information to understand the root[s] of the problems and makes recommendations to the company about ways to improve. Then, a public report is issued.”

Race Equality Matters would welcome audits in the UK but Thomas says that for these to be effective it is important that employees are confident about being able to be honest and open.

He points out that after Floyd’s death many UK companies encouraged staff to talk about their experiences of being black. “Six months later, the feedback we got on this was for the majority [being asked to talk about their experiences] was very traumatic.

“What was most frustrating and upsetting was that, despite hearing their stories, their thoughts, experiences and feelings, the organisation didn't create any meaningful change.”

Once an audit is done, organisations should be clear about how they will tackle the findings, with ways to measure progress, says Thomas.

“Tackling the issues needs to be taken as seriously as any other business priority and not just carried out with minimum resourcing and investment.”

This article is based on a piece written by Lindsay Frost for Agenda.

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