Dinsmore & Shohl: Facing Change In The Boardroom

by Tammy R. Bennett, Esq.

Tammy R. Bennett, Partner, Chief Equity + Inclusion Officer, Dinsmore & Shohl LLP

“Not everything that is faced can be changed,” wrote James Baldwin 60 years ago, “but nothing can be changed until it is faced.” The dramas of 2020 placed racial injustice and disparities squarely before us. Have we truly faced them?

Under the immediate impact of Covid-19 and the “race pandemic,” businesses expressed support in public statements; some made long-overdue changes to company logos and other aspects of branding. Such gestures matter. At the same time, they raise a bigger question: What actionable steps can legal employers take to move the needle on diversity in deeper and more lasting ways?

One crucial answer: diversify governance. Exploding sexual harassment claims spurred by #MeToo and increased visibility of systemic race disparities following George Floyd’s murder highlight how corporate cultures are buffeted by shifting social norms and societal polarization. In this new normal, corporate governance requires directors not just with financial acumen but also social acuity and cultural insight, especially into marginalized communities.

As a result, ESG-minded investors have been intensifying their attention to board diversity, already a growing governance focus. Empirical studies generally support the common intuition that individuals of differing cultural backgrounds and lived experiences interpret situations and solve problems differently—and that by marshaling varied perspectives, diverse teams achieve more creative solutions, give their organizations competitive advantages, and enhance profitability.

Thinking about knowns and unknowns helps frame the value of diversified boards. Decision-makers need information, which is always limited. Awareness of the limitations—known unknowns—fosters prudent caution and efforts to fill knowledge gaps. The biggest danger is lack of awareness—unknown unknowns—like ignorance of cultural characteristics that can doom a marketing campaign or harm employee retention, with bottom-line consequences. Board diversity can reduce this culture risk and other organizational perils.

A good analogy: blind spots, zones where other vehicles are invisible to the driver’s field of vision and mirrors. Board diversification is like building the habit of checking blind spots regularly, especially before lane changes (or a blind-spot warning feature built into the vehicle). Having multiple perspectives and multiple voices at the table yields enhanced visibility into the organization’s relevant surroundings. Recognizing and appropriately managing risks in the cultural environment matters just as much as IT departments relentless scanning of communications inputs and neutralizing
identified cybersecurity threats.

An understanding of both the power of diverse boards and corporations’ societal responsibilities led to the SEC’s landmark adoption of NASDAQ’s board diversity rules in August 2021. The new rules require most listed companies to elect at least one self-identified member of an underrepresented minority (including LGBTQ+) and at least one woman. Enhancing transparency, disclosure is made on a standardized matrix, and “name and shame” sanctions—non-compliant companies must publicly disclose their non-compliance—add teeth.

Board diversity is as relevant to law firms as to their corporate clients—maybe more so. Importantly, for the underrepresented to give voice to their perspectives and truly benefit the firm, organizations must thoughtfully cultivate environments that foster an authentic sense of inclusive belongingness in all board members. Thus, the importance of psychological safety as a precondition for genuine inclusiveness.

Changing the faces and voices at the table can better equip law firms to effectively manage culture risks while advancing diversity, inclusion and cultural competence firm-wide, in their client interactions and in the communities they serve.

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