Dealing with Change in the Boardroom – Corporate/Commercial Law

United States: Dealing with change in the conference room

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“Whatever is faced cannot be changed”, wrote James Baldwin 60 years ago, “but nothing can be changed until it is faced”. The dramas of 2020 have brought injustice and racial disparity before us. Have we really faced them?

Under the immediate impact of Covid-19 and the “racial pandemic”, companies expressed their support in public statements; some made long overdue changes to corporate logos and other aspects of branding. Such gestures matter. At the same time, they raise a larger question: what concrete steps can legal employers take to advance diversity in deeper and more sustainable ways?

A crucial response: diversifying governance. The explosion of sexual harassment allegations spurred by #MeToo and the increased visibility of systemic racial disparities in the wake of the murder of George Floyd show how corporate cultures are being shaken by shifting social norms and societal polarization. In this new normal, corporate governance requires directors with not only financial acumen, but also social acumen and cultural acumen, especially in marginalized communities.

As a result, ESG-conscious investors have intensified their attention to board diversity, already a growing governance concern. Empirical studies generally confirm the common intuition that individuals from different cultural backgrounds and lived experiences interpret situations and solve problems differently – and that by bringing together varied perspectives, diverse teams arrive at more creative solutions. , give their organizations competitive advantages and improve profitability.

Thinking about known and unknown helps frame the value of diverse advice. Decision makers need information, which is always limited. Awareness of limitations—known unknowns—promotes careful caution and efforts to close knowledge gaps. The biggest danger is lack of awareness – unknown unknowns – like ignoring cultural characteristics that can doom a marketing campaign or hurt employee retention, with consequences for bottom line. Board diversity can reduce this culture risk and other organizational perils.

A good analogy: blind spots, areas where other vehicles are invisible to the driver’s field of vision and rear-view mirrors. Diversifying the board comes down to getting into the habit of regularly checking blind spots, especially before lane changes (or an in-vehicle blind spot warning feature). Having multiple viewpoints and multiple voices at the table provides better visibility into the organization’s relevant environment. Recognizing and properly managing risks in the cultural environment is equally important as IT departments relentlessly analyze communication inputs and neutralize
identified cybersecurity threats.

An understanding of both the power of diverse boards and corporate societal responsibilities led to the SEC’s historic adoption of the NASDAQ Board Diversity Rules in August 2021. The new rules require the most listed companies elect at least one self-identified member of an underrepresented minority (including LGBTQ+) and at least one woman. Bolstering transparency, disclosure is done on a standardized matrix, and “name and shame” penalties – non-compliant companies must publicly disclose their non-compliance – add bite.

Board diversity is as relevant to law firms as it is to their corporate clients, perhaps even more so. Importantly, for underrepresented people to voice their views and truly benefit the business, organizations must thoughtfully cultivate environments that foster a genuine sense of inclusive belonging among all board members. . Hence the importance of psychological safety as a prerequisite for true inclusion.

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

Originally published by Savoy Network.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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