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The increasingly politicised business environment has found that the proportion of US corporations using a diversity, equity and inclusion (DEI) metric to set compensation has dropped to 28% from closer to 33% in 2023.

However, how stepping away from DEI could put the companies at odds with employees and the wider public, which largely support many of the goals.

“This year’s proxy season included a busier year for activism amid a demanding economic context, a recalibrated shareholder proposal landscape, and emerging topics of focus."

Separately, according to an analysis by ESGAUGE and The Conference Board, the proportion of S&P 500 companies that included DEI metrics in executive pay decreased from 75% in 2023 to 66% in 2024.

ESGAUGE, an Indian consultancy and technology company, published its survey “2024 Proxy Season Review: Five Takeaways” last month in the Harvard Law School Forum on Corporate Governance.

“In 2024 companies secured strong support on key voting items despite increasing complexity,” it said. “This year’s proxy season included a busier year for activism amid a demanding economic context, a recalibrated shareholder proposal landscape, and emerging topics of focus such as artificial intelligence (AI).

“It also included growing political and regulatory uncertainty in a pivotal election year, and more scrutiny of both companies and investors from diverse stakeholders related to the impacts of business and stewardship decisions on societal challenges and financial performance.”

The paper added that during this proxy season, directors received more support despite investors’ increased focus on board effectiveness and director accountability. “Say-on-pay support also increased this season despite growing stakeholder scrutiny of executive compensation,” it said. “Still, binary votes may not reflect the nuance behind investors’ voting decisions, or the engagement and enhanced communications companies undertook to secure that support. Such efforts remain paramount: opposition votes on the re-election of directors in certain leadership roles signal investor willingness to use director elections as a lever to escalate governance concerns and hold board members accountable.”

It added that in the election year, proposals related to corporate political, and lobbying were the most voted on of all shareholders' proposals, followed by DEI proposals related to climate risk and energy transition.

Support for these has declined for climate risk and energy transition. It has declined from 49% in 2021 to 25% in 2024.

For DEI it has declined from 40% to 20% over the same period.

In a recent Financial Times story on the issue, the paper said the efforts around the DEI factors were being driven by “Strive, the anti-ESG asset manager founded by Donald Trump ally Vivek Ramaswamy. Launched in 2022, Strive has more than $1.6bn of assets under management”.

Of the DEI metrics covered in previous years, the survey found that 12 companies were reported to have dropped them after having faced pressure from Strive, said the paper.

However, in analysis some have defended the move as a number of asset managers have raised concerns against “poorly constructed ESG metrics” that could result in “inflated pay relative to performance” rather than against DEI and wider ESG issues overall.

“While these investors may, in some instances, be supportive of a recalibration of executives’ incentives, this may not be directly linked to a lower interest in DEI initiatives."

The mood of the industry, FTI Consulting said in its analysis of it in its recent ESG newsletter, was actually heading in the opposite direction with many investors now “increasingly raising their expectations around ESG targets, asking that they be closely tied to the business strategy, quantifiable, and challenging to meet”.

“While these investors may, in some instances, be supportive of a recalibration of executives’ incentives, this may not be directly linked to a lower interest in DEI initiatives but a potential maturing of the focus on ESG from effort to demonstrable outcomes,” it said.

DEI – an operations perspective

DEI has been a key factor for office harmony and increasing operational perspectives in recent years for many companies.

A report in June, said the importance of a good working culture in asset management companies was a key concern for organisations when trying to understand, define, and demonstrate their corporate culture with DEI considerations a major part of this.

The report said that asset managers can better “understand, define, and showcase their corporate culture to external audiences, including clients, consultants, and prospects,” by focusing on their staff and the environment they have fostered. 

“Management [should] encourage staff to buy into [a company’s corporate culture] through their own experience,” the report said. Given examples were invigorating constructive dialogues in the workplace, which could create an inclusive environment, especially with strategies around discussing DEI issues.

“The onus is on leaders to foster a culture that resonates with the aspirational and pragmatic ethos of this generation."

Whilst shareholders might be voting against it, the corporates should be aware that 83% of Gen Z employees consider a commitment to diversity and inclusion significant when deciding where to work, said a 2023 survey from recruitment site Monster.

“Organisations must adapt [to Gen Z making up a large part of the workforce] by embedding [their] values into their core operations, actively seeking and valuing employee feedback, and ensuring that policies and practices genuinely reflect these ideals,” said an analysis of the report from Tulika Mehrotra Chopra, Chief Digital Officer, Human Capital Innovations. “The future of the workplace depends on our ability to embrace and nurture the diverse perspectives and experiences of Gen Z, creating an environment where everyone, regardless of background or identity, feels valued, respected, and empowered.

“The onus is on leaders to foster a culture that resonates with the aspirational and pragmatic ethos of this generation,” added Mehrotra Chopra.

 

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