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Where risk and EDI meet: Validation and mitigation

Where risk and EDI meet: Validation and mitigation

Synopsis
5 Minute Read

A strong EDI strategy is more important than ever for Canadian business. But there are risks associated with getting it wrong. Diverse and inclusive workplaces flourish, and those that don’t see the value in EDI strategies will suffer for it on multiple fronts. Knowing where you’re at and where you still need to go will help determine the best course of action, with the help of an advisor to get you there.

Leader, Consulting – Organizational Renewal

Having a valuable and thoughtful Equity, Diversity, and Inclusion (EDI) strategy is vital, and the risks that come with getting it wrong have never been higher.

During the COVID-19 pandemic, hundreds of millions of people began working from home, and for many of them, that meant more access to live, daytime news.

In May 2020, the world bore witness to the murder of George Floyd by a police officer in Minneapolis. An unedited video of the tragedy, shot by 17-year-old bystander Darnella Frazier, jolted viewers. It also resulted in global responses protesting police brutality. There was no denying what had happened.

Not long after, in 2021, Canadians were shocked by a story hiding in plain sight: the uncovering of hundreds of unmarked graves at the sites of former residential schools. This horrifying discovery should not have been a surprise to Canadians who had already heard of the trauma of misery that defined the residential school experience for thousands of Indigenous peoples during the Truth and Reconciliation Commission hearings.

The reaction was not dissimilar to that of the death of George Floyd. For many Canadians, that wake-up call had been a long time coming and it forced people across the country to view the issue from a different perspective.

The so-called “business case” supporting increased diversity has been around for decades, but Equity, Diversity, and Inclusion (EDI) as a force and movement was launched into the spotlight. The tipping point seems to have been reached, and EDI is now as necessary as wearing a seatbelt.

While it’s clear that EDI is a meaningful and vital practice, a June 2022 Harris Poll found that only 40 percent of Canadian companies have a concrete EDI strategy, with nine percent saying that they plan to implement one soon. That leaves half of Canadian businesses without a substantive plan to address inequities and exclusionary practices.

While many organizations are taking important steps to enhance their EDI performance, organizations – with or without an EDI strategy – may want to consider two types of potential risk.

Performative responses

The first dimension of risk is grounded in unkept promises or failure to measure progress. As awareness of equity has grown, there has been a flood of well-intentioned strategies and commitments to EDI. Many of those commitments were very public – and some were largely performative.

Performative gestures profess outward support for a cause but fail to follow up with meaningful actions. Showing support for marginalized people in ways that are not authentic or purposeful can perpetuate damage already being done to individuals and organizations

Those goals have been shared in annual reports, public company statements, and financial disclosures. The public and others are watching. In April 2023, Bloomberg News reported an increase in EDI lawsuits in the U.S. since 2020. Those goals have been shared in annual reports, public company statements, and sometimes in financial disclosures. As many as 40 lawsuits are now accusing large companies of falling short on the promises they made, saying they are misleading, among other far more serious claims.

Creating goals and objectives that are either never delivered on or were impossible to complete are at the center of the controversy. The accusation is that shareholders were negatively affected – that company value was lost – by a failure to meet equity objectives.

Both employee and investor lawsuits point to pledges that were not delivered at the board level or with the organization’s workforce. Organizations that responded to equity challenges after negative media coverage have been heavily criticized, demonstrating again that waiting to address inequity in a workplace represents a significant risk.

Missed opportunities

The second dimension of EDI-related risk is largely related to missed opportunities. If you are one of the many organizations that does not have an EDI strategy, the risk can be measured by lost people and lost business.

Lost People

Many younger, values-based employees seek to work for companies that are making meaningful commitments to equity and inclusion. They want to see strategies that include transparent sharing of demographic workforce data and an openness to admitting that there is more to be done. Inclusive workplaces leave no one behind and employees who trust their company are always going to be justifiably committed to the goals of that organization. The risk of a toxic workplace, where leaders are not educated to be culturally fluent, can be tracked just by following the news. Employees have more access to communication channels and social media, making it easy for a brand to be destroyed in a matter of days.

Lost Business

Today, contractual negotiations and requests for services or goods frequently include asking that an organization define their EDI strategy and/or provide their workforce diversity data. Pressure to provide this information is emanating from regulatory bodies around the world. Contracts increasingly are awarded to organizations that ‘walk the talk’ of EDI and show proof of their commitment.

An additional source of potential risk relates to potential issues around working conditions and fair pay. The federal government’s new Fighting Against Forced Labour and Child Labour in Supply Chains Act (formally known as Bill S-211) takes force in January 2024 and imposes disclosure requirements for government institutions and many companies, with a threshold of companies with more than $20 million in assets. The Act reflects similar regulations already in place in the U.S. and Europe. One global fast fashion company lost the imported fabric for its entire spring and summer season when they couldn’t demonstrate to the U.S. port authorities that the goods hadn’t been produced by child labour or conditions of “modern slavery.”

When companies bid on work and lose points based on their inability to define their own internal EDI strategy, it can be highly motivating.

Continuing to win contracts, attract new employees, or preserve financial stability will increasingly depend on a serious commitment to EDI. The risk of not having an EDI strategy is much greater than admitting your organization has work to do in the equity space.

Organizations that reflect the diversity of their customers and the communities they serve reap multiple advantages, not the least of which is that their employees can come to work comfortable being their authentic selves.

We also know that the financial performance of an organization is increasingly tied to understanding their customers and expectations, which is made easier if the makeup of the employee base reflects the communities it serves.

Canada has always been a place where new immigrants have come in search of a better life. The only thing that changes is where people come from. Employees who represent those diverse cultures that make up the fabric of Canadian society are key to ensuring an organization is in touch with a wide variety of experiences and views.

EDI is the right thing to do. But we know now that clients, potential business partners, and regulators are going to continue to develop equity requirements. The importance of EDI is not going away, and Canadian organizations can only play catch-up for so long.

How to determine if your company is covered by the Fighting Against Forced Labour and Child Labour in Supply Chains Act

Broadly speaking, organizations that make, buy, or sell physical goods will face new obligations and requirements under the new act, known as Bill S-211.

The act will apply to Canadian-linked entities that have met at least two of the following conditions in at least one of the last two most recent financial years:

  • Had at least $20 million in assets
  • Generated at least $40 million in revenue
  • Employed an average of at least 250 employees

Under the new rules, affected entities must publish a report each financial year that discloses the steps they’ve taken to prevent and reduce the risk that forced labour or child labour is used in their operations or supply chain.

This report must be approved by your board and published prominently on your website. Additionally, a director must attest in writing that the report is true, accurate, and complete.

Obligated entities must file their reporting by May 31, 2024. Those that don’t risk reputational damage and substantial financial penalties of $250,000 per offence. Individual C-suite executives, directors, and employees could face the same financial penalties and criminal prosecution.

How can organizations mitigate the risks related to EDI?

Once you understand the risks, taking steps to mitigate those, and their impact, will allow you to move forward.

Here are a few things to consider in shoring up your EDI strategy: 

  • Be aware that not having an EDI strategy that broadly consults and includes your employees and leaders is a bigger risk today than ever before. This is not a race and strategies need to be thoughtful and authentic. Do not assume it’s a quick fix. The right thing and the easy thing are not the same.
  • Build a great EDI strategy and work with experts who are aware of best practices and can customize a strategy with your input. Ensure that the strategy is led by the most senior leader in the organization and is supported by the board. As you are developing your strategy:
    • Get support around how to have those first, slightly uncomfortable conversations.
    • Learn how to use an ‘inclusion lens’ to really see how many things currently work in your organization and determine what needs more attention.
    • Know that metrics matter – and learn what to measure and how.
    • Keep track of all the business opportunities or regulators who ask your organization for evidence of an EDI commitment and share that information with key leadership.
    • Keep asking who is not at the table and direct your efforts to changing that. Admit your organization is not where you want it to be – the risk of not sharing the truth can damage the organization more than denying that truth.
  • Don’t make promises you can’t keep. You can make things worse if you take out an ad or post content about EDI but don’t back it up with action. Identify and acknowledge the risks of not doing the EDI work or doing it in a way that causes damage to individuals and your brand.

The lesson is clear: organizations lacking EDI expertise are right to consider the value of a company-wide strategy but getting help to do so is the best way to avoid risk to employees, reputation, brand, and shareholders.

Getting it wrong is a bigger risk than never trying to dismantle racism, inequity, and exclusionary practices. If an organization decides to develop an authentic EDI strategy, the key is to ensure accountability and practical timelines.

Contact us

If your organization needs assistance drafting or implementing an EDI strategy, contact Mary Larson, Leader, Consulting – Organizational Renewal.

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