The Corporate Diversity Jigsaw

Diversity in corporations has been an issue of interest for various fields—corporate law, corporate governance, and management to just name a few. From a legal perspective, the topic gained importance when different jurisdictions began to introduce diversity rules—either mandatory quotas with consequences that went as far as deregistering a corporation as in Norway, or softer disclosure requirements. Most of these rules focused on gender diversity. More recently, racial diversity is becoming an area of focus too.

In my book, The Corporate Diversity Jigsaw, I argue that the conversation about diversity in corporations (legal rules, policy discussions, academic writing, and media narratives) is missing some vital pieces. This means that we are making rules without understanding the full picture and thus are not able to assess the costs and benefits of any rules introduced in this regard. With this premise, the book sets out to provide an analysis of some of the missing pieces of the diversity jigsaw.

Part I of the book consists of three chapters. Chapter 1, titled ‘Defining Diversity’, argues that we should define diversity more broadly ie there are more aspects than gender and race that are relevant. Factors like educational and professional backgrounds, and age are also important if we are ultimately looking for diverse perspectives. Further, it is important to think about diversity not just on the board but at various levels of the corporation. Elaborating on this latter point, Chapter 2 argues that diversity at the management level is as important as on the board, if not more. Top management in in charge of day-to-day operations of the firm and diverse perspectives at this level will have a real impact on how the company engages with external and internal stakeholders. This chapter also addresses the latest trend of appoint chief diversity officers and takes the view that such an appointment, while signalling to the world that the company cares about diversity, might not have substantive impact if the board and leadership team is not genuinely interested in addressing diversity issues. Chapter 3 then considers diversity at other levels of the company. This is discussed in the context of social movements like #MeToo and #BLM, and corporate responses to these and other social media activism. The chapter argues that myopic responses to social media pressures can be counterproductive. Instead, it proposes that corporate decisions and actions regarding diversity should be geared towards addressing issues that help the companies’ and their stakeholders, particularly employees, in the long term. (A version of this chapter is also available as a journal article.)

Part 2 of the book consists of two chapters. Chapter 4, examines both legal and market initiatives across different jurisdictions. It ultimately finds that both quotas and quantitative disclosures do not provide the right incentives for corporations to make genuine efforts to improve diversity. The alternative that I propose is not to simply leave matters as is, but rather for all those involved in the diversity project to steer the discourse towards long term and sustained change, taking all the pieces of the diversity jigsaw into consideration. One way to push corporations in this direction is to encourage qualitative disclosures that will incentivise innovative and firm-specific solutions. (A version of this article is also available as a journal article). In Chapter 5, I further expand on how these firm specific solutions might look. This chapter argues that culture at all levels of the company is crucial for attracting and retaining diverse talent and discusses a range of ways by which companies can cultivate good culture. This chapter also looks at corporate responses to the pandemic and the lessons that can be drawn from that.

Part 3 of the book contains chapter 6. Bucking the academic convention of discussing the theoretical underpinnings of the topic at the start of the book, this book’s theoretical chapter is the final substantive chapter. This structure allowed for an objective assessment of the different pieces of the corporate diversity jigsaw. This chapter attempts to reconcile corporate law with diversity and other societal issues. After surveying the basic theories underpinning the purpose of the corporation, chapter 6 argues firstly that corporate law is in fact not averse to corporations addressing diversity and other societal issues; it is rather the operation of the entire corporate governance ecosystem that needs to be reconciled with these issues. This can be done by finding a middle ground between the two competing theories informing ideas of corporate purpose, and then ensuring that all actors within the corporate governance ecosystem are willing to allow this. Further, the chapter looks ahead through the peephole of corporate responses to the pandemic and argues that this could be the catalyst for firms to constructively address diversity issues on the lines of what the book discussed in Chapters 1–4. However, a crisis is only an impetus for action—whether or not effective and sustained actions will be indeed taken will again depend on a range of factors.

Akshaya Kamalnath is an Associate Professor at the Australian National University College of Law.