D&I: A Justifiable Nuance in The New Corporate Governance Code

D&I: A Justifiable Nuance in The New Corporate Governance Code
The updated corporate governance code contains an ambitious but nuanced call for business to make a difference when it comes to diversity & inclusion, argues Stefan Duran, Head of Business Development Benelux at life insurer elipsLife. The extent to which D&I policies contribute to the company's bottom line is rightly paramount: after all, no one can jump from the basement to the top floor overnight.

On December 20, 2022, the Corporate Governance Code Monitoring Committee presented the updated corporate governance code. In terms of diversity and inclusion, this "code 2022" ultimately turns out to be less strict than the consultation document that preceded it. Regarding the composition and size of the management and Supervisory Boards (paragraph 2.1), the final text reads: 'The management board, the supervisory board and the executive committee (if any) should be composed in such a way as to ensure a degree of diversity appropriate to the company with regard to expertise, experience, competencies, other personal qualities, sex or gender identity, age, nationality and cultural or other background.'

The phrase "appropriate to the company" was still missing from the draft text and is thus a clear weakening. The addition makes this provision an open standard. Companies need not (as seemed to be the case earlier) relate their appointment policy to their surrounding society, but to what they consider appropriate for their company. While the draft text still suggested that the composition should reflect society, the new code binds the company to what it finds suitable to the company itself. That is much less prescriptive and ambitious.

Feasible targets
Is this nuance regrettable or a justifiable softening? Personally, I think the latter. It is simply too early to demand that every company be fully diverse and inclusive and that this must be substantiated with positive figures. Developments in this area take time, as shown by the conversations I have had with Executives around this topic for Management Scope. Take Geraldine Fraser, CPO of FrieslandCampina. She comes from New Zealand, where many large companies are managed by women and where three women had held office as prime minister (the third female prime minister is in office). Diversity and inclusion are now a given there, Fraser said, but it has taken several generations to get there. Former Randstad CEO and commissioner Jacques van den Broek, on the other hand, emphasizes that in the Netherlands and numerous other countries it is already quite an achievement to achieve male-female diversity. His message is therefore: don't do everything at once, start with gender. Culture change, because that is what it takes to become diverse and inclusive, can obviously be accelerated if companies invest more actively in it, but no one can jump from the basement to the top floor at once.

The 2022 Code relates sustainability to the balance between the social, environmental and economic aspects of business, or the three Ps: people (which includes D&I policy), planet and profit, noting that this is a comprehensive issue that is in transition globally. In my opinion, the "toned down" wording fits the stage our world is in now and the transition we are going through. It makes little sense to set the targets for (gender) diversity so high that they are by definition unattainable. That only serves to demotivate.

Concrete measures
By the above, I do not mean to suggest that the revised code lays down no ambition in D&I policy or gives companies arguments for doing little or nothing. Until now, listed companies were subject to the "comply or explain" rule. If the rules were not followed, the annual report had to explain why not. In the 2022 Code, this has been further tightened. From now on, companies must not only indicate the reasons for not achieving one or more goals, but also "what measures will be taken to achieve the goals and on what timeframe”. The mea culpa must therefore be accompanied by a concrete plan for still achieving the goals, linked to a specific deadline.

Also retained from the draft text is that the D&I policy and reporting should flow from the top of the organization down through the company like a waterfall. Not only management and Supervisory Boards should be included, but also the sub-top and ultimately the entire employee base.

Less good in the revised code - or at least remarkable - I find the fact that "sustainability and digitalization" are singled out as the most important transformations facing the Netherlands. By elevating these two aspects to the central focus of expertise for directors and Supervisory directors, there is a danger that D&I policy will unfairly receive less attention. 

The dark side of D&I
How can organizations best shape an effective D&I policy, with a good strategy and with concrete objectives? Former Randstad CEO Jacques van den Broek states in the interview mentioned earlier that it is wise for management to enlist external help in this regard. I can only endorse that. As a manager you cannot know everything, and knowledge and experience are certainly important in this area. In fact, there is also a downside to increasing attention to diversity and inclusion. As Geraldine Fraser of FrieslandCampina put it: 'I think you have to make sure that everyone feels represented and that the policy does not lean to one side and exclude other people. Sometimes small groups can suddenly get a heavy voice.'

Petra Tito, CHRO of accounting and consulting firm Deloitte, also warns against this. 'You want to be inclusive for everyone in your organization, including Dutch colleagues. (...) For a long time we thought in boxes: we focused on women, LGBTQ+ or neurodiversity, but every person is unique. So, we have 7,500 individual employees at Deloitte whom we must take care of. D&I policy is becoming increasingly complex.' In other words, when shaping D&I policies, avoid listening too unilaterally to activist groups and instead take a broad approach, for example, by training Executives to ensure that information comes from all corners of the organization.

Inclusion first
Overall, the 2022 Code leaves room for a D&I policy that does not paralyze but can contribute positively to the company's bottom line. The message is basically: improve the world, start with yourself. At the same time, this places a lot of responsibility on the management and Supervisory Boards. They must set clear ambitions in which at least gender diversity is highlighted, along with other aspects to 'an extent appropriate to the company'. Even though this is a soft and open formulation, it is not a license for non-commitment. My hope is that - by the time the 2022 Code is due for another revision - we will have made considerable strides in this area. In many of my conversations about D&I policy, experts argue that the key is to work primarily on the I of inclusion. In companies that get that right, diversity follows naturally. That by the time the code is updated again we will have progressed to the point where we only need to talk about inclusion, seems like a great ambition to me.

This article was published in Management Scope 02 2023.