Diversity and Inclusion in the New Corporate Governance Code

Diversity and Inclusion in the New Corporate Governance Code
The recently proposed revision of the Dutch corporate governance code in the area of diversity and inclusion (D&I) goes quite far, says Stefan Duran, head of sales Benelux at life insurer elipsLife. Many organizations will have to work hard to comply with the revised code, but it will also give us opportunities, for example in the field of ESG. 

In February 2022, the Corporate Governance Code Monitoring Committee presented its long-awaited consultation document containing proposals for updating the Code to bring it more into line with the changing spirit of the times. Responses have been predominantly positive and it is expected that the new, revised text will be adopted in outline later this year. 

Diversity and inclusion
Especially in the area of workforce management, a topic in which elipsLife, as an insurer for the corporate market, has built up a great deal of expertise, the old and new texts differ significantly. At the heart of these changes much greater attention is paid to diversity and inclusion. For example, the concept of diversity has been given a much more specific definition. In the current Code, it is mainly male-female diversity that is explicitly mentioned, while the new text states that the diversity policy should focus on “all aspects and personal characteristics in which people differ from each other, including visible characteristics such as gender identity, age and ethnicity, but also less visible characteristics such as work disabilities and sexual orientation”.

Moreover, for the first time there is an explicit plea for “policy on diversity and inclusion”, or D&I policy. Inclusion, the newly added concept, refers, according to the committee, to “the ability of an organization to create a culture in which every employee feels valued and respected, so that employees have equal opportunities regardless of their identity and the progression of diverse talent to the top is facilitated”. In other words, there is diversity when you invite everyone to the party, but there is only inclusion when everyone feels free to get on the dance floor, or to sit out a dance. It is about nothing less than an organization's ability to create a culture in which people truly feel involved, seen and valued. This is much more complex - and much more difficult to determine from the supervisory role - than diversity alone.
The revised text also specifies in much more detail at which levels in the organization the D&I policy applies. The supervisory board must adopt a policy for “the composition of the management board, the supervisory board and, if present, the executive committee”, and must also supervise the D&I policy of the board for “both the subtop and other employees”. In fact, this concerns the entire organization, with the committee adding that it must involve “concrete objectives”. As a result, the new code offers far less room for interpretation.

Greater attention and more discussion
What exactly is expected of companies when it comes to workforce management? First of all, it is the task of the supervisory board. They will need to critically examine the diversity in culture and competencies in their own ranks and, when replacing members of the supervisory board, deliberately look for supervisory board members with an affinity, and preferably also experience, with diversity and inclusion. It may even be desirable to set up a separate D&I committee, in addition to the audit, nomination and remuneration committee, in order to generate sufficient attention for the subject.

The D&I policy must also be the subject of discussion in meetings of the supervisory board and executive board to a greater extent than is currently the case. This includes questions such as: Is the registration of gender identity, ethnicity or sexual orientation not at odds with privacy legislation? How do you measure whether those who do not move on within the organization were denied a chance because of a lack of skills or because of their background? Is there a role for satisfaction surveys to play in this? After all, in these surveys, employees can voluntarily and anonymously answer a number of questions about their background and at the same time indicate to what extent they feel involved, respected and appreciated. By repeating such a survey once in a while after a baseline measurement, the effects of the D&I policy become clear.

Culture, etiquette and physical adjustments
Starting at the top of the organization, the subject will have to flow like a waterfall throughout the entire company. An important role is reserved for managers. For them, it is important that training is provided with regard to a good and sustainable D&I policy at the workplace. This goes beyond a development and promotion policy with equal opportunities for all. It is also about culture and mutual manners. One aspect of this is transgressive behavior, which is currently in the spotlight, but seemingly “minor” things like the topics of conversation at informal moments such as drinks gatherings, company outings or the choice of meeting locations also play a role. Here, too, the interest of the largest group should not always be the deciding factor. A concrete example (even if it is a cliché) for clarification: If a majority of men consistently bring sports and cars into the conversation, while a minority of women are not interested in that, these women will eventually feel left out. If the company outing is always a sporting activity, less able-bodied (or sporty) employees will not enjoy it. Inclusion therefore also implies discussing such differences and taking them into account. Finally, in addition to all this, many concrete, physical adjustments are needed to give visible substance to the D&I policy. Take, for example, gender-neutral toilets, prayer rooms and a diverse range of food in the canteen: From halal to vegan.

Accelerator for business goals
All in all, organizations have a lot of work to do and a lot of hurdles to overcome. However, in my opinion the revised code mainly offers opportunities and a diverse and inclusive policy can be a huge accelerator in achieving business goals. It has been proven often enough that diversity leads to better decisions and thus to a more successful company. Moreover, employees who feel involved are motivated to deliver optimal performance. In addition, the revised code puts much more emphasis on ESG and long-term value creation. According to the new text, companies must “provide insight into how they implement the ESG aspects of the Code” and “formulate a clear strategy in the field of ESG as part of their strategy for long-term value creation”.

A diverse and inclusive policy automatically contributes to that long-term value creation and can therefore be an accelerator for ESG policy. Young people are part of a large movement that wants to look at the future in a much more sustainable way. Organizations that give that group a bigger platform, instead of reverting to the old boys' network, will more often take decisions which safeguard that long-term vision. Moreover, ESG targets are currently still very one-sidedly emphasized on the 'E' of environmental, while the 'S' of social deserves equal attention. A D&I policy that contributes to giving opportunities to more groups in society an opportunity achieves an important social objective and therefore improves the 'G' of governance – after all, which relates to, among other things, long-term goals, ethical behavior and remuneration of employees and directors.

Less incapacity for work
I also see opportunities in our field of insurance. A large proportion of absenteeism and incapacity for work has a psychological cause. That can be private or work-related, or a combination of the two. If someone is struggling privately with identity, orientation or origin and at the same time does not feel accepted in the workplace because of that sense of otherness, these two problems can reinforce each other and lead to absenteeism and work conflicts. Especially in these times, when it is very difficult and expensive to acquire labor, it is important for employers to keep people healthy. Moreover, I am convinced that companies with a demonstrable inclusive policy have an advantage on the job market when it comes to attracting talent.

No priority? Get to work anyway
Many companies will have to work hard to comply with the letter and spirit of the revised workforce management code. The will is there, but given the challenges that an average organization currently faces, it is often not a priority. Nevertheless, it is important to give concrete substance to the structure of the D&I policy now. Above all, it offers companies many opportunities to give their ESG policy a boost and to distinguish themselves positively in a tight job market.

This essay was published in Management Scope 04 2022.