Deficient Diversity and Social Justice are Unpriced Externalities to Business
Many of the planet’s most vexing problems are increasingly openly discussed - we all, with the good fortune of living in a time that affords most of us safe places to live, ample food, decent healthcare and education, and leisure time, are able to dwell more on the question of ‘now what?’ As people turn their attention to systems and institutions as agents of change, we are motivating business to play a role in fomenting a more just and sustainable world - and they are.
Acknowledging Climate Change, and Costs of Extraction as an “Externality”
Most large companies are tackling matters important to us. Increasingly, corporations are adopting stakeholder-centric policies[1], engaging the communities that offer them license to operate, including their employees, consumers, supply chain partners and, of course, shareholders. Most common across the sustainability objectives of larger corporations is climate change. With the science indisputable (amongst reputable scientists and governments) and front of mind for virtually all stakeholders, businesses have come to understand that extractive commodities, sold at profit above costs, mask the enormous hidden cost - the impact on the planet and human well-being. These costs avoided by companies are borne by people and the planet is referred to as an “Externality”.
Bad for People and Planet is Bad for the Company
Externalities pose risks not only to those that bear the price of it, but inevitably the companies creating and exacerbating them. Threats include significantly reduced profits due to penalties and new costs, diminished valuation and access to capital, and eventually, it is existential. Business has now come to recognize these risks. There is a grand shift in the collective effort to address these problems, as the costs are borne by all of us.
Rally for the Planet, But for Marginalized Peoples?
The climate crisis impacts all of us inevitably, even if not ratably. So let’s shift from environmental challenge to a social one: race, particularly in America. The problem with time to dwell on the ‘now what?’ is that this introspection leads to difficult conclusions for the privileged (those with both the most time to think about it and power to act on it) to reconcile. Further, while the planet has been degraded largely under white male leadership, business can draw solace from custom and culture - the fact that most Americans consume with a vastness outstripping the rest of the world and with the belief among us that “the American way of life is not up for negotiation. Period.”[2]
With Racial Equity, however, it’s easy to see how business leaders can say to themselves, ‘I feel no mea culpa personally, and I'm righteous in my efforts to fix these problems now.’ It is particularly difficult for largely white business leaders 1) to acknowledge they have benefited from a biased system, even if by no choice of their own and 2) look back to undertake measures to redress the circumstances that led to inequity, as to do so tacitly accepts that privilege played a role in getting them ahead. So, with regard to Racial Equity, we get pronouncements about ambitious Diversity, Equity & Inclusion (DEI) policies, large caches of money that corporations pledge for use in historically Black communities, for BIPOC[3] founders who’ve lacked access to capital markets, commitments to subsidies to impact women coders, education and home ownership. We get the immediate renaming or vanishing of brands and logos with racist names and imagery, as if it’s now over: ‘we’ve done these things and now we’re all good’. There’s an underlying whisper behind it - ‘Are we good now? Can we just move on? Can you just get over it already?’
Don’t get me wrong - all of this, ALL of this is a step in the right direction. But none of it acknowledges the past, seeks forgiveness for it, and therefore, creates dialog and actions with plausible pathways to move forward. This current modus operandi works for leadership because there is no mea culpa; there is no work that takes time and effort. They are fixes, as if to say racial inequity only existed last quarter, but we are done with it now, a one-time adjustment and hit to earnings.
Social Justice and Racial Equity is an Unpriced Externality
Watching the furor and emotion unleashed this past summer, related to the killing of George Floyd, among others, and myriad, persistent systemically racist over-policing, excessive sentencing, and the focused, heightened undue force used against People of Color made apparent the unpriced societal externality of pretending that all people are free and equal in America. Considering business’ historic silence with regard to racism as a societal externality in America, it is not surprising that within business enterprises there exists a concomitant bias, creating large pay gaps between white, and black and brown employees, and a dearth of Board or C-Suite positions held by People of Color. As with climate, corporations have exacerbated costs (though clearly not solely) related to Racial Equity and Social Justice. These costs avoided, in part, by business, have been passed on to all of us - Social Justice and Racial Equity is an unpriced externality for corporations with license to operate in the US.
Equality is Time Zero On, Equity is Backward Looking
The crush of initiatives to ‘right’ these wrongs, at the corporate level, manifest in daily business news headlines and are heartening to see. However, heightened DEI protocols, trainings, the efforts made by Human Resources departments to reduce bias in job screening processes, acknowledging and seeking the better decision-making prospects that come from more diverse leadership and board membership are all rooted in fixing the NOW - equality, but does not account for, redress, or hasten a leveling: equity, for BIPOC. This is the vexing problem that remains.
NexGen, Net Impact - Nothing About Us Without Us - We Can Insist on Change
As with much of what might make for a more just and sustainable world, we hold that vision. But the narrative of negotiating a glide path from here to there has historically been maintained by a narrow and powerful few. This too seems to be changing - with regard to business, by the inexorable move in the direction of “Stakeholder Capitalism”. We all must lean in on this dynamic shift. Rather than cynicism about intentions, let's take up the new and expanding mantle presented to all stakeholders - we as a community affording companies the license to operate, we as consumers, as current or future employees and leadership, we as inevitable owners can insist on being heard.
Business, being rational, non-anthropomorphic entities seeking the trifecta of long-term prosperity, purposeful, engaged employees, and satisfied customers, now seeks (or is open to) influence that affects these objectives. Just as the climate crisis is an externality creating costs not presently borne by corporations, so too is Social Justice and Racial Equity. As with climate, business may need to influence regulation and policymaking regarding the externality of Social Justice and Racial Equity, as the government has either been too slow, too attentive to re-election, or frankly, for sale. This can change as business begins to see policymaking and positive, promotive civic engagement as the frontier of their inexorable move in the direction of “Good”. Reducing the external costs to business, a function of social injustice and racial inequity, is not a Right vs Left issue, it is a Right vs Wrong issue. We know, and they need to know that distinction.
[1] ‘Business Roundtable Redefines the Purpose of a Corporation to Promote An Economy That Serves All Americans’ - August 19, 2019. https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans
[2] President George H.W. Bush, Rio de Janeiro Environmental Summit, 1992
[3] Black, Indiginous and People of Color
