How desirable is leadership diversity?

How desirable is leadership diversity?

29 September 2020 By Jerome Doraisamy
How desirable is leadership diversity

In the US, it appears that chief legal officers and institutional investors have vastly different views regarding the importance of increasing diversity.

The Association of Corporate Counsel (ACC) and global communications firm Edelman have released the first joint Trust in Business Report, a survey of chief legal officers (CLOs) and institutional investors on their perceptions of how to increase public trust in businesses.

The report is the “first collaboration of its kind”, ACC said in a statement, measuring the factors that impact corporate trust from the perspective of chief legal officers (CLOs) and institutional investors. It draws on ACC’s 2020 CLO Survey and Edelman’s 2019 Trust Barometer.

Importance of leadership diversity

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It is clear, Edelman reports, that investors believe that increased diversity “has a significant positive impact on [their] trust in a company” – however, it appears that those investors see the issue differently to CLOs.

On the question of gender, 90 per cent of CLOs rank this as important to trust building, compared to just 21 per cent of institutional investors, marking a “startling” 69 per cent gap. Race also had a stark discrepancy, with 53 per cent of CLOs seeing this as important compared to just 18 per cent of investors (35 per cent gap).

The results were similar on ethnicity, with 44 per cent of CLOs ranking this as important for trust, while just 21 per cent of investors saw it the same way (23 per cent difference).

With regard to nationality and age, however, the results were flipped, with 23 per cent of investors seeing the former as necessary for trust compared to 15 per cent of CLOs (8 per cent gap) and 26 per cent of investors valuing the latter compared to 8 per cent of CLOs (18 per cent gap).

Conversely, 59 per cent of institutional investors see business areas of expertise as critical for trust compared to 51 per cent of CLOs (8 per cent gap), 52 per cent of investors value experience outside of the relevant industry or sector in contrast to 15 per cent of CLOs (36 per cent gap) and business strategy philosophies are hugely important to investors for trust (53 per cent) while just 13 per cent of CLOs see this as essential for trust building (40 per cent gap).

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“Institutional investors are clearly ranking business experience as a trust factor well above demographic factors, while CLOs, for the most part, do the opposite,” the report surmised.

Reflections on the results

“While there’s no debate that establishing and maintaining the public’s trust in a company is critical, how to get there may differ based upon one’s perspective,” said ACC president and CEO Veta Richardson.

“In-house lawyers both understand that trust is critical and they are increasingly asked to play key roles to build trust from the inside and contribute to cultivating the company’s relationships with investors, shareholders, employees, and clients alike.”

Edelman general manager of financial communications and capital markets Josh Hochberg added: “Investors are now acutely focused on how employees and other stakeholders can impact the valuation of companies in which they invest.”

“Companies that excel in driving ESG and other factors beyond financial performance will gain a clear advantage in winning investor trust and supporting a premium valuation. Investors believe that companies that fail to do this will be responsible for consumer, shareholder or employee activism.”

How desirable is leadership diversity?
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