On April 1st a judge struck down California’s corporate diversity mandate. The 2020 law required publicly-traded corporations headquartered in the state to have at least one board member from an underrepresented community seated by the end of 2021, and minimum representation in relation to the overall board size by the end of 2022.
We know that diversity is good for business:
Companies with above-average diversity have 19% higher innovation revenues and 9% points higher EBIT margins, on average (source: 2018 Harvard Business Review, “How And Where Diversity Drives Financial Performance”)
Companies in the top-quartile of culture and ethnic diversity on their executive teams outperformed those in the fourth-quartile by 36 percent in profitability (source: 2019 McKinsey report, “Diversity Wins: How Inclusion Matters”)
We know the average American boardroom is anything but diverse:
While almost 40% of the people in this country are minorities, minorities only make up 10% of corporate board seats (i.e. 4x underrepresented). For Black Americans it’s only 4% of board seats despite making up 13% of the US population (i.e. over 3x underrepresented). (source: Take Your Seat)
If legislation can’t compel companies to promote diversity, what can?
Business can. And business should.
One month before the California legal decision, applications opened for the 2022 Black Ambition Prizes. Created by Pharrell Williams, Black Ambition awards funding (up to $1 million) and support to Black and Latinx entrepreneurs.
This is impact investing that recognizes certain communities have been left out and left behind. Not because they aren’t good enough. Not because they aren’t smart enough. But because they were never offered a seat at the table.