How effective are chief diversity officers?

A study in the university context found that executive level diversity officers or chief diversity officers (CDO) did not have a significant impact on the hiring of diverse faculty. This is interesting since, as the authors of the study say, the hiring of such a CDO often signifies the university’s commitment to diversity. The study is quantitative and does not explain why CDOs are unable to have an impact although it says at the outset that “in a university with shared governance, it is not immediately clear how much influence an executive level CDO can exert upon faculty hiring decisions made by individual departments”.

The study is also interesting for people interested in diversity in the corporate space because it has become common for large companies to hire CDOs. In an FT article that was published about a month ago, some CDOs (in the corporate sector) have been quoted as saying that the lack of resources available to them is often the greatest impediment for them. One CDO has cited two important resources namely a direct reporting line to the CEO and access to human resources data. Both these issues, particularly the former, speak to the basic issue of whether the company management is genuinely interested in diversity or is merely signaling interest by hiring a CEO. On the same lines, another CDO cited in the same FT article says that CDOs are in danger of simply becoming event planners.

While the big issue is clearly the need for organizations to genuinely want to focus on diversity (as against simply signal such commitment) there are also other finer details that might need to be looked into in terms of strategies used by CDOs. I’ll make two quick points on this here. First, the strategies should speak to inclusion rather than just on numerical targets. Second, the strategies should go beyond merely planning diversity training workshops (often mandatory) which are not always effective unless accompanied by structural changes in the organization.

BHRRC’s verdict on the UK Modern Slavery Act, 2015

The verdict on the UK Modern Slavery Act, 2015, per the Business and Human Rights Resource Center’s recent report is that compliance has been poor. The report assessed over 16,000 modern slavery statements of some of the largest global companies in the past five years and found that although 40% of the companies were not compliant, “not one injunction or administrative penalty (such as exclusion from lucrative public procurement contracts) has been applied to a company for failing to report”. Further, it found that the majority of companies were publishing general statements that did not “achieve the intention of the law”. The report recommends (amongst other things) a new law “that imposes [civil and criminal] legal liability on all companies in all sectors which fail to prevent human and labour rights harms from occurring in their business operations”.

For me, the more interesting recommendation is with regard to the enforcement apparatus. The report says:

Enforcement of such a law could be undertaken by an independent business and human rights regulator (BHR Regulator) empowered to, among other things, monitor human rights due diligence, investigate allegations of failure to prevent adverse human rights impacts and impose civil penalties where the harm is proven. A potential game changer would be power to conduct market investigations: in-depth investigations of a whole market sector that could apply to high-risk sectors in which human and labour rights abuses have become endemic. Market investigations could pre-emptively address structural risks and systemic failures to prevent further abuse.

If the problem we have is a failure to enforce compliance, then what is obviously needed is an effective enforcement apparatus rather than a revamping for the entire law. Public pressure and reputational consequences play a role as was the case with Boohoo. The regulator will help detect (and as a next step, publicize) non-compliance and companies will be incentivised by reputational consequences to work with the regulator to ensure compliance.

Can corporations contract out of class actions in Australia?

This has not yet been tested in Australia but Charles Noonan, provides an interesting analysis from an Australian perspective on this question in an article in the Melbourne University Law Review which I enjoyed reading. Here’s a quick summary but I recommend the entire article!

In support of class actions, the article notes, (amongst other things like access to justice, and efficiency), Finkelstein J’s comment that they “promote investor confidence in the integrity of the securities market” and that “they enable investors to recover past losses caused by the wrongful conduct of companies and deter future securities laws violations”. Considering the lay of the land for arbitration, the article notes that class arbitration has not been provided for International Arbitration Act 1974. Although Australian courts could recognize it (as US courts have done) the article notes that “due to the private nature of arbitration and the fact that, even overseas, class arbitration is something of a ‘mythical beast’”, class arbitration cannot be relied on to further the goals of class actions. The article then gives us interesting examples of companies (like Spotify) requiring via the arbitration agreement, that actions should be brought on an individual basis.

US courts have largely upheld contractual freedom and given effect to the terms of the arbitration agreement, while a recent Canadian decision (involving Uber and its drivers) found the arbitration agreement unenforceable on the basis of unequal bargaining power of Uber and is soon to be decided by the Supreme Court of Canada. Through an analysis of Australian law, the article suggests that Australian courts could take a position similar to the one in the Canadian case, with the decision regarding validity of the arbitration agreement turning on the balance of power between parties. This is based on guidance provided in the Competition and Consumer Act and ASIC Act.

I find this analysis compelling because it strikes a balance between freedom of contract and concern for unequal bargaining power between parties.

Shop at Superstore to buy an insight into workplace issues

Everyone has heard of shows like Emily in Paris and Indian Matchmaking. I didn’t particularly care for the little I watched of the latter show (probably because I’m Indian and cringe at the stereotypes more than others would) and thought there were some bight sparks in the former (most likely because it was released in the height of lockdown restlessness). In any case, these shows were much talked about and intelligently written about.

On the other hand, Superstore, another show on Netflix does not seem to have got the attention it deserves. By some stroke of luck I caught the show and I’m amazed that I haven’t heard of it before especially since I research and write about corporate governance, corporate diversity etc. One scene where a retail store manager who is called by “corporate” and asked to apply for an executive role finds that all the interviewees happen to be Latinas is pure gold. One candidate tells her that management probably realised they were missing a colour in the crayon box while another says that she was not above rolling her Rs to get the job. The aforementioned store manager is then shown answering the interviewer intelligently only to be nudged towards her ideas re “customers of colour”. We then see the candidate struggle to improvise and throw in phrases like “as a Latina..” and “cultura” with a pronounced accent and the interviewers immediately sound impressed. Obviously the show is tongue in cheek but the scene also has a lot of truth about the reality of today’s diversity discourse. Should people of colour be hired only because of their ability to speak their native language and connect with a certain demographic, or should they be appreciated for their talent objectively? These are questions we should be trying to answer but as it happens, we rarely do. It’s great to see a show take these issues on.

Protectionism – a late symptom of Covid-19

Montek Singh Ahluwalia, says half-joking in his book Back Stage that politics eats economics for breakfast. It seems Covid-19 is giving politicians a good excuse to go beyond broad economic policy and interfere in business decisions. I’d discussed an example from France earlier and unfortunately I’m about to return to France in my current post. The French government recently blocked the takeover of Carrefour, a French supermarket chain by Couche-Tard, a Canadian company on the grounds of…wait for it…”food security”. The FT reports that the “French finance minister issued a “courteous but clear and definitive No” at a cursory meeting with Alain Bouchard, Couche-Tard’s Québécois boss…” without a serious attempt to assess the offer. The reasoning seems to be that there could be a backlash if the government allowed “Carrefour, the country’s largest private sector employer with 100,000 staff and a big purchaser of French agricultural products, to fall into foreign hands”. Such protectionism will not be good for France in the long run as India’s experience prior to liberalisation (the book cited earlier in the post is a nice peek into this) should be a lesson for countries tempted to adopt protectionist policies as a response to Covid-19.

Courts of Space

Space activity has been heating up in recent times with corporations joining the fray in recent times. With business activity in the sector increasing, disputes are also bound to increase. It therefore comes as no surprise that one of the major financial centers of the world (Dubai) has announced the creation of a “Courts of space” or less dramatically, an arbitration tribunal specialising in space activities of private companies. Based at based at the Dubai International Financial Centre (DIFC) Courts, the Courts of Space is “is a global initiative that will operate in parallel, helping to build a new judicial support network to serve the stringent commercial demands of international space exploration in the 21st century” (in the words of the chief justice of the DIFC courts).

In reality, arbitration in the context of commercial activities in outer space is not new. As Jan Frohloff wrote in a 2019 article, “disputes in the space industry are a reality and end up in arbitration on a regular basis” with choice of law clauses usually designating international arbitration centers like New York.

However the DIFC’s Courts of Space has an agenda that promises to offer advantages that come with specialization. One of the things it plans to do is to establish guidelines to support space-related disputes. It also plans to train judges to become experts on space related disputes. The latter is aimed at creating a cadre of judges who are subject-matter experts; and the former will provide predictability and certainty to parties. If the agenda is successful Dubai, as a first mover in the sector, could emerge as an important dispute resolution center for space activity. They will do well to take lessons from specialist courts in corporate law and bankruptcy law, in terms of further developing the judicial infrastructure. Further, the guidelines might also need to develop protocols for cooperation with other tribunals/ courts in the event of multiple actions related to a single dispute. Again bankruptcy law could offer some guidelines in this context.

Do not mandate – Board evaluations; CSR

Describing the fate of board evaluations in the UK, a recent FT article says that “compared with the no-homework” world in the past, boards today either “set and mark their own homework” (referring to self-evaluations) or “pay someone to set and mark their homework”. In both cases, the article adds that the companies “can still decide, however, how much to tell their parents about their results”. In such a state of affairs, should parents (shareholders) trust these evaluations? If not, the entire exercise becomes one of box-ticking. the same FT article presents a view that the way to lessen the concerns of conflicted evaluations is to require the company to explain how they deal with conflicts if the same external consultant is used for a certain period of time. We are ultimately better off not mandating that companies conduct board evaluations and instead leave it to boards that honestly want to improve to engage in such an assessment. It will also be useful if institutional investors start engaging with companies that do provide board evaluation reports to ask for the methods of evaluation and also enquire into possible conflicts of interest.

The other thing that would work better without mandatory laws is CSR. I have been critical of India’s mandatory CSR law particularly in the context of the confusion it has created during the pandemic. Most recently, I had written about how India’s Ministry of Corporate Affairs (MCA) clarified that companies creating awareness programs for Covid vaccinations would be considered CSR. Further, companies providing vaccinations for their own employees would not be considered a CSR activity; although providing vaccinations for their supply chains would be considered as CSR activity. Looking at corporate initiatives in other countries like the US suggests that this level of micro-management from the MCA in India, or even a mandatory CSR requirement is in fact not required. Budweiser recently announced that it would not advertise in the Super Bowl as it usually does, and instead, allocate the money that would have been used for advertising, to a covid vaccine awareness program. Separately, companies like Amazon, Starbucks, Walmart, and Microsoft have offered to help with vaccine distribution in the US. Clearly, companies respond to crises with initiatives where they can be helpful, whether or not there is a mandatory law. Where such a mandatory law exists (As it does in India), it seems to increase government costs (with the MCA constantly having to clarify what counts as CSR and what does not) which should be used more productively.

Not just a cricket story

India recently won the Border-Gavaskar series (to readers who don’t follow cricket: this is a cricket series between Australia and India) against Australia in Australia. It has been a big cricket story across the world but it should really be a free markets story as well. Let me explain why. Part of the reason why this is a big cricket story is because most of the members of the Indian team sustained injuries through the series which meant that the team that actually played the final match constituted a number of players that simply happened to be on the tour to Australia (some of them, to help the playing eleven practice). The fact that this group of stand-in players went on to win against a good team in their own backyard makes for a compelling story. However, it becomes even more interesting when we look at the back stories of many of the players in this Indian group. Many of them have humble backgrounds and come from small towns and villages which is a direct contrast to the past when the players mostly came from big cities where they could access both facilities and selectors.

So what gives? The Indian Premier League (a professional cricket league started by the Board of Control for Cricket in India) that allows franchises to form teams and compete against each other which started in 2008 seems to be at the heart of the change in Indian cricket. An article in the Live Mint had prophetically discussed the IPL’s potential back in 2008:

If liberalization in the 1990s unlocked the entrepreneurial energy of India, and allowed the trickle of wealth creation to begin, IPL has broken open the dam on the debate about markets in our country. In one stroke, it has moved the theatre of action on free markets from the chandelier-tinkling conference rooms of Delhi to the galis and nukkads of every town and village in India. Millions of Indians will now, forever, engage viscerally in a manner that no trickle-down process could ever achieve.

True enough, the IPL created more opportunities and saw players from small town India making it to franchise teams and playing alongside international cricketing stars. Franchisee selectors have been identifying players from local tournaments in interior areas. Talented players outside of the top tier cities without easy access to selectors were suddenly able to access opportunities to play in the franchises. Despite criticisms that the BCCI has a monopoly over franchise cricket in India, the IPL’s ability to allow players to access opportunities and resources previously unavailable to many of them should be celebrated in its own right and perhaps even beyond the cricket series in question.

CSR and Covid-19 – Afterward

The Ministry of Corporate Affairs in India has made a series of clarifications about what activities would be considered CSR as defined under the Companies Act, 2013 which requires “every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year” to spend “in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years” on CSR activities. The Act then provides a list of activities that would constitute a “CSR activity”. Such rigidity obviously made clarifications necessary during the pandemic when many companies wanted to include their responses to it as a CSR activity. Ultimately the Ministry of Corporate Affairs (MCA) issued an order in March 2020 stating that companies’ responses to the pandemic could be classified as CSR. While the decision seems logical, the real issue is that the rigidity in the CSR requirement caused unnecessary confusion and delay.

Here’s how I had concluded my OBLB post on this issue:

The lesson to take beyond the pandemic is for the Indian government to resist the urge to intervene in how companies comply with the CSR provision in the law. Allowing companies to be creative and using their CSR activities to gain reputational capital is not a bad idea. In fact, this should be further encouraged by letting companies disclose their social activities along with the CSR disclosures (relating to the required spending) required by the law.

Unfortunately the lesson was not taken and the Ministry of Corporate Affairs has more clarifications on the matter particularly with respect to Covid-19 vaccines.

(i) Pre-vaccine

A notification in August 2020 allowed companies to classify investment in R&D activities related to Covid-19 vaccine as CSR. An official is reported to have explained this as follows: “The decision was taken in line with the Prime Minister’s directive to encourage new drug discoveries for Covid-19, and a top official of the PMO [Prime Minister’s Office] played an active role in this”.

(ii) Post-vaccine

A notification in early January 2021 clarified that companies providing vaccinations for their own employees would not be considered a CSR activity; although providing vaccinations for their supply chains would be considered as CSR activity. A few days later, a clarification about the notification issued in March 2020 was issued. In essence, it clarifies that Covid-19 vaccine awareness campaigns would be considered as CSR activity.

Apart from creating delay and confusions about what activities might be considered CSR, this level of specificity allows the government to essentially dictate the terms of corporate philanthropy. As I’ve said in the quoted text above, companies should be given freedom to leverage their CSR activity creatively in order to build reputational capital. Taking away this incentive will only create check-the-box CSR activity from companies and in the bargain, both companies and societies stand to lose.

Beware of fake news (with or without social media platforms)

Some have sought to blame the tech giants for their part in the riots at Capitol Hill. However, it is good to see two different articles cautioning against knee jerk reactions like the repeal of Section 230 of the Communications Decency Act of 1996. Both articles (in the BBC and FT) refer to a study published by Berkman Klein Center at Harvard University. The study summarised its findings as follows:

Our findings here suggest that Donald Trump has perfected the art of harnessing mass media to
disseminate and at times reinforce his disinformation campaign by using three core standard practices of professional journalism. These three are: elite institutional focus (if the President says it, it’s news); headline seeking (if it bleeds, it leads); and balance, neutrality, or the avoidance of the appearance of taking a side. He uses the first two in combination to summon coverage at will, and has used them continuously to set the agenda surrounding mail-in voting through a combination of tweets, press conferences, and television interviews on Fox News. He relies on the latter professional practice to keep audiences that are not politically pre-committed and have relatively low political knowledge confused, because it limits the degree to which professional journalists in mass media organizations are willing or able to directly call the voter fraud frame disinformation. The president is, however, not acting alone. Throughout the first six months of the disinformation campaign, the Republican National Committee (RNC) and staff from the Trump campaign appear repeatedly and consistently on message at the same moments, suggesting an institutionalized rather than individual disinformation campaign. The efforts of the president and the Republican Party are supported by the right-wing media ecosystem, primarily Fox News and talk radio functioning in effect as a party press. These reinforce the message, provide the president a platform, and marginalize or attack those Republican leaders or any conservative media personalities who insist that there is no evidence of widespread voter fraud associated with mail-in voting.

Thus, the bigger problem seems to be (apart from Trump and others responsible for the disinformation campaign) misinformation spread by some media sources. The study further found that found that social media activity around the subject surged when mainstream news reports carried speeches about it by Trump. Further, as John Thornhill at the Financial Times reports, most of the insurgents who stormed Capitol Hill had already moved off the big tech giants like Facebook and Twitter and to more niche platforms.

In any case, both Twitter and Facebook have locked Trump out of his accounts on their platforms. This might have the effect of Trump’s supporters calling for regulation of the social media giants to add to calls from the other side of the political spectrum for social media regulation. In this context of increased calls for regulation, it is worth emphasising another point Thornhill makes. He cautions that repealing section 230 would only reinforce the dominance of Facebook and Twitter because the responsibility of checking information would be too much of a burden on new challenger companies. (This is an argument Leonid Sirota and I had made here in 2019.)

While all these media platforms including Facebook and Twitter were certainly weaponised by Trump, it is interesting to note that misinformation is not a new social media era invention. In a recent book, Profit and Prejudice – The Luddites of the Fourth Industrial Revolution, Paul Donovan writes that a pamphlet was used (in 1848) to spread misinformation about Jewish banker, Nathan Rothschild apparently profiting from the Battle of Waterloo by manipulating the London financial markets. As Donovan says, “it was “fake news” in a world without Twitter” (at page 7). Rather than hasty regulatory reform, it is a good time for civil society to realise the importance of being vigilant about news sources, be responsible about what they share, and try to diversify the sources of news consumption.