One phrase in an executive order signed by Donald Trump last week must have caused a collective inhaling of breath from diversity divas in Australia.
That Trump wants an end to the “diversity, equity and inclusion” fad was no surprise. What’s most agitating to DEI devotees is the language he used when announcing its demise.
Trump said DEI policies “not only violate the text and spirit of our longstanding federal civil rights laws, they also undermine our national unity, as they deny, discredit, and undermine the traditional American values of hard work, excellence and individual achievement in favour of an unlawful, corrosive, and pernicious identity-based spoils system. Hardworking Americans who deserve a shot at the American Dream should not be stigmatised, demeaned or shut out of opportunities because of their race or sex”.
In that terrific denunciation of DEI is one short phrase – identity-based spoils system – that exposes the racket. That kind of cut-through is enough to make Australian beneficiaries of DEI gird their loins for battle. Having secured the spoils from DEI, don’t count on DEI benefactors giving them up. Many are already circling the wagons in a highly public effort to hold on to the identity-based spoils system that secures them money and prestige. In their corner is Australia’s superannuation system, where huge investment funds dominating Australia’s corporate landscape have entrenched left-wing fads.
Industry funds, controlled by unions and beloved by Labor, hold the levers of corporate power and have no compunction in using them for ideological ends. Aided and abetted by proxy advisers, these funds are playing social engineers in the ASX-listed companies, DEI being just one of their engineering feats.
There is a confluence of interests between DEI beneficiaries and industry funds. The latter know they can rely on the former to help implement policies within corporations, far beyond DEI. To put it bluntly, many beneficiaries of DEI are unofficial loyal lieutenants of super funds. The claim that DEI helps rid boards of group think is, frankly, a joke. The opposite is true. DEI appointees tend to swing one way having come from the same political, social and cultural milieu.
That’s why super funds have used their voting power to install a cadre of DEI advocates on listed company boards and inside influential governance bodies such as the ASX Corporate Governance Council. Given these stubborn homegrown forces, some horsepower is needed to defeat DEI in Australia: reasoned arguments, an injection of common sense, long overdue legal changes, and, let’s face it, a dose of public shaming.
DEI divas have never been shy about naming and shaming companies that haven’t drunk the DEI Kool-Aid fast enough or in sufficient quantities. They shouldn’t be surprised to have their names out there when counter arguments are put.
So, let’s get to work. First, there is no evidentiary foundation to DEI. From the get-go, it was built on sand, piled especially high in a 2015 report by McKinsey that claimed a connection between corporate profits and diversity in executive ranks. When its results were exposed as untrue by a number of academic observers, McKinsey tweaked its modelling and said: “We have also been clear and consistent that our research identifies correlation, not causation, and that those two things are not the same.”
Alas, zealots paid no attention to this. The McKinsey report was their corporate bible and its untrue claims about the benefits of diversity became religious dogma.
Despite the lack of evidence to support diversity as a profit-boosting policy, the McKinsey report turbocharged DEI: in 2015 the Australian Institute of Company Directors set a 30 per cent gender target for ASX 200 board seats by 2018. Likewise, the Australian Council of Superannuation Investors said it would be voting against directors on boards with poor gender diversity. AICD chair Elizabeth Proust called that a “game changer”. The DEI divas were in clover.
When Trump signed executive orders to dismantle DEI across government agencies, pointing out the pernicious nature of this spoils-based system, DEI divas in Australia went full throttle. Gone, however, is any mention of DEI boosting profits – because not even the original McKinsey said that. Now advocates have tweaked their language to talk nebulously, but still without supporting evidence, about “financial risks”.
Australian Council of Superannuation Investors chief executive Louise Davidson said: “Diversity – or lack thereof – is a financially material risk, so we do not anticipate that there will be a reduction in investor focus on how companies are planning for and managing diversity.” HESTA boss Debby Blakey said corporate cultures that don’t encourage diversity “pose a significant material risk to investors”.
Despite no evidence showing that DEI leads to higher profits, it’s time to call bulldust on DEI activists protecting their spoils-based system. ACSI and the Association of Superannuation Funds of Australia, representing some of the nation’s largest super funds and institutional investors, have thrown their weight behind the ASX Corporate Governance Council changes demanding ever higher quotas for female board members, along with tougher corporate reporting of diversity efforts beyond gender.
Alas, reasoning and logic are not part of the DEI ideology. The giant hole in the push for higher gender targets and tougher reporting about diversity is this: If the benefits of DEI for business are so blindingly obvious, why do we need to mandate quotas? If any halfway competent director should know that diversity increases shareholder value, why do we need prescriptive quotas, targets and reporting measures? If it is so demonstrably good for business, then a board that doesn’t ensure sufficient diversity is breaching its fiduciary duties to shareholders.
Why can’t diversity be left to the common sense of directors or, if that fails, their fear of litigation? After all, there is a whole universe of feral litigation funders looking for opportunities to sue boards that don’t take obvious steps to enhance shareholder value.
Could it be that if diversity wasn’t mandated with a blizzard of quotas, targets and reporting demands, together with bullying from activists, some of those currently enjoying the spoils of quotas – and those hoping to do so in the future – fear their personal cash registers might stop ringing?
The spoils-based DEI system in Australia is almost exclusively for the benefit of women, and works heavily in favour of affluent, well-educated women. Are these middle-class women fighting so hard to hang on to quotas because, if they are abandoned and diversity left to the good sense of boards, they might have to share the spoils with say, bright but poor males of immigrant extraction? God forbid that blokes should benefit from DEI.
Indeed, the fact the defenders of quotas fight so hard to keep them might reveal, not only their motivations, but whether they believe their own story. Maybe they know that if logic won’t secure wealth generating quotas, then they need regulators to do it for them.
The other reason DEI is on borrowed time is the flow of capital. A revitalised US economy and regulatory system will expose corporate Australia’s fetish for increasingly stale corporate fads. There are already promises from Australian businesses to send investment capital to the US.
How long before we are forced to drain our corporate and regulatory swamps?
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