Republicans Wasted Their Summer Attacking DEI and ESG. By Sarah Green Carmichael

Republicans Wasted Their Summer Attacking DEI and ESG

Analysis by Sarah Green Carmichael | Bloomberg

August 10, 2023 at 7:53 a.m. EDT

DES MOINES, IOWA - JULY 14: Florida Governor Ron DeSantis speaks to guests at the Family Leadership Summit on July 14, 2023 in Des Moines, Iowa. Several Republican presidential candidates were scheduled to speak at the event, billed as “The Midwest’s largest gathering of Christians seeking cultural transformation in the family, Church, government, and more.” (Photo by Scott Olson/Getty Images) (Photographer: Scott Olson/Getty Images North America)

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The Republican “war on woke” has taken many forms, but perhaps none is more bizarre than the party’s attacks on a couple of three-letter corporate acronyms: DEI and ESG, or, to spell them out, diversity, equity and inclusion and environmental, social and governance. Both are mainstream business practices and have been around in one form or another for decades — which makes them odd targets for the party that once proudly proclaimed itself a job-creation engine.

Yet last week, a board appointed by Florida Governor Ron DeSantis to govern Walt Disney Co.’s special tourism district voted to outlaw all DEI programs and job duties. It’s the latest in a series of anti-DEI moves flowing from the flailing presidential candidate, who in May banned DEI efforts at the state’s publicly funded colleges. That parallels an effort by Texas Governor Greg Abbott, who signed a similar bill in June. Both states have also led the charge against letting state money be invested using ESG criteria.

Politicians like DeSantis and Abbott have painted both policies as politically motivated perversions of business practices. But that’s generally not how corporate America sees them — and most voters don’t seem particularly bothered by them, either. A poll conducted in July by the New York Times and Siena College suggests Republican primary voters care much more about law and order and immigration. The anti-DEI amendments House Republicans slapped onto the annual defense bill appear likely to be stripped from the final version when Congress reconvenes after Labor Day. And DeSantis, the self-appointed leader of the anti-woke crusade, is struggling to keep his campaign going — replacing his campaign manager on Aug. 8.

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If the Republican war on DEI and ESG is failing to gain traction, perhaps it’s because they picked the wrong targets.

Let’s start with DEI. Many employers now believe it makes good business sense to pay attention to how corporate practices affect different groups of people — that it makes talent management more data-driven and rigorous.

Here’s a specific example: performance reviews. Decades of peer-reviewed research have shown that women and minorities tend to get feedback that is less specific and more personality-driven. A White woman might be criticized for having “sharp elbows” while a Black man might be praised for his “great smile.” In contrast, White men are more likely to get specific, actionable feedback tied to business results. The problem isn’t only that women and minorities are being held to a higher standard (putting the company at risk of litigation). Itt’s also that people in these groups tend not to get the feedback needed to improve – White men more often do.

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To fix this, companies have been tweaking the design of performance evaluations. Instead of giving managers a blank sheet of paper, HR leaders ask managers to provide specific examples; focus on job criteria; and rate personality and skill separately. Such practices have been shown to result in ratings that are less biased and more useful — to everyone. If Ron DeSantis is really campaigning against more rigorous performance reviews, that might indicate one reason why his campaign is having so much trouble.

Yes, there are aspects of DEI efforts that may ruffle some employees’ feathers. New York Times columnist David Brooks isn’t wrong when he points out that the ever-changing language of inclusion can be off-putting. Even some champions of DEI are left wondering at the push to make it “DEIB” — the B is “belonging,” which truly doesn’t seem that different from “inclusion.” Yet the basic approach is so ingrained as a corporate norm that even the company founded by Republican presidential candidate Vivek Ramaswamy, who has attacked DEI on the campaign trail, has DEI initiatives.

Ramaswamy rose to prominence by slamming ESG. Yet all that ESG is — from a managerial perspective — is planning for the long term. You want to make sure you’re managing environmental and social risks intelligently, overseen by good governance, because you don’t want a nasty surprise: to find out that the waste you’ve been dumping causes the locals to get cancer, or to discover that your products are made with child labor. From an investment perspective, ESG is supposed to help investors avoid being exposed to such risks. (Let’s not confuse ESG with socially responsible investing or impact investing, which are both more about aligning investors’ wealth with their personal and ethical beliefs.)

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ESG does have shortcomings. It can be hard to know how good a company’s governance is, as backers of Enron, WorldCom and FTX have all found out. Consultancies and third parties have long touted exhaustive dashboards that promise a transparent accounting of a firm’s exposure to fossil fuel risk or exploitive labor practices; the hunt for better metrics continues. And some have pointed out that there might be benefits to considering the E, the S and the G in turn, rather than together. And as with DEI efforts, not every consultant brandishing the ESG acronym is a trusted source.

But what are the alternatives? As Brian Frosh and Nancy Kopp wrote last month in Bloomberg, it’s absurd to ban money managers — as Republicans in Congress and at the state level have spent much of this summer trying to do — from even considering climate-related risks like hurricanes, tornadoes, droughts, fires and floods, which cost the US billions of dollars each year. Putting a blindfold over investors’ eyes would cost millions in the form of lower returns.

As my Bloomberg Opinion colleague Matthew Winkler explained last year, “prohibiting sustainability from consideration results in inferior performance over any period during the past decade.” Returns from ESG stocks, he found, outperformed the rest of the stock market. Campaigning on smaller retirement accounts seems like an odd way to run for office.

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If the GOP attacks on DEI and ESG have been almost DOA, it’s easy to see why. While they may not quite be as entrenched in corporate life as some other nerdy acronyms — Ebitda, anyone? — they aren’t far behind. Republican candidates looking for a winning message should look elsewhere. ASAP.

Sarah Green Carmichael is a Bloomberg Opinion editor. Previously, she was managing editor of ideas and commentary at Barron’s and an executive editor at Harvard Business Review, where she hosted “HBR IdeaCast.”