Investors Ditch DEI Policy At Their Peril

By Rob Lewenson, Head of Responsible Investment at Old Mutual Investment Group

Trump has made his position on DEI policy abundantly clear, taking several steps to undermine the progress of DEI programmes.

This anti-DEI stance has set off a chain reaction, with many high-profile US and multinational companies and investors scrambling to retreat from their previous DEI policies. This has raised the inevitable question among diversity advocates globally: is DEI dead?

Evolving, but not dead

In South Africa, a nation characterised by its diverse population and historical challenges regarding inequality and discrimination, the importance of DEI is particularly pronounced. As a country we remain the living embodiment of why DEI is so critical and why it certainly shouldn’t be abandoned.

If we look at the global landscape, we are currently not witnessing the same level of roll back in global corporates that we have seen in US-based corporates. However, we are starting to see definitions evolve, particularly in the description and implementation of DEI in practise, such as ‘intersectionality’.

The companies that acted in haste to remove DEI policies from their corporate policies were likely motivated by two reasons: financial and legal risk.

Financial risk can be explained by the sense that failure to roll back DEI policies would result in the loss of business with the federal. The other less well-known issue is that US companies are potentially trying to avoid legal risk by removing explicit DEI policies from their public notices. It has already been law in the US for some time for a company not to hire or fire based on ethnicity, religion etc. Some corporates are likely to have seen the political shift as an opportunity to avoid legal risk by not making public statements on their hiring practises.

In South Africa, the impact on local companies of Trump’s anti-DEI crusade is likely to be more limited. Investing in SA means investing in accordance to the laws of transformation and B-BEEE as well as the constitutional principles encouraging a redress of historical injustices. This will continue to encourage DEI commitment from both local and foreign investors and employers as long as local legislation supports DEI policy in local companies.

The proof is in the progress

Aside from being the right thing to do, we believe that there is substantial evidence that companies that embrace DEI perform better, attract and retain talent and enable better innovation and problem solving. According to McKinsey, organisations with diverse teams are 36% more likely to outperform their peers.

This ethos applies not only to our own business, but to those companies that we invest in. Guidelines on social issues when engaging with investee companies are clear and a section on social issues is included in our Listed Equity Stewardship Guidelines found here.

Some of the more tangible examples of how success through our policies translates in practice can be found in historically homogenous companies in the retail sector. Shoprite is a good example, where previously the board lacked diversity with some directors being former executives and/or appointed as shareholder representatives of large, related parties. A step change improvement governance took place with the election of Wendy Lucas Bull to the board in November 2020 leading to our immediate focus on pressuring changes at board level and on key committees to introduce diversity. The improvement in DEI at board level has filtered down into other layers of the organisation such that most of the branch management are diverse in terms of ethnicity and gender as per their latest report.

Future-fitting a fragmented world

Despite divisive political figures such as Donald Trump undermining DEI initiatives, the evidence supporting the business case for diversity remains irrefutable. As the world appears to be entering a period of increasing polarisation, embracing policies that promote inclusion and celebrate the value of diversity are essential to ward off the regression of an unequal and discriminatory world. South African investors have the opportunity to champion DEI, proving that investing in diversity, equity, and inclusion is the practical thing to do for long-term success.