Is It Time to Conduct a Diversity and Inclusion Audit?

Along with the COVID-19 pandemic, 2020 and 2021 will be remembered as years when issues centered on racial justice captured the nation’s attention. The outrage stemming from the deaths of George Floyd, Ahmaud Arbery, Breonna Taylor, and others has sparked a reexamination of race issues and discrimination that many consider to be long overdue.

Gender equity and sexual harassment also remain top concerns. Monetary awards from sex-based harassment allegations and legal cases topped $65 million in 2020, the U.S. Equal Employment Opportunity Commission reports. With many cases sealed, the actual cost to companies of sexual harassment incidents is exponentially higher.

Demands for racial and gender justice have prompted a growing number of organizations to evaluate their efforts at building truly diverse, equitable, and inclusive workplaces. One step can be a diversity, equity, and inclusion (DEI) audit. According to the Institute of Internal Auditors (IIA), a DEI audit is a structured assessment of the degree of diversity at all levels of the organization; pay equity by race, gender, and ethnicity; human resource policies that ensure a framework supporting DEI; the diversity of the company’s supplier base; and other race and gender related factors. The IIA recently issued a report, along with advisory firm Crowe, on addressing diversity, equity, and inclusion at the internal audit level.

The reasons to focus on DEI are both ethical and pragmatic. Racism and bias in the workplace have profound, negative effects on workers and communities. Multiple studies have shown that diversity tends to improve organizations’ performance. A 2019 Gartner study found “gender-diverse and inclusive teams outperformed gender-homogeneous, less inclusive teams by 50 percent, on average.” Increasingly, employees, customers, and investors are pressuring organizations to root out systemic racism and inequity.

Mounting Pressure to Act
Over the past year, Bird Guess, chief executive officer at consulting firm Racial Equity group, says he’s noticed organizations paying “historical amounts of attention” to addressing concerns about racism and diversity. Many, however, take piecemeal approaches, such as creating tasks forces, or releasing DEI resolutions that cite a goal of having a racially equitable organization.

Some organizations have accounted for their DEI efforts within broader corporate social responsibility (CSR) reports, says Hertha Meyer, chief researcher at Have Her Back Consulting, a culture consulting agency. However, the findings typically run only a page or two.

Pressure is mounting for organizations to do and say more. Growing numbers of institutional investors and consumers expect companies to provide substantive reporting on their environmental, social, and governance (ESG) initiatives, including DEI. “It’s becoming a cultural expectation that you report representation” of different races, genders, and other constituencies among the workforce, says Caroline Dettman, a founding partner at Have Her Back.

Streaming service Netflix has issued diversity data on the racial and gender makeup of its employee base on a quarterly basis since 2013. This February, however, the company went a step further with its first ever audit and report on the diversity makeup of the actors in the content it provides on its service. The audit found that while black and female actors were fairly well represented in the content it provides, it was lacking in representations of Latina and Latino actors.

In 2020, VICE Media released its second DEI report. “We feel it’s a necessary tool for not just reflecting our employee experiences around the world, but understanding who the people working for us are,” says Megan Osmulski, director, global HRIS and HR operations at VICE Media Group.

VICE began by holding conversations with employees across the globe on diversity and inclusion, partly based on the internal report’s findings. It also launched a “DEI Dashboard,” which tracks all DEI efforts and is available to all employees, and began an employee education initiative. As Osmulski notes, if teams can understand the importance of a DEI report to the work culture, they’re more likely to engage.

Getting Comfortable Being Uncomfortable
Nika White is president and chief executive officer of Nika White Consulting, a consultancy whose mission is to “create a society in which all people and organizations intentionally pursue equity and inclusion.” When her team begins working with an organization, they’ll often start by evaluating leadership’s readiness. This could mean asking why they’re assessing DEI, and the value they see in this pursuit. They’ll also help leaders understand the scope of the work needed to truly lead in DEI. It’s what White refers to as “the ‘count the cost’ conversation.”

“Sometimes we need to encourage leaders to be comfortable being uncomfortable,” White says. That is, leaders need to see the data not as good or bad or a reason to be defensive, but as a starting point for change. “Then, there’s a greater propensity for success,” she adds.

Indeed, engaging in a DEI initiative shouldn’t be seen as an admission of a problem. Even organizations with a history of inclusion are making efforts to improve. St. Stephen’s Episcopal School in Austin, Texas, was founded in the wake of World War II, “dedicated to the recovery of humans,” committed to educational excellence and devoted to social justice. Its founder, the Rt. Rev. John E. Hines, worked in the mid-1950s to integrate the school, despite resistance from some community members who withheld donations and withdrew their children. St. Stephen’s became the first coed Episcopal school in the nation, and the first integrated boarding school in the South.

Several years ago, as school leadership began planning to create the Bishop Hines Center for Social Justice, they realized they needed to do an “internal check,” says Yvonne Adams, director of equity and inclusion at the school. “The school was founded with a social justice mission, but we still had a way to go to become truly equitable [ourselves].”

School leadership brought in an outside group to conduct the audit; the group received input from various school constituencies through both surveys and focus groups. “Anti-racism and DEI are laced with so many emotions,” Adams notes. “We wanted to give people an opportunity to express what they wanted to, authentically.”

As the audit concluded, St. Stephen’s leadership shared information on areas of success, as well as areas in need of improvement, while making sure no participants were identifiable. At the same time, the school avoided scrubbing the information so much that the conclusion became a vague statement like, “we’re working on diversity.” “Instead, we wanted to tell the school community, ‘we’re committed to steps X, Y, and Z,’” Adams says. For instance, one step was to implement student training on microaggressions. “We wanted to make sure students know how to have difficult conversations when hurtful things being are being said,” Adams says.

Gathering Information
At the launch of an assessment, White and her team help clients develop a communications strategy. As she notes, when an organization asks its employees to take time to complete surveys or participate in focus groups, they’re going to want to understand how this can help them and the company. They’ll also need to know whether the information they provide will remain truly confidential.

A comprehensive assessment includes both qualitative and quantitative data, White says. Surveys that take 10 to 15 minutes to complete help in obtaining information that might show trends. The aggregated data is shared with clients, but only after it’s stripped of verbatims, protecting confidentiality and helping to encourage honest responses.

White and her colleagues also conduct multiple focus groups, each with about 8 to 15 people. The smaller size allows more people to feel comfortable sharing their opinions. The makeup of the groups can vary. Some companies place management and employees in different groups, figuring it allows each to speak more freely. Others will mix together various employee and management groups. In either case, White and her colleagues let participants take the conversation where they’re most passionate. They also invite any participant to follow up with them later, one-on-one.

The team also reviews materials, like guidebooks and policies. “There’s bias in people and in processes,” White says. A review of policies helps to uncover any lurking within them.

Managing Obstacles
Given the current environment around DEI, it’s not unusual for DEI audits or assessments to run into obstacles. As with any audit, employees, management, and the board may disagree on priorities, says Herschel Frierson, strategic networks leader at accounting and consulting firm, Crowe LLP. Differences can range from misalignment of the risk priority between the board and senior management and the internal audit team. Or it can be as specific as the focus on hiring of diverse talent and the development of diverse leaders at the executive level.

Once an audit is underway, pushback from some quarters may prompt leadership to rebrand the audit, often in an effort to make it appear less divisive, Guess says. However, these actions can come across as undermining the people doing the work and as an attempt to “sugarcoat” substantive problems. “You shouldn’t rebrand to make people feel better,” he says. Instead, focus on facts—say, disparities in hiring or pay between employees of different races or genders.

Another challenge is balancing information gathering with privacy. For VICE, this meant trying to create a DEI report that represents its employee population, while complying with employee privacy regulations in twenty-some countries, Osmulski says.

Going Public
At the conclusion of an audit or assessment, organizations need to decide whether and how much of the results to release both internally and to outside stakeholders and communities. Releasing information demonstrates transparency and commitment. “You don’t want a plan that just sits on shelf,” Guess says.

White’s team typically reveals the comprehensive report to a select leadership group, and then releases an executive summary to other stakeholders that need fewer details.

What about releasing results to the general public? Making information public “underlines our commitment to transparency and accountability,” Osmulski of VICE says, adding that “we are happy to contribute to a wider societal and industry conversation on improving diversity.” Netflix also released the findings of its diversity audits—of both its workforce and its content—to the public.

To be sure, it’s difficult to tell exactly how much of their entire DEI reports companies are releasing publicly. Releasing an entire assessment or audit would be unlikely, says Dawnella Johnson, partner and internal audit services leader, also with Crowe.

Where companies choose to report, they generally use a transparency report. But unlike with financial reporting, in which most publicly traded companies have established processes and controls to ensure their reported information’s completeness and accuracy, DEI transparency reporting isn’t as standardized or mature. “The rigor, standards, and consistency likely will be developed for DEI reporting, but it’s not yet there,” she says. Companies are being very thoughtful about the content and process behind their DEI transparency reports, she adds.

That said, both the market and growing numbers of employees are asking for accountability, Frierson says. By releasing some select information—for example, a transparency report that highlights how many minorities are within the organization, their level, etc.—organizations are holding themselves accountable. “Right now, everyone is at the beginning of this new journey. Plans and what is communicated will continue to evolve,” he adds. 

SIDEBAR: Outsource the DEI Audit?
One question most organizations will have to address when considering a DEI assessment or audit is whether it makes sense to handle this through the internal audit function or to bring in outside experts.

Given the sensitivity around DEI, employees may feel more comfortable talking with an outside entity in an assessment. “To really make change, you have to make sure you’re getting to the truth,” says Dettman of HaveHerBack. “We take the company piece out of it.”

An experienced outside party also will be able to foster an environment in which employees feel safe providing answers, White says. They’ll also know how to probe for honest answers.

To date, it appears few internal audit groups have conducted DEI audits. When Johnson of Crowe conducted a panel discussion of about 150 chief audit executives, less than 5 percent of the companies had done an in-house DEI audit in the last year, she says, although several were considering adding one into their current plan. —K.K.

Karen Kroll is a finance and business writer based in Minneapolis, Minnesota.