Joe Santana: DEI strategist, author, speaker, Forbes Business Council member, and CEO of Joseph Santana, LLC.
Picture this: You invest in a company that aligns with your values and boasts an incredible economic outlook. It has beautiful web pages listing its countless awards and accolades for its commitment to diversity, equity and inclusion. Excited about your purchase, you eagerly grab the newspaper a week later, only to be met with a shocking headline: The company is facing a massive financial blow due to a bias or discrimination case. Unbelievable, right? Unfortunately, this scenario isn’t uncommon.
In today’s corporate landscape, companies striving to showcase their progress to investors often do so through accumulating awards and rankings and slick website presentations. However, some of these celebrated companies have been hit with lawsuits and allegations of bias and discrimination even as they are being hailed as DEI performers. As an ESG investor who values social and governance progress, it’s crucial to see through these surface-level, virtue-signaling gestures. Simply put, I believe those web pages and annual diversity reports are not useful to investors seeking genuine evidence of DEI progress that directly impacts their investments’ short- and long-term sustainable performance.
So, how can you, as an investor, effectively gauge a company’s DEI efforts for these critical factors, outcomes and sustainability before making investment decisions? That’s precisely what we’ll delve into in this article. But before we embark on a proposed revolutionary approach to evaluating DEI in organizations, let’s first establish a solid understanding of the Carnegie Mellon Capability Maturity Model.
The Birth Of A Tool For Seeing Past Dog And Pony Shows
In the 1980s, the federal government faced a big dilemma: It needed a better way to evaluate its software contractors. If severe issues with a selected vendor’s ability to deliver were discovered after contracts were signed, there would be costly delays and overruns. But fear not because the Carnegie Mellon Capability Maturity Model came to the rescue.
Developed by Carnegie Mellon University’s Software Engineering Institute, the CMM offers an objective way to assess and enhance software development processes within organizations. It presents a structured framework comprising five maturity levels, each signifying a higher level of institutional capability. Let’s simplify things with an example: Company A and Company B both produce the same software product, but Company A relies on a few brilliant engineers. In contrast, any engineer at Company B achieved the same result following standard procedures. In this case, Company B boasts greater capability maturity. In summary, the CMM measures a company’s growing ability to consistently deliver reliable results, thus reducing dependence on ad-hoc solutions and a few critical individuals who can suddenly leave and take their capability away from the company.
By implementing the CMM, the government could minimize risks and avoid costly surprises when purchasing software. CMM was a game-changer in the realm of assessing capability and sustainability. It was not surprising that many assessment models were later built using the CMM framework to evaluate the results and sustainability of other product and service vendors.
How Investors Can Apply CMM To DEI Investments
From my perspective, today’s investors can’t only rely on the information companies provide when making crucial buy-and-hold decisions. Here’s where an assessment built on the CMM framework might offer a solution. I once successfully employed a CMM-inspired approach to assess and drive improvements across 14 independent operating companies within a global conglomerate.
Let’s dive into my maturity levels for various aspects of DEI practices, from supplier diversity to recruitment, promotion and marketing:
• Level 0: The operating company had no tangible results in this practice area. Despite having programs, meetings, awards and extensive efforts, the absence of results warranted a score of 0. (This is a significant departure from affirmative action plans and awards where mere effort counts for points.)
• Level 1: The operating company achieved measurable results in this practice area, but those results stemmed from specific programs or individual efforts. Hence, while positive and measurable, they were not considered sustainable.
• Level 2: The operating company achieved measurable results in this practice area, with at least one-third resulting from institutionalized changes in standard operating practices. At least 33% of the outcomes were deemed institutionally sustainable.
• Level 3: The operating company achieved measurable results in this practice area, with at least two-thirds resulting from institutionalized changes in standard operating practices. At least 66% of the outcomes were deemed institutionally sustainable.
• Level 4: The operating company achieved measurable results in this practice area, with 100% of the outcomes resulting from institutionalized changes in standard operating practices. The practice underwent annual reviews for continuous improvement, making the entire result institutionally sustainable and constantly advancing.
By applying this framework, investors can confidently evaluate the maturity and sustainability of DEI practices within companies, ensuring their investments align with their values and long-term goals. All you need to do is three things to assign a maturity ranking to any area of DEI:
1. Find out if the effort is producing a result.
2. Determine to what degree the effort is being produced by a capability that is sustainable by the institution versus a program or effort that can suddenly end.
3. Assign a value to each stage of capability progress.
Similarly, we can assess the DEI maturity of mutual funds by averaging the maturity of the funds underlying securities.
In conclusion, as 21st-century investors, go beyond web pages and subjective reports. Dig deeper to assess an investment’s true capability and results in producing sustainable DEI results. Like the CMM revolutionized software purchasing, we can apply a similar approach to evaluate environmental, social and corporate governance investments. Say goodbye to basing your investment decisions on surface-level or misleading PR pitches and hello to meaningful and objective information. Invest in a future where DEI is a real force for good and economic progress.
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