DE&I for Improved Organizational Ethics

Conflicts of interest and organizational strategic conflicts are the subject of governance and careful decision making in most organizations, and they can present functional and leadership teams with high-stakes decisions. Establishing ethical frameworks that integrate diversity, equity, and inclusion (DE&I) initiatives to streamline this decision-making process can provide the entity with a strategic tool to ameliorate the risk exposure in such situations. However, the management of DE&I initiatives requires subtlety and genuine commitment to follow through on the organization’s initiatives. Nonetheless, the benefits of DE&I integrations are significant, including boosting the reputational standing of an entity.

Conflicts of interest and strategic conflicts emerge in intricate organizational arrangements with deep subtleties. An individual-level conflict of interest is when personal or professional pursuits of an employee or volunteer are at odds with the mission of the company, while an organizational strategic conflict arises when the entity’s short-term initiatives or goals aren’t in congruence with its long-term objectives or purpose. Sometimes it’s the instant need to increase returns to investors; other times it’s the strategic desire for long-term stability over tactical considerations of adapting to a changing competitive business landscape.

Both conflicts of interest and strategic conflict situations can lead to fraud and financial scandals and are consequential to the whole entity’s performance by impacting its relationship with its base markets, clients, or supporting audience. In some cases, a combination of a conflict of interest, a strategic conflict, and lackluster governance may cause a company to be wiped out, as we know in cases such as Enron and WorldCom.

Literature and training programs address potential mitigation strategies for personal conflict of interest cases. Yet, strategic conflicts that relate to organizational strategy and initiatives can be challenging for leadership teams to manage due to an entity’s structural limitations or governance oversight. Stanford Social Innovation Review described how the governing bodies of an organization can precipitate scandals. The publication cited Enron’s board support of the CFO in suspending the company’s conflict of interest rules and the Red Cross’s mismanagement of funds purportedly raised for its 9/11 relief efforts.

Conflict of interest mitigation and strategic conflict management involve the big-picture decision-making process required for leaders to strike a balance between working toward short- and long-term objectives. Initiatives should be geared toward achieving the greater promise of an organization within the existing legal and ethical frameworks governing the company’s operations. Thus, the need for conflict of interest mitigation and strategic management skills is fundamental. Establishing structural frameworks ensures the appropriate ethical management of institutional governance structures to prevent organizational failure in those situations.

Risk Assessment and Ethical Decision Making

Risk-assessment and decision-making frameworks and strategies can be multifaceted and dynamic. They vary depending on the unit’s size and level within an organization, and its team’s roles and functions. Those approaches may include top-down or bottom-up participatory decision making. And while various research suggests that implementation of DE&I initiatives leads to improved performance and reduced risk, DE&I programs don’t usually carry equal weight in the design and implementation of risk management strategies.

Some organizations devise elaborate DE&I integration plans, while others still struggle to find the link between DE&I and improved governance and performance. The increased interest in DE&I initiatives seems to be influenced by important social imperatives, but many leaders lack coherent strategies to make the most of diversity in an entity structure or fail to design those initiatives with a strategic functional role in mind.

Companies can maximize their DE&I program’s benefits by strategically integrating DE&I initiatives across different functions and levels of the organization to establish cross-functional knowledge, collaboration, and exchange, thereby supporting better decision making. It’s a best practice to consider a wide array of decision-making and risk-assessment tools, including competitive landscape, corporate environmental and operational analysis, scenario planning, decision trees, and balanced scorecards. The operational framework of these tools should also be designed to support professionals’ integrity and credibility. A strong reputation for ethical conduct can be achieved by strategic integration of DE&I elements within those tools.

Many large organizations have proprietary decision-making frameworks that align with their values and structures. Similarly, big consulting firms use blueprint models to troubleshoot unique situations, and many of these are based on, or carry some similarity to, the Responsible, Accountable, Supportive, Consulted, Informed model or Bain & Company’s proprietary Recommend, Agree, Perform, Input, and Decide (RAPID) model. The RAPID model is designed to clarify the decision-making process by standardizing five distinct roles in any situation.

DE&I’s role becomes clear if we imagine assigning all five roles to a homogeneous team; this would raise a legitimate concern about the credibility of the process and its outcomes. Homogeneity can be a factor in ignoring the diversity of either the personal or professional background of team members. However, if the roles are assigned to ensure representation of a range of personal and professional backgrounds of the various stakeholders in an entity and the impacted market demographics, then this should significantly reduce the risks emanating from the decision and the consequent operational actions.

Ethical Management

Managing diversity isn’t easy. Despite countless examples of literature that refer to the improved outcomes of diverse teams, some literature on teamwork may suggest that homogenous teams are highly collaborative and more efficient. And although DE&I initiatives are an important factor to end institutional racism and support governance and risk mitigation—absent a deliberate effort to eliminate inherited biases—those initiatives can result in a turbulent work environment with no guarantees of success. At worst, such initiatives may end up with the same biases being replicated in the workplace.

Ensuring diversity in leadership roles is enough to ensure community representation, but enhancing decision making requires engagement with—and empowerment of—all levels of stakeholders across a community rather than mere representation. An example of this is participatory budgeting, where local governments try to increase citizen participation in the policy-making and implementation processes by inviting citizens’ opinions on how to spend public money.

Practicing the IMA^® (Institute of Management Accountants) ethical principles as communicated in the IMA Statement of Ethical Professional Practice requires professionals to consider fairness, objectivity, and responsibility, among other principles and standards. The implementation of DE&I initiatives in essence supports these principles in light of the transparency and increased range of perspectives that DE&I brings. The practice of management accounting can be enhanced by including DE&I elements in support of decision analysis and the development of relevant frameworks.

Accountants and finance professionals should consider strategically integrating DE&I in the management frameworks of their organizations. By establishing strategically diverse collaborations and building DE&I integrated performance management and governance frameworks, not only is the overall performance of an organization improved, but also its ethical and reputational standing with its core markets.