Diversity is often touted as a key value in society and in business, but it is rarely realized; far too frequently, it’s simply been ignored. Some years ago, it became increasingly clear that issues of equity and inclusiveness weren’t merely a matter of values to us as individuals—of what is morally right and wrong—but of value itself as investors. A growing body of evidence suggested that the lack of diversity in the top ranks of business was actually harmful to companies’ bottom lines—and that increasing diversity could benefit investment portfolios.

Notwithstanding empirical findings about the tendency for groups composed of people from similar backgrounds to refrain from challenging prevailing views—and the growing number of companies that credit innovation to the diversity of their workforce—as recently as 2017, a quarter of Russell 3000 companies did not have a single woman on their board of directors. Fewer still publicly disclosed their boards’ racial and ethnic makeup.

How, then, could we actually change this conversation?

Enter Fearless Girl in 2017. Overnight, this bronze statue of a strong girl we commissioned and installed in the heart of Wall Street ignited a global conversation about the power and potential of women in leadership. Backed by our proxy voting policy that called on companies to create greater gender diversity on their boards, we saw 862 companies, representing approximately 60 percent of the companies we identified as having all-male boards, add women to their board leadership in the following years.

Fearless Girl ignited a global conversation about the power and potential of women in leadership.

This work continued in the wake of George Floyd’s murder and inequities revealed by the COVID-19 pandemic. Drawing on State Street’s experience with the Fearless Girl campaign, in the summer of 2020 we called on companies to begin disclosure in five key areas related to racial and ethnic diversity: strategy, goals, metrics, board diversity, and board oversight.

A majority of companies told us they were already looking at ways to prioritize racial and ethnic diversity across their organizations, not simply because they understood the reputational risk, but also because they understood the importance—the value—of having diversity of thought, or cognitive diversity, in their organizations. Still, many companies are unsure where to go beyond disclosure. To that end, we partnered with Russell Reynolds and the Ford Foundation to create a playbook for effective board oversight of diversity. With insights from our work and input from more than two dozen experienced directors from S&P 500 and FTSE 100 companies, such as Ursula Burns and Jamie Gorelick, serving on boards from Amazon and Uber to Eli Lilly and MasterCard, we urge directors to consider 10 responsibilities:

1. Ensure the CEO and board chair have the capacity and commitment to drive the organization’s racial equity efforts long-term.

2. Build a board whose directors are racially and ethnically diverse and have experience with oversight of diversity, equity, and inclusion (DEI).

3. Make racial equity an active part of the business strategy and work toward clear and quantitative key performance indicators.

4. Make racial and ethnic DEI both a committee and a full-board responsibility.

5. Regularly evaluate the potential impact of the company’s operations on communities of color, embracing relevant opportunities and mitigating relevant risks.

6. Facilitate boardroom discussions that are thoughtful, balanced, and intentional, and build a culture where directors are empowered to challenge ideas.

7. Include the perspectives of stakeholders—including employees—in board discussions.

8. Create a structured onboarding and ongoing training process that prepares all directors for effective oversight of DEI.

9. Build a coalition, share best practices, and learn from peers and experts.

10. Realize this is a long journey—be patient and don’t give up.

At State Street, we’re also on this journey. That is one reason we have been advancing 10 actions to eliminate racial inequity in our organization, including tripling our Black and Latinx leadership and increasing our spend with diverse suppliers. And we continue exploring ways to increase diverse board representation at every company—and in every market.

Today, more and more companies understand that whether it is gender, race and ethnicity, sexual orientation, educational background, or upbringing, diversity can help foster new ways of thinking. They recognize it is a matter of value. Will more investors capture its power to drive innovation and challenge conventional thinking? That will be the question in the months and years ahead.