[Following is the post authored by Aastha Gupta and Dhruv Singhal, students at National Law University Jodhpur, who secured the third position at IDIA Odisha Article Writing Competition 2023.]
Caste and corporations are rarely referred to in the same sentence, as the private sector is perceived to be a meritocratic island that is blind to social indicators like caste. But this ostensible caste blindness is not the answer to the pressing needs for diversity, equity and inclusion (DEI) in a company’s hiring and management policies. In the era of stakeholder capitalism, which shifts the focus of corporations from short-term gains and finances to sustainable and socially-conscious growth models, investors have evinced increased interest in Environmental, Social & Governance (ESG) factors.
The ‘S’ in ESG encompasses not only internal factors like employer-employee relationship, DEI and working conditions but also external impacts like community-engagement, human rights and product & process safety. Although ESG is yet to fully gain ground in India, the Securities and Exchange Board of India (SEBI) has mandated the publication of Business Responsibility and Sustainability Report (BRSR) for the top 1000 listed companies based on market capitalization, beginning from the fiscal year 2022-23.
BRSR reporting on DEI in India currently includes data measuring the number of differently-abled employees, percentage of female employees, representation of women in the board of directors and the key management personnel and comparative turnover of these groups. Notably, the Companies Act 2013 through its Section 149(1) mandates publicly listed companies with a share capital amounting to INR 100 crores or with a minimum turnover of INR 300 crores to have “at least one woman director.” But beyond this, there is no mandate as to representation, except for disclosure requirements for women and differently-abled persons.
This article seeks to make a case for a broader understanding of DEI to include caste-related metrics in ESG disclosures. First, it addresses how diversity considerations in ESG disclosures do not discount the ‘merit’ of corporate candidates and by contrast, can lead to desirable socio-economic outcomes. Second, it draws lessons from the U.S. which has through disclosure requirements and racial equity audits striven to make DEI relevant for historically disadvantaged groups. Third, it highlights the unexpected burdens of corporate caste-blindness. Lastly, it offers some recommendations to harmonize and build upon the existing framework to recognize and address the caste question.
Diversifying Merit
It has been recognized that merit, which is the driver of the private sector, needs to be socially-contextualized to account for the systemic inequities and the burden of historical disadvantages faced by certain groups in society. For instance, the ‘Critical Race Theory’ has questioned the appropriateness of ‘merit’ as the touchstone for distribution of resources in society. It highlights the inherent racial bias in standards of merit which are socially constructed by those in power to perpetuate their status in society.
Beyond merit, considerations of DEI are important guiding principles for firms vis-à-vis their hiring policy. Diversity can mitigate the risk of group-think and allow for new perspectives which have hitherto been restricted because of an implicit glass ceiling. Further, it has also been demonstrated to have tangible benefits in terms of better ESG-ratings, more environmentally and socially sustainable outcomes and a more personalized understanding of diverse and multicultural market profiles.
However, diversity can only be utilized as an asset when DEI practices are not tokenistically relegated to a check-box. This requires thoughtful and meaningful engagement by the Human Resources Departments and Corporate Boardrooms to tap into different networks of employees that have hitherto been beyond their reach, and genuine introspection into their core values.
Reassessing Diversity
The very meaning of diversity has been assessed and reassessed - to include non-binary and fluid gender identities, sexual orientation and even race. Notably, the United States Securities and Exchange Commission has accepted Nasdaq Stock Market’s proposal to include a ‘comply-or-explain’ mandate on listed companies to have at least one director who self-identifies as an ‘underrepresented minority’ or a member of the LGBTQIA+ community.
Beyond regulatory frameworks, in the aftermath of the Black Lives Matter movement, American companies have progressively expressed a commitment to tackling racial inequality, and even criminal justice reform. As highlighted by Alicia E Plerhoples, firms have increasingly started directing their ESG efforts towards racial equity in general, with the understanding and recognition that race is a historically contested site for discrimination that needs redressal not only from the State but also private actors.
Caste and Corporations
In the context of India, any such conversation about DEI policies cannot discount caste identity which has been constitutionally and judicially recognized as the locus for historically discrimination. A research conducted in 2012, demonstrates that corporate boards “continue to remain old boys clubs” with high caste affinity. But even in 2024, the situation has hardly changed as corporations shy away from the caste conversation.
Even though companies have purportedly opted for a meritocratic and caste-blind policy, this does not redress the inherent biases in recruitment. But not only nepotism and discriminatory attitudes, caste-bias may be perpetuated because of ‘imperfect information’ as is theorized by statistical theories of discrimination advanced by Arrow & Phelps. These theories suggest that caste discrimination may be perpetuated because of the employer’s lack of information about the labour market and applicants, which is especially true for corporate India with its limited interactions within their caste kinship.
Recommendations
Clearly, ensuring representation of the backward castes in the private sphere is critical for societal development. However, at the same time, one must not lose sight of the private firms’ larger goal of profit-maximization. The ideal solution would be voluntary change by firms in their policies, starting from hiring, to product management and customer relations. However, considering the sluggish pace of change till date, it would be naïve to expect a drastic change anytime soon. The impetus for change must come from the government in the form of widespread stakeholder consultations on the issue. Moreover, for a start, it must be mandatory for firms to have a comprehensive policy to ensure a caste-inclusive workplace. Further, disclosures under the BRSR framework must be extended to include caste-based metrics, which would lend increased visibility to caste as a factor, essential for a holistic assessment in corporate governance. This would include qualitative and quantitative data on the percentage of backward caste employees at different levels, details of the income disparity between the backward caste employees vis-à-vis others, company policy and initiatives to promote inclusivity of all castes, sensitization of employees etc. Further, considering that the data disclosed herein would be sensitive and personally identifiable, adequate measures must be taken to protect it.
Notably, though the efficacy of the mandate to have at least one woman on the firm’s board of directors has been doubted, it remains as one of the most effective ways to initiate the spiral of change in the reluctant private sphere. Backward castes face a similar problem of exclusion and under-representation. Consequently, the corollary of the same would be to use the official sanction to ensure a legal minimum threshold of representation to the backward castes in the key managerial positions and the board of directors of a company. While this may seem to be an easy way out, it endangers tilting the balance towards overregulation, without realizing its consequences. Such change must be introduced in a phased manner, beginning with a ‘comply or explain’ approach, wherein firms must be mandated to have at least one member from the backward caste in the board of directors and in the key managerial positions. Herein, the backward castes represented must encompass all the Scheduled Castes, Scheduled Tribes, and the Other Backward Castes as enlisted by the Central Government, along with those in the comparable lists of the State where the firm has its offices in India. This approach would ensure some compliance with the regulatory mandate, while at the same time, not burden firms to conform to a procrustean framework that deprives them of any flexibility. Requisite changes can always be made to the same with experience over time.
Undoubtedly, increased investor interest in corporate dynamics vis-à-vis caste would go a long way in effectuating real change in a firm’s corporate governance. Consequently, it should be mandatory for all firms that meet a threshold to undergo a caste-based equity audit, wherein an independent third party analyzes the firm’s policy to examine any issues related to caste equity within the firm. This would be a comprehensive analysis, not limited to just an evaluation of the company policy and internal management, but also includes its services, suppliers, customers, and other stakeholders. In the same vein, making caste equity audits mandatory for firms would not only help investors make informed decisions, but also catalyze the requisite change in corporate practice due to the impact on a firm’s public image.
Conclusion
In conclusion, broadening DEI metrics to include caste-related considerations in ESG disclosures is essential for fostering socio-economic equity. Addressing corporate caste-blindness is a must in the journey to achieving the goals of truly sustainable and inclusive growth models.
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