How Does Diversity Management Work?
Employment relations against the background of sustainable corporate governance
“ESG criteria do not only concern protection of the environment. Environmental, social and governance: the abbreviation ESG also includes the term “social”. Angelika Pallwein-Prettner, a partner on the employment law team at Binder Grösswang, observes that diversity concepts, especially, are becoming increasingly relevant to this social component of ESG. “This trend comes from the USA, where the ascertainment and management of diversity have already assumed high importance. Here in Austria, many companies underestimate the effort and expense as well as the legal pitfalls involved.”
On one hand, both customers and business partners have become more aware of ESG issues. On the other hand, the legal framework is becoming more stringent. An example of this is the new EU Corporate Sustainability Reporting Directive. By expanding the scope of application, the Directive will increase the number of companies obligated to provide information about the sustainability of their entrepreneurial activities. Instead of, currently, 11,600, some 49,000 companies in the European Union will in future be required to include sustainability information in their management reports. In Austria this will likely affect close to 2000 companies.
“The administrative work required in these companies will also increase as a result of the larger number of subjects to be covered in the management reports,” explains Pallwein-Prettner. At present there is uncertainty in many enterprises concerning the gathering of information: “More and more companies are coming to us and asking: ‘What do we need to report on? How do we ask about subjects such as religion, world view, sexual orientation or disabilities? And does the person being asked even have to answer? And then comes the big question: How do we evaluate the information?’”
Pallwein-Prettner and her team advise companies on how to develop legally compliant strategies. “Through our experience and international contacts, we are often familiar with best practices, approaches and solutions that will enable our clients to achieve their goals.” The first step is to ascertain the status quo: How diverse is the company’s workforce? This information should be determined on a regular basis, because employee fluctuations result in continual changes that, due to the usually anonymous surveys made by the company, are not easily comprehensible. Pallwein-Prettner also recommends that companies not be excessive in their efforts to collect information, particularly during the initial phase, since many diversity characteristics are sensitive data and the employees are not legally obligated to disclose them.
“In preparing and implementing diversity concepts, compliance with employment law and data protection law is fundamental,” Pallwein-Prettner points out. The goals of such concepts cannot be generalized; they may differ considerably depending on the sector and the company. Such goals may include, for example, increasing the proportion of women, pay equity, or issues such as multigenerational teams, the inclusion of persons with disabilities, diversity of origins or cultural diversity of the workforce, as well as diversity in terms of the sexual orientation of employees.
At present, very few genuine quota regulations are embodied in law, for example in public services. For private companies, the only quota regulation introduced in Austria so far has been laid down in the Act for the Equality of Women and Men on Supervisory Boards (Gleichstellungsgesetz von Frauen und Männern im Aufsichtsrat [GFMA-G]. Since the beginning of 2018, the supervisory boards of companies limited by shares (Aktiengesellschaften), SEs, limited liability companies (GmbHs) and cooperatives (Genossenschaften) must include a minimum of 30% men and 30% women, respectively, if the company is listed on the stock exchange or has more than 1000 employees.
“However, there has been increasing societal pressure on companies to start initiatives, also apart from those legally required, in order to achieve diversity in the workforce,” says Pallwein-Prettner. In order to attain their diversity goals, many companies are using a variety of strategies, above all in recruiting.
One method is to ask for so-called “blind résumés”, that is, CVs from which information relating to origin, religion, gender, etc. has been eliminated, in order to counteract unconscious discrimination. The objective of another strategy, “broad talent pools”, is to diversify the pool of applications. This is done by using gender-neutral texts in job advertisements and finding new channels for placing the advertisements in order to reach new target groups. The “diverse slate” strategy is based on a preselected pool of applications in accordance with stipulated percentages: for example, a stipulation that at least 33% of the applicants must have diverse backgrounds. However, this strategy is not admissible in Austria, because this type of general preferential treatment of applications from “diverse” employees is usually considered inadmissible discrimination. Only in exceptional cases can such an approach be justified as “positive discrimination”, based on factual considerations.
Pallwein-Prettner describes further current developments in an article on sustainability reporting and diversity management in the book “Sustainability Law” published by Binder Grösswang.
There is still some time before the EU Directive is translated into Austrian law; its earliest application is prescribed for the business year 2024. It will probably also take time until initiatives like the ones described above are implemented on a broader scale: “This is a societal transformation that will gradually become established in the working world. But, as aforesaid, that will take time.”