Together, these new laws create an uneven regulatory patchwork that has already resulted in the divestment of billions of dollars in state funds from investment managers. Investors and businesses increasingly face a choice between complying with these new state laws and achieving the ESG goals promised to investors and stakeholders. New laws introduced in 2023 expand the scope of anti-ESG laws and present significant uncertainty for an increasing range of businesses.

Fiduciary duties & non-pecuniary factors

Federal regulators and conservative lawmakers in some states are taking opposing approaches to defining the duties of fiduciaries. Investors making decisions using ESG frameworks include factors such as greenhouse gas emissions, which go beyond traditional fiduciary criteria like return on investment. The conflict reflects a philosophical disagreement between the belief that companies should work only to maximize returns, on one hand, and consideration of the interests of a wider range of stakeholders and outcomes, on the other.

In 2022, the U.S. Department of Labor (DOL) released a final rule addressing when fiduciaries may consider ESG factors in accordance with their fiduciary duties under the Employment Retirement Income Security Act of 1974 (ERISA). Under ERISA, retirement plan fiduciaries have a duty to act solely in the interest of plan participants and beneficiaries. The new rule clarifies that fiduciaries may consider ESG factors such as climate change and may select from competing investments based on collateral economic or social benefits. In late-January, 25 states filed a lawsuit in federal court seeking an injunction against the new rules.

Even before the release of the DOL final rule, several states proposed laws prohibiting the use so-called “non-pecuniary factors” in making investment decisions for state pensions and other funds. Earlier in 2022, the American Legislative Exchange Council introduced the State Government Employee Retirement Protection Act, model legislation that closely mirrors fiduciary duty bills later introduced in several states.

On March 24, Kentucky Governor Andy Beshear (D) signed House Bill 236 into law. Under the statute, “environmental, social, political, or ideological interests” not connected to investment returns may not be included in determining whether a fiduciary or proxy of the state retirement system is acting solely in the interest of the members and beneficiaries. Five non-exclusive factors, including statements of principles and participation in initiatives, are listed as evidence a fiduciary has considered or acted on a non-pecuniary interest.

In 2023, legislators introduced fiduciary duty laws of varying scope in several large states, including Ohio and Missouri. In total, legislators in more than 20 states have introduced bills amending the fiduciary duty laws covering investing and proxy voting for state retirement systems.

To further complicate matters, state pension funds in states like New York and California take the opposite approach, setting net zero carbon targets for their portfolios, for example.

ESG as boycott

Conservative politicians often claim ESG uses economic power to enact political agendas through alternative means. They argue goals like decarbonization amount to a boycott of fossil fuel companies and are a threat to the economies of states dependent on the extractive industry. New legislation expands on previous anti-boycott laws to include targeting companies that consider ESG factors.

Several states have already started the process of divesting retirement system and other funds from financial companies they claim boycott fossil fuel companies. For example, a 2021 Texas law requires the State Comptroller to publish a list of boycotting companies. The Comptroller’s initial criteria for inclusion included membership in Climate Action 100 and the Net Zero Banking Alliance/Net Zero Asset Managers Initiative, two major financial industry initiatives focused on climate change.

Utah Governor Spencer Cox (R) signed a bill into law on March 15 that goes beyond state investments to prohibit companies from coordinating or conspiring with another company to eliminate viable options for another company to obtain a product or service “with the specific intent of destroying a boycotted company.” A boycotted company is defined by the law as one that engages in aspects of the firearms industry or does not meet certain ESG standards.

Social Credit scores

Speaking in support of the Utah anti-conspiracy bill, state Rep. Mike Petersen (R) said: “I’m convinced that ESG is not a conspiracy theory, it is a conspiracy truth.” To many of its opponents and skeptics, ESG is an unaccountable shadow regulatory system that takes specific aim at industries and policies supported by conservatives.

The belief that the stated goals of ESG mask other motives is at the source of bills introduced in several states to prohibit financial institutions from using a “social credit score” to make lending or other decisions and defining the term to include ESG. The language invokes the Social Credit System in use in China, which monitors and punishes individuals and businesses for certain behaviors and serves as a type of blacklist.

Though some ESG frameworks produce numerical scores for various metrics, the comparison to the Social Credit System is rejected by ESG experts. There is no substantive overlap between China’s surveillance apparatus and ESG in goals or application.

This distinction has not dissuaded lawmakers in Florida, who enacted legislation amending state banking law to make the use of social credit scores by lenders an unsafe and unsound practice in violation of state financial institutions codes and unfair trade practices laws, subject to sanctions and penalties. The law prohibits the use of a social credit score based on factors that include, among other things, ESG standards on topics including emissions and corporate board diversity.

The Florida bill and others like it expand previous efforts by the state to divest state funds to restrict decisions on private lending, potentially involving many more financial institutions.

On the horizon

The volume of anti-ESG bills introduced in state legislatures is growing. Many are passing as the topic gains political salience, particularly on the political right. As these laws pass, they serve as models for similar legislation in other states. However, the success of future legislation faces significant headwinds.

Anti-ESG laws have been passed predominantly in states where Republicans control the governorship and both houses of the legislature. So far, there is little indication many Democrats will support these anti-ESG laws. Indeed, the growing scope of anti-ESG laws pose another roadblock to their widespread adoption. Newer laws impose restrictions on a much broader range of companies, which only increases the complexity of enforcement and increases the risk of a legal challenge.

A lack of uniformity means businesses operating in more than one state may have to make difficult choices. The broader economic consequences of anti-ESG laws are still undetermined, but compliance with these new laws presents immediate challenges.

This research initiative, which was led by the Institute of Management Accountants (IMA), the California Society of CPAs (CalCPA), and the International Federation of Accountants (IFAC), collected data from accounting professionals who identify as LGBTQ+ across Europe and the US.

Another important insight from the series of studies, which are summarized in this report, is that it clarifies how critical accountants’ role has become in ensuring information integrity of sustainable business information and management of diversity, equity & inclusion (DEI) data. This effort helps to ensure DEI reporting is aligned with companies’ environmental, social & governance (ESG) strategies and evolving compliance needs. A key point made in the report is the importance of data transparency and the role accountants can play in ensuring the integrity of nonfinancial data.

LGBTQ+ accountants: “I need to present myself as something else in the workplace”

LGBTQ+ accountants’ high attrition rate — with one-in-five LGBTQ+ respondents in the US reporting they have left the profession due to a lack of DEI — is highlighted in IMA and CalCPA’s 2021 study in the US. Indeed, much of this attrition came down to LGBTQ+ accountants not feeling comfortable bringing their full selves to work, according to Loreal Jiles, vice president, Research and Thought Leadership at IMA and one of the lead researchers of the series. “The expectation that, ‘I need to present myself as something else in the workplace’ was a key contributor to the decision to leave employers, and sometimes, the profession altogether,” Jiles states.

To address this alarming rate of LGBTQ+ workers departing from the tax & accounting profession, accounting employers need to focus on fostering a culture of belonging. “Until people believe that they belong, until their voices are valued and respected, just as others are, intentionality on the part of leaders is required,” Jiles adds.

An added element of this troubling finding is that LGBTQ+ professionals did not believe that employers were taking sufficient disciplinary action for repeat offenders who create a hostile work environment. Indeed, many LGBTQ+ accountants noted that their employers have anonymous hotlines and other tools to report incidents of bullying and harassment, but saw little follow-through from management when issues or incidents were reported.

“They didn’t feel that there would be real reprimand,” Jiles notes, based on feedback from multiple survey participants. As a result, accounting firm leaders need to rethink how these anonymous reporting systems are designed and how penalties are handled, once multiple reports of incidents are reported by multiple people on the same person, who often may be a leader.

ESG information integrity driving growth of accountants’ role

The IMA and CalCPA research also identified ESG-related issues as a key catalyst for DEI action. More specifically, the research emphasized accountants’ growing role in information integrity on DEI data in order to meet evolving ESG regulatory demands and to aid in executing corporate ESG initiatives.

Jiles points out that the ESG part of data requirements is one of the largest components of nonfinancial data for which accountants are accountable. However, “before data can be reported, it has to be collected,” she says. “Activities to collect sustainable business information and manage ESG initiatives are often supported by accountants.”

For example, the need to collect and disclose the demographic composition of corporate boards and staff has increased. Prompted either by reporting obligations or greater organizational or societal demand for transparency, many companies now track the percentage of staff or leaders who identify as members of underrepresented groups. “To move beyond representation quotas toward sustained progress in this area, however, the data analytics skills that accountants perform today with financial data should be leveraged to garner insights from trends during external recruitment and promotion processes,” explains Jiles. “These insights can serve as detective controls to unearth inequities embedded within existing ways of working.”

In addition, analysis and reporting are needed to ascertain what talent is needed, the budget for the talent, how it is forecasted, and to understand the overall costs of recruitment and retention. As DEI and worker resources fall under the Society part of ESG, the role of the accountant in this ESG reporting is growing. Further, accountants have an ethical obligation to manifest honesty and integrity, making decisions and judgments without bias. This ethical commitment underscores the relevance of the accountants’ role in DEI progress from an ESG perspective.

Requirements for regulatory disclosures around DEI data will only grow in the near term with national and multilateral institutions, such as the European Union, the World Economic Forum, the Sustainability Accounting Standards Board, and the US Securities and Exchange Commission increasingly proposing and mandating requirements for sustainable business information.

Executive levels are least diverse in all regions

Finally, the study underscored well-known DEI anecdotes about the lack of diverse representation at executive levels; however, now there is data to back up them up. Not surprisingly for anyone that has followed this topic, the representation of diverse personnel at executive levels is considerably lower than the diverse representation across the profession. Perspectives on how to address the need for more diverse representation at the executive level is distilled into two overarching strategic objectives: i) how to attract diverse talent; and ii) how to retain and promote that diverse talent once hired.

The full report highlights more than 70 actionable DEI practices that accounting employers can take today to attract and retain diverse accountants. These insights are based on more than 100 interviews and a series of global roundtable discussions conducted by IMA, CalCPA, and IFAC with research participants spanning individual accounting professionals to C-level executives.

While 70-plus potential best practices may seem overwhelming at first glance, Jiles says, small steps will help firms get there. “Look at practices from a strategic perspective,” she adds. “First, identify the practices that your organization is already performing and tell that story. Then, choose two to four actions from the attraction and retention categories that best align with your organization’s strategy and where you can add the greatest impact. Don’t try to boil the ocean.”

Primary reasons for the deep levels of burn-out among LGBTQ+ professionals are driven by:

• • • prolonged mental health struggles resulting from the multi-layered stress of staying productive at work amid health concerns for themselves and their families;
    • care-giving challenges related to parents and children;
    • spikes in anti-LGBTQ+ hate that other underrepresented communities have experienced; and
    • the plethora of anti-LGBTQ+ rhetoric and legislation, and the loss or threat of loss of LGBTQ+ equality and equal rights.

The combination of all of these factors leave the LGBTQ+ community burnt out and wondering how it can garner the strength to mobilize its activist energy to fight against the powerful forces that are exploiting political cynicism to falsely position the LGBTQ+ community as an enemy, says Power.

Bright spots among growing concerns

However, there is a silver lining within the perceptions of the backwards progress among society in the workplace. The maturity of LGBTQ+ professionals and their understanding of their economic value to their employers as an underrepresented professional has allowed them to assert their value within their organization, Power contends.

This also is indicative of the signals coming from the larger movement for a more just workplace. These signals include LGBTQ+ individuals asserting their values and pushing back on common habits of some employers to tout their hollow LGBTQ+-friendly credentials, along with the growing commitment to sustainability and companies’ environmental, social and governance agenda.

Another ray of hope that Power underscores is the values-based decisions that LGBTQ+-advocacy or Pride groups in specific cities have made based on their listening to marginalized groups within the LGBTQ+ community. For example, a Pride group on the West Coast declined a six-figure sponsorship deal because the company wanted naming rights to the Pride Parade. The Pride group turned down the sponsorship because it was concerned that the company was going to misrepresent what the group stood for.

Another Pride group on the East Coast told members of the LGBTQ+ community that they could not march in the annual parade in their police uniform because of the lack of fair treatment of the community’s people of color.

Further, positive momentum for the LGBTQ+ community exists in regions where there has been a loss of equal rights for LGBTQ+ communities. “A number of organizations are finally doing corporate events and panels about increasing visibility of LGBTQ+ employees and the challenges they face as a way to signal how the origins of Pride started as a protest by Black and Latina transgender women in New York City against police harassment,” says Power, who is based in the Midwest.

At the same time, legal and accounting employers still have a long way to go. In particular, there is an urgent need for change within the accounting profession because one-in-five LGBTQ+ accountants are leaving the profession.

Build a culture of trust, belonging & psychological safety

From C-level corporate leaders to first-line managers, those in positions of power need consistently to act and model behaviors that communicate respect. They also need to show that all voices are valued in group settings and in one-on-one conversations in order to build a culture of trust and belonging. This is also necessary to create psychological safety — defined as trust and cohesion at the group or the team level along with the belief that you can show up to work and within your team as yourself — within each team and at each corporate level.

The good news is that that the behaviors to boost trust, strengthen a sense of belonging, and increase psychological safety are the same. An added bonus is that these behaviors also address the key drivers — mainly a lack of appreciation and career progression — that accounting and legal professionals give when deciding to leave their employers.

To better model these behaviors in group settings, team leaders and managers need to:

• • • repeatedly invite others to offer their perspective on agenda topics;
    • reiterate gratitude for individuals with the courage to speak up, especially when their view is not popular;
    • amplify the conclusions of team members who are introverted, the most junior members, and from under-represented backgrounds; and
    • remind your team members at the beginning of every meeting to keep you accountable when you interrupt others or are not seeing someone trying to speak up or who is cut off by another person.

Team leaders and managers also need to reinforce value and respect in order to build up psychological safety and trust in one-on-one discussions with team members. To do this, leaders and managers should:

• • • say “thank you” on a recurring basis to those who demonstrate appreciation for others on the team;
    • ask team members often, “How are you really doing?”; and
    • frequently use the question, “What can I do to ensure you have a rewarding career here?” to address the perceived lack of career progression.

This kind of intentionality on the part of leaders is required to make LGBTQ+ employees and others feel they belong, their voices are valued and respected, and they feel safe to share their opinion about important work projects without penalty.

This June, the Thomson Reuters Institute is proud to announce the return of our annual LGBTQ+ leadership conference as part of an ongoing global DEI spotlight series. Celebrating Pride Month in the Pacific Northwest, this annual summit convenes professional services sector LGBTQ+ constituents and allies for timely, impassioned, and practical exploration of key sociopolitical developments and professional development opportunities impacting the broader community.

Don’t miss this important opportunity to forge connections and facilitate change on both a personal and professional level.

Register today! Online registration now available.

Predictions held that throughout 2022 the acceleration of People Strategy 3.0 will drive convergence in organizations’ business strategy and talent strategy. In short, these strategies will become more synchronous and how this evolution impacts organizations’ future will crystallize this year.

Managers will determine success

Organizations will see the ability of their managers to meet demands of flexibility, culture, and performance, as well as leading a hybrid or remote team as crucial. Despite this, many of these concepts were foreign to most managers before the pandemic began. Further, managers’ ability to handle employees with unique identities and performance capabilities, and then customize their interactions to each person’s uniqueness are essential because such action fosters individuals’ feelings of belonging to the organization.

These skills will become the roots of organizations’ culture and business strategy because they influence enormously the day-to-day experiences of employees, particularly in hybrid or remote work environments. Indeed, employees are interacting with fewer people at work compared to when they were in the office, and this makes the daily interaction between manager and team members even more influential on employees’ retention and engagement. Further, these daily interactions also influence employees’ perceptions about their performance and their opportunities for career development and advancement. All of this is particularly important for underrepresented talent.

These assumptions are supported by research we’ve conducted with the newly created Thomson Reuters Equity, Diversity & Inclusion (TREDI) advisory board, which was created to provide a diversity of insight in terms of geography, experience, seniority, gender, race and ethnicity, sexual orientation, and industry. For example, when we asked board members what they thought should be the top three investments that organizations need to make to ensure their diversity, equity & inclusion initiatives (DEI) are successful in a variety of work environments, such as in-person, remote, and hybrid, the two most popular responses involved manager effectiveness.

Trust is the glue in manager effectiveness and organizational culture, and it will become the foundation of employees experience and performance going forward. This will necessitate integrating DEI, belonging and well-being activities holistically into organizations’ people strategy.

When we queried the TREDI advisory board on the best ways to build trust between managers and their team members, 55% of the board indicated that being transparent with open and honest communication was the best way. In further response, 50% of the board added that creating psychological safety — which is the trust and cohesion at the group or team level and the belief that employees can show up to work and within team as themselves — is also among the best ways to create trust.

Managers heavily influence culture

Because culture is delivered and exemplified in the daily interplay among an organizations’ team and its manager, community and conversation can transport your culture back and forth.

Research from the TREDI advisory board also supports this idea. The most frequent, pivotal one-on-one interactions between managers and employees are feedback chats. The TREDI board noted that the skills of managers and supervisors of work giving feedback — how substantive and actionable it is, and how it is delivered — as critical areas for career progression and retention of underrepresented lawyers and accountants. In fact, almost two-thirds (64%) of TREDI board members said that giving quality feedback is the most important skill for a manager to exhibit, and they cited this skill by a wide margin over others. Further, board members advised that first and foremost, feedback needs to be direct, honest, and timely, whether that feedback is positive or constructive.

Around one-third of board members indicated that avoiding language that could be perceived as a microaggression, listening to the feedback receiver’s perspective, and sharing feedback with humility and empathy also were important to for career development and retention of accountants and lawyers from underrepresented backgrounds.

In fact, many of these skills for creating an inclusive environment, building trust, and giving feedback are not new. However, they are critical for the retention and engagement of all employees but especially for underrepresented lawyers and accountants now and going forward.

You can learn more about the Thomson Reuters Equity, Diversity & Inclusion (TREDI) advisory board here.

A patchwork of state initiatives — from categorical restrictions on coverage to mandates for coverage — further complicate the issue for consumers and insurers. Experts and advocates want states to incorporate transgender health coverage in their low-income Medicaid programs and add more explicit guidance over which treatments are “medically necessary” — or conform to accepted standards of medicine.

Section 1557 of the ACA bars healthcare discrimination based on sex, but its interpretation has varied as current and past administrations have sparred over its inclusion of those individuals who identify as transgender or non-binary. The U.S. Department of Health and Human Services (HHS) under former President Donald Trump said it would treat gender discrimination based on the sex assigned at birth and not enforce protections for individuals who identified differently or changed their sex assigned at birth.

Under Biden, the HHS reversed that stance in May and has now proposed formally adding “gender identity” and “sexual orientation” to the interpretation of Section 1557’s prohibition of discrimination based on sex. Advocates hope the prohibition will lead to fewer denials in future.

A Gallup poll estimated transgender people represent about 0.6% of the U.S. adult population.

“If finalized as proposed, the recently published HHS/CMS proposed rule on nondiscrimination based on gender identity and sexual orientation would require health plans covered by these rules (individual market and small group market plans subject to Essential Health Benefits) to cover gender reassignment care. As proposed, these changes would take effect 60 days after being finalized,” said David Allen, spokesperson for industry group America’s Health Insurance Plans (AHIP).

AHIP said insurers have largely covered medically necessary care and preventive services for transgender individuals since Section 1557 took effect in 2017, even though some markets may still be taking time to catch up. Exact coverage usually varies by provider, health plan and local market dynamics.

Patchwork of state laws

Despite the ACA, healthcare coverage for transgender people is usually regulated by individual states — the main regulators of health insurance in the United States. And 27 states and four U.S. territories lack any explicit insurance protections for transgender people, according to the Movement Advancement Project, a nonprofit think tank.

For example, Arkansas specifically permits insurers to refuse gender-confirmation care, such as surgeries to alter physical appearance in line with the patient’s gender identity. Ohio allows providers to deny care and insurers to refuse payment when the services violate their “conscience” or “religious beliefs”. Transgender people in such jurisdictions often depend on insurers to voluntarily comply with the ACA, or forego care altogether, experts said.

The updated interpretation of Section 1557 is expected to result in fewer insurance plans with blanket exclusions for gender-identity related care. However, barriers remain to coverage of gender-transitioning surgeries and complementary care, advocates said.

“Unfortunately, there are still plans that include exclusions that limit access to medically necessary treatment,” said Sharita Gruberg, vice president for the LGBTQ+ Research and Communications Project at the Center for American Progress. “This proposed rule will bring about much needed clarity on the rights of transgender consumers and the responsibilities of insurers.”

About 46% of transgender individuals surveyed said they had been denied coverage in 2020 for gender-affirming care, a study by the policy institute showed. Individuals who are denied claims can appeal to the insurer, complain to the state regulator, call for an independent medical review, or sue the insurer, but the process is time-consuming. Lack of awareness about options and inability to afford health treatments leads to many individuals foregoing necessary care, experts added.

State laws lack guidance on “medically necessary” care

States that prohibit exclusions for coverage of transgender healthcare require insurers to cover care for transgender people as they would for other individuals. Lack of explicit language over what medical treatment and services must be covered, however, has led to denials for treatments considered “cosmetic.”

Treatment for gender dysphoria — in which a person experiences physical and psychological distress due to a mismatch between their biological sex and the gender they identify with — can require gender-transitioning surgery and other care such as hormonal therapy. This can be accompanied by counseling and gender-confirming procedures such as breast reconstruction or facial feminization surgeries.

Transgender people have reported being denied coverage for care such as prostate exams or mammograms because the insurers regarded them as ineligible based on their gender. Individuals have also reported being denied treatments such as voice and hormone therapy or fertility preservation.

Agencies such as the World Professional Association for Transgender Health and the American Psychiatric Association have said that that gender-affirming/confirming treatments and surgical procedures are effective and contribute toward favorable physical and mental health outcomes.

Some states enacted laws that aim to guarantee transgender coverage. Colorado now requires coverage of all gender-affirming care as an “essential health benefit” in marketplace insurance plans. The state of Washington also moved to prevent insurers from imposing “cosmetic”-based exclusions for commonly prescribed gender-affirming treatments.

State insurance-regulator bulletins that clarify the scope of coverage can help, said Sasha Buchert, senior attorney at Lambda Legal, an LGBTQ legal rights advocate. “Having the state come along and categorically clarify that that’s not going to be the practice they’re going to tolerate has been really helpful.”

Medicaid program exclusions

The federal-state Medicaid program plays a crucial role in healthcare access for transgender people, who often have a harder time finding jobs with good health coverage, Buchert said. “When states opt not to expand Medicaid offered by the ACA… a lot of folks have a hard time getting covered even under Medicaid in those in those places,” she added.

States receiving federal funds for their Medicaid expansion programs must comply with Section 1557, but 10 states explicitly exclude gender-confirming care. A dozen states have rejected ACA provisions enabling them to expand their Medicaid programs.

An Iowa court recently ruled that a state law preventing its Medicaid program from covering gender-confirming surgery violated the state’s Civil Rights Act and constitution. Advocates for transgender people’s rights hope related cases in other states, including West Virginia, Arizona, and Wisconsin will see a similar outcome.

Taylor Brown, an attorney in a similar case in Georgia brought by the American Civil Liberties Union, said the Iowa court ruling could be a “good sign.” Brown expressed concern, however, over claim denials for transgender people in states that allow for coverage of transition-related treatment.

Rights advocates are looking to bring a wave of new cases to address these exclusions for coverage of secondary care, Brown said.

Melissa Berry, Lead Compliance Attorney Editor for Thomson Reuters, contributed to this article.

However, EEOC requirements currently do not include disclosures on employees’ LGBTQ+, veterans, or differently-abled status. In particular, this is problematic for the LGBTQ+ community because one of U.S. President Biden’s first executive orders barred workplace discrimination on the basis of sexual orientation or gender identity. The order came after the landmark decision by the U.S. Supreme Court in Bostock v. Clayton County in June 2020 that protected members of the LGBTQ+ community from being terminated by employers on the basis of sexual orientation or gender identity under Title VII.

The pressure seems to be mounting for the EEOC to do more. Late last month, the U.S. Securities & Exchange Commission (SEC) stated that it should be working with the EEOC to learn how the SEC might leverage the information companies send to the EEOC via the EEO-1 form. Indeed, shareholders of public companies are increasing demands for workplace data as well.

John Sensiba, CPA, Managing Partner of the accounting firm Sensiba San Filippo, notes the importance of this change. “We, as accountants, serve the public trust, and we report on financial information to allow the capital markets to work,” Sensiba says, adding that 80% to 90% of the value of a company could be off-balance sheet. “And the risks that you have by not embracing diversity in all its forms are huge.”

Sensiba is a vocal supporter of expanding reporting requirements on LGBTQ+ individuals and touts the benefits of this expansion in large part because of the growing demands of employees, consumers, investors, and shareholders of public companies on the transparency of environmental, social and governance (ESG) issues. Sensiba says he became a champion of ESG issues from his exposure to the topics as a member of the National Association of Corporate Directors.

Understanding how off-balance sheet risks serves public trust

The goal of public companies is to serve companies’ purpose and deliver on their vision; as such, human capital is both one of those inputs into companies’ business models and a mechanism to deliver on their vision.

Trust is an innate part of accountants’ role in verifying company information, and if the data set on human capital is incomplete or shortfalls in transparency result, it can cause challenges for investors and research analysts who make buy or sell decisions. Moreover, ambiguity in human capital reporting will result without the full, accurate representation of LGBTQ data, even if organizations believe they are doing the right thing with respect to ESG.

In addition, accountants validate their companies’ information, and because employee information does not show up on the balance sheet under the liability section, short or long term, it is not quantified. As with the responsibility of serving the public trust, human capital data must be reported to people in order to understand the risks of the organizations’ intangibles, such as the potential for an exclusive culture and a less-than-ideal diverse workforce.

This cultural component for collecting additional LGBTQ+ information is essential, especially for tax and accounting firms, because it requires LGBTQ+ individuals to self-identify. However, unless an organization’s culture is supportive and psychologically safe, accurate LGBTQ+ employee representation and pay data will be a challenge. Indeed, almost half of LGBTQ accountants, for example, move to other employers — and up to 20% of them leave the accounting profession altogether — because of poor diversity and inclusion practices at their firms. This talent drain represents a huge risk and cost to the industry.

Breaking down the resistance to additional requirements

Those opposed to expanding reporting requirements for LGBTQ+, veterans, and differently abled employees argue that it is burden for companies to implement processes and track and report the data. To counter this resistance, Brad Monterio, Chief Learning Officer of the California Society of CPAs, looks to past movements, such as the one a decade ago around XBRL requirements, which forced multinational companies to digitize their regulatory reporting to national securities regulators. Looking back at pushback on the XBRL reporting rules, there was a lot of people claiming the change was too burdensome and costly to implement.

“But when you look at the tradeoff and what is seen as a ‘burden’ by some preparers of this information for their reports, companies will be seen as having a positive impact on its employees, ecosystem, partners, its whole supply chain, customers, the market, the public, and investors,” Monterio explains. “It ultimately attracts more capital and lowers the perceived risk.”

Coincidentally, Monterio’s work on the XBRL standard that made companies’ regulatory filings machine-readable is how he came to understand the importance of integrated reporting around sustainability and ESG issues. Monterio noticed that more U.S. public companies were reporting financial and non-financial data on corporate social responsibility in their annual reports and other quarterly filings about a decade ago.

Since then, additional global standards have emerged around sustainability reporting, such as the Global Reporting Initiative and the Sustainability Accounting Standards Board, which “connects business and investors on the financial impacts of sustainability” and is only going to grow in importance over time.

Thomson Reuters Institute: In a July 2019 interview with World Trademark Review, you mentioned the importance of adopting a more “holistic” approach to diversity, including the L, B, and T+ space of the LGBTQ community. Can you talk about what efforts you and the firm are championing, especially in today’s highly charged sociopolitical climate?

Jim Ford: I think there are a number of points there. My view on this has shifted since I said “holistic” at the time because this issue is very nuanced. And, as you say, the recent sociopolitical climate has actually focused people’s attention.

What I meant at the time is that our diversity & inclusion (D&I) strategy needs to include everyone. We want everyone to be themselves. When I think of the many active LGBTQ networks in place across London, they are predominantly — and this is a sweeping generalization, I accept — created by and designed for gay white men. This is not to say that, at the time of each organization’s creation, there may have been a need for this particular demographic to network and convene. (To be clear, there is nothing wrong with groups of white gay men wanting to share their own experience.)

However, we need to be honest with ourselves and recognize the obvious challenges in the current political environment. It’s a lot easier being a gay white man than it is being even a white lesbian or a trans or Black gay man. That’s why it is very important that what we’re doing is truly inclusive, and that we don’t take the view of, well, the majority of our network is gay, and therefore a reflection of everyone else.

Ours needs to be an agenda that changes things and corrects the lack of proportionality within our workforce across all strands of diversity. We have been doing a lot, including having professional instruction around the vocabulary of trans and talking openly about D&I issues that we truly don’t understand.

I think that’s one of the sea changes in diversity. I also feel that sometimes nuance can be lost whenever organizations say, “everyone should be treated equally.” It’s a very noble statement, and it’s very admirable; but it misses an opportunity to truly connect with and appreciate the differences within our own workforce. Think about the Black Lives Matter movement. We shouldn’t shy away from talking about the unique and disproportionate experiences people have. And we can’t just say everyone should be treated equally — effectively, that everyone’s the same — and call it a day. I think that skirts the issue.

So, a lot of the efforts we are currently exploring are around helping people understand others’ perspective, whether trans, Black or another diverse background. And equally, gender within the city, which is still one of the biggest challenges we’ve got. People sweep some of the differences under the carpet. Someone who is a mother who has just had a child and wants to return to work has their own set of challenges. And just by saying “everyone’s equal,” I think we don’t do justice to what we need to do to move the needle.

Thomson Reuters Institute: Among your numerous pro bono accolades, you advised Stonewall on the passage of Turing’s Law in the United Kingdom. How was that experience? As of 2017, there were 15,000 men still alive out of a total of 65,000 individuals convicted of gross indecency. Several of these constituents expressed displeasure over the term “pardon,” given the implied “guilt” of being homosexual. How controversial was the notion of “pardoning” in the conversations leading up to this legislation?

Jim Ford: I don’t want to overplay my role in this. I was one of the partner supervisors, but again, the legwork was done by some really enthusiastic associates and trainees. But, yes, everyone involved in this was acutely aware that something had to happen. Would everyone’s preference have been the complete expunging of these “crimes” from the record as opposed to a pardon? Absolutely.

We need to be honest with ourselves and recognize the obvious challenges in the current political environment. It’s a lot easier being a gay white man than it is being even a white lesbian or a trans or Black gay man.

There are many other things, to my mind, that are wrong with the legislation. People, for example, have to apply rather than having their convictions automatically disregarded. And the scope of the offenses covered is not as broad as it needs to be. Indeed, the legislation doesn’t wipe clean any charges which are still crimes today. Throughout the 1970s and ‘80s (and probably even before), thousands of men were charged with “soliciting” or “importuning for an immoral purpose” under Section 32 of the Sexual Offences Act of 1956. Soliciting itself is still a crime in the U.K., and as a result, many individuals’ applications were rejected because their crimes are considered ineligible.

When you look at the statistics since Turing’s Law’s passage, it’s quite shocking in terms of the low number of applicants [who have requested a pardon], and the disproportionately high number of declined requests. [Note: Official estimates suggest that, of the 100,000 men convicted under U.K. anti-gay laws, more than 10,000 remain alive today.)

Still, it’s clearly better that this first step has finally been taken after so many years of inaction. But, yes, there are certainly many campaigners and affected individuals that don’t consider this matter closed.

Thomson Reuters Institute: Finally, what advice would you give associates or partners looking to take on LGBTQ-related pro bono work at their firm? Can law firms do more to promote this type of opportunity for their employees?

Jim Ford: As a firm, we’ve never really struggled in this area. We’ve got a really active pro bono program, with a lot of employees engaged doing great work for a wide range of charities.

I’m on the board of a diversity charity, Diversity Role Models, for example. We’ve also just signed up to be a corporate supporter for Queer Britain, which is trying to launch the very first LGBT-dedicated museum in the U.K., and also do a lot with Stonewall.

There is a lot of pro bono work out there in this space. I often see emails going around the firm asking people to get involved, and there is never a shortage of volunteers for LGBTQ-focused pro bono opportunities. In terms of associates at other firms, [they should] speak to their pro bono teams to find out what pro bono plans are in place. If there aren’t enough LGBT organizational partnerships available, go out and find them and put a proposal together for the pro bono teams.

Most organizations aren’t turning people down. So long as the employees are willing to dedicate their time, it’s often an easy ask.

According to recent analysis from the Thomson Reuters Foundation, “Thailand and possibly Vietnam might pass marriage equality laws, and potential laws for same-sex partnerships are under consideration by legislatures in Nepal and Japan.” (The Foundation also provided a regional snap shot of LGBTQ equality in Asia.)

With such varying societal positions on LGBTQ equality, multinational employers have a critical role to play in creating safe environments for their LGBTQ employees and advocating for LGBQ rights. Justin D’Agostino, Chief Executive Officer of the law firm Herbert Smith Freehills and the first openly gay CEO of a global law firm, spoke about how he balances leading a cross-regional firm with operations in a region with such differing stances on LGBTQ rights while ensuring that his LGBTQ lawyers and staff feel safe and welcomed at work.

D’Agostino joined the firm in the 1990s as an out-of-the-closet gay employee and was promoted to partner in 2007. That same year, he founded the first LGBTQ legal networking group in London, in part because there were no partners who publicly disclosed their LGBTQ identity when he joined the firm a decade earlier. Two years later, he transferred to Asia and led similar efforts there and in Australia because he felt it was important for him to create a space for others at the firm to embrace their LGBTQ identity.

D’Agostino says he takes his position as a role model very seriously and is deeply committed to ensuring that LGBT+ inclusion is embedded across the firm and the legal profession.

In 2016, Herbert Smith Freehills rebranded its LGBT network, changing the name to Inclusion Respecting Identity and Sexuality (IRIS), to better acknowledge the increasing importance of gender identity and to align it with the name Iris, which is the Greek goddess of the rainbow, the international symbol for LGBT communities worldwide.

Collaboration & advancement

D’Agostino says that one of the most meaningful parts of this advocacy has been when his firm partners with clients and other firms across Asia. “I’ve been fortunate to work closely with many of our clients on LGBT+ inclusion issues, and in fact some of our most rewarding steps forward have been when we’ve been part of a coalition of clients and other firms advocating for change, whether that’s on marriage equality in Australia, same-sex spousal visas in Hong Kong or trans and gender diverse advocacy,” he says.

To increase representation of LGBTQ individuals at the top ranks of the industry, D’Agostino pushes sponsorship and networking as essential elements for advancement. To provide these opportunities, he advocates for formal sponsorship and mentoring programs because, when left to informal networking, it can too often leave out people from underrepresented groups. “As LGBT+ people, we show great authenticity and courage being out at work, and these are powerful and positive traits that many people connect with and can lead to advancement within the organization,” D’Agostino explains.

As a passionate champion of gender diversity, D’Agostino has brought his leadership experience as chair of the LGBT+ Network to his membership on the Hong Kong chapter of the 30 % Club, an advocacy group that strives to increase women’s representation on corporate boards and within the C-suite to 30%. “Gender diversity isn’t binary, and when we talk about increasing gender diversity, it’s important we also consider the representation of trans and gender diverse people as well,” he adds.

D’Agostino also says he sees a need to increase this approach within any organization, network, or professional membership group that espouses a primary focus on one area of diversity. Increasing women’s representation still is the most talked about area of diversity, and while this is crucial, the desire to include other areas of diversity, such as race, ethnicity, and sexual orientation, is also important and shouldn’t be curtailed. “Gender is also only one element of a person’s identity,” he says. “So we need to make sure that we consider intersectional approaches to inclusion and representation.”

D’Agostino says he enjoys living in Asia because of the region’s diversity, but the situation for LGBTQ people varies extensively across the region, both in their rights and in public support for the community. Law firms as an employer are sensitive to local cultural norms, but also stand proudly for diversity and inclusion in the broadest sense.

At Herbert Smith Freehills, the firm designates each office as either an advocate that engages publicly on LGBT+ issues, or as an embassy, which is supportive of LGBT+ inclusion but does not communicate this activity externally. “Under this model, all our offices can be safe and inclusive spaces for everyone, including our people and clients who identify as LGBT+,” D’Agostino notes.

For Herbert Smith Freehills, these distinctions ensure that the firm is creating an inclusive environment where people are welcomed, valued, and rewarded on the basis of their talents and skills, without reference to their gender, culture, family status, or sexual orientation.

Even before that, however, many Big Law partners were comfortable hiring LGBTQ attorneys — something that also makes good business sense.

Law firms have been embracing the LGBTQ community for the better part of the last two decades. Many Big Law firms have been throwing their own Pride parties every year and generously hosting other networking events for their LGBTQ attorneys to cultivate business. Clients are demanding diversity from law firms as a condition of retaining their business, and that has only strengthened the desire of many firms to recruit LGBTQ attorneys.

As I mentioned previously, LGBTQ associates should be doing the same things as their heterosexual counterparts to achieve a position in a Big Law firm: go to the best law school, do well compared to your peers, etc. However, there are specific networking options available to LGBTQ law students that offer an advantage in earning that Big Law position.

The LGBTQ community does like to take care of itself, perhaps stemming from the sentiment that we are here to protect each other. To that end, I highly recommend mastering the art of informational interviewing or reaching out to attorneys to have one-on-one conversations about their practices and their paths to success.

LGBTQ law students and associates should seek out LGBTQ allies, such as recruiters early in their career.

Many people think of networking as mutually beneficial for both parties. While that’s sometimes the case, especially when speaking to a recruiter, it generally results in your asking another person for a favor. This is fine, as that’s mostly the point; but you have to make sure to always be courteous (like meeting them at their convenience), do your research, be prepared to ask thoughtful questions, take notes, and always say thank you. Often, you’re taking away from their precious billable time, so be very mindful of that.

In that same vein, LGBTQ law students and associates should seek out LGBTQ allies, such as recruiters early in their career. In fact, there are many LGBTQ recruiters, like me, that pride themselves on acting as a career counselor to attorneys. I often find myself talking to LGBTQ students very early on in their law school careers — sometimes even before they choose which school to attend. Indeed, recruiters love doling out this type of advice and building a trusted relationship with potential candidates.

That relationship is always beneficial to both parties because the student will receive valuable unbiased information on their career from market experts. For recruiters, we’ll be adding them to our network — which is a win for them once they’re experienced attorneys and opportunities arise.

Finally, associates should do their best to attend as many networking receptions they can, whether at law firms or with other organizations where there will be LGBTQ attorneys in attendance. Many LGBTQ non-profit organizations have galas sponsored by law firms, and while the ticket prices might be high, they’re usually looking for volunteers to help run the event, and the cocktail hour proves to be well worth it in terms of networking. For example, The National LGBT Bar Association hosts its Lavender Law conference every year (and is being held virtually this week), which includes the nation’s most diverse career fair. The primary aim of that career fair is to recruit law students to check out all the Big Law firms that have a presence at the event.

At the end of the day, the goal of networking is not to ask for a job per se, but it’s to make sure your resumé is given the proper review it deserves. LGBTQ associates and law students need to start getting comfortable asking people they know whether those people are willing to put in a word with recruiting at a firm.

They might help get you that initial meeting, but the rest of it is on you — as it should be.