Illinois State Treasurer: Assessing equity, diversity and inclusion among business partners

Illinois State Treasurer Michael Frerichs believes that doing business with diverse-owned firms and firms that prioritise diversity is not just the right thing to do; it also helps us be the best fiduciary to the people of Illinois. We work towards this goal through a wide array of policies and programmes¹, including 360-degree assessments of equity, diversity and inclusion (EDI) for existing and prospective financial partners, which includes asset managers, broker/dealers, banking institutions and consultants, among others.

Why we perform 360-degree assessments of EDI

We believe that our government should mirror the diversity in our state and that diversity is good for business. Research demonstrates that diverse-owned companies are often well situated to harness capital inefficiencies in the market, and therefore many are primed to outperform their peers. We also know that diverse leadership teams are better positioned to execute good governance, effective risk management and optimal decision-making. That is why we focus on providing opportunities to qualified Minority, Women, Veteran, and Disabled-owned (MWVD) firms, as well as firms that exemplify commitments to EDI through staffing policies, community programmes and other value-additive organisational activities.

How we assess business partners on EDI

Since 2015, all financial services firms that currently conduct business or seek to do business with the Illinois Treasurer are required to complete our EDI assessment. The EDI assessment focuses on three core areas: leadership diversity, employee diversity and organisational activities.

Leadership diversity

We request quantitative disclosures of a firm’s owners or board members, including the number of people who identify as MWVD.

Employee diversity

We seek the number of US-based, full-time employees working at a firm who identify as MWVD. Based on the US Department of Labor’s Employment Information Report, we request data that is segmented by various job categories, ranging from executives and senior managers to administrative support workers. This enables us to analyse levels of diversity at different levels of the firm.

Organisational activities

Here we seek quantitative and qualitative disclosures of internal practices and programmes that promote EDI and support diverse communities. This includes questions related to corporate responsibility programmes, such as recruitment practices and professional development programmes, the existence and performance of diverse supplier programmes, as well as philanthropic activities.

We have specialised questions for three specific types of firms: asset managers; investment consultants; and private equity/venture capital funds. For example, asset managers are asked about how they use diverse broker/dealers, proxy voting related to EDI issues, and the demographic composition of mutual fund board directors.

Existing business partners are required to complete the assessment annually. For prospective firms, they are required to complete the EDI assessment as part of our due diligence process. Once assessments are submitted, data is aggregated, analysed and benchmarked to evaluate the overall performance of business partners. Data is also segmented by firm type, allowing us to have a more detailed picture of what diversity looks like among broker/dealers, asset managers, depository institutions, etc.

We believe that transparency is key to effective management and improvement. As such, our findings are shared with our business partners, allowing them to grasp areas of improvement for their firms and continue making strides in this critical area.

Example: The 2020 EDI assessment of business partners

In the summer of 2020, we sent all existing investment and finance partners our annual EDI assessment. The data was aggregated and segmented by firm type to analyse findings across the three core assessment areas mentioned previously.

The data collected is used primarily to drive three actions and outcomes:

1. Industry snapshots – We provide each firm with industry snapshots. The snapshots highlight performance takeaways and areas for continued focus, enabling firms to cross-reference their performance against peers and identify areas for concrete, actionable improvements.

2. Historical analyses of existing business partners – Diversity data collected over time from existing business partners is analysed year over year to identify improvements in diversity performance, or lack thereof. This helps inform decision-making processes for various business decisions and investment activities. For example, if a firm is due for review or re-approval, we may use the firm’s EDI record to compare performance, provide specific recommendations and negotiate.

3. Benchmarking of prospective business partners – Prospective business partners are required to complete the EDI assessment. A prospective partner’s performance is benchmarked against the aggregate performance of firms of the same type. This helps inform decision-making processes for the evaluation and selection of business partners.

As a part of the process, we also provide support to and collaborate with business partners to encourage best practices and improvements related to EDI. The level and type of support varies, but it may include recommendations relating to board diversity, workforce disclosure practices, organisational activities, or investment stewardship policies, among other areas.