Report links diversity to the financial performance of companies
Near 300 corporate EEO-1 reports were evaluated.
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As You Sow and Whistle Stop Capital recently released a report comparing the Equal Employment Opportunity (EEO-1) diversity data of 277 companies against 14 key financial performance metrics.
The report, titled "Workplace Diversity and Financial Performance," shows that diversity data is a driver and justifies pressure on companies from investors and policymakers to increase their disclosure of quantitative diversity and inclusion data.
Meredith Benton, workplace equity program manager at As You Sow and founder of the consultancy Whistle Stop Capital, and lead author of the report, stated:
The relationship between workplace diversity and financial performance is complex and more data, at a greater level of granularity is needed.
The report used EEO-1 data provided by DiversIQ, a diversity, equity and inclusion (DEI) research firm, which also found a positive association between diverse representation in management and stronger financial performance.
Among the most important points of this analysis, the following stand out:
- Higher representation of Black, Indigenous, and people of color (BIPOC) employees in management has a positive relationship to a range of financial indicators, including higher cash flow, net profit, three- and five-year revenue, five-year return on equity (ROE), and stock performance.
- Positive financial performance is associated with smaller gaps between overall diversity and the diversity of the management team.
- Five-year ROE has a slight negative association across all sectors when representation of white managers increases.
Although the report reveals that brokers are more likely to positively assess expected future performance at companies with higher percentages of white managers, past performance data for these companies does not support these projections.
In addition, the report indicates that greater BIPOC representation in management is positively related to previous financial performance measures, although brokers are more likely to have lower future growth expectations for these companies.
"Investors' expectations for corporate DEI data disclosure have already increased to include the release of hiring, promotion, and retention rate data, alongside a company's EEO-1. These inclusion factors help show how well a company manages its workforce diversity. Without this, investors are unable to assess the effectiveness of a company’s human capital management program,” added Benton.
Live Tweet: Negative financial performance is associated with larger gaps between BIPOC representation in the broader employee base and BIPOC representation in the management team. https://t.co/Ze29on2a61 pic.twitter.com/wk9Nmnf6b1— As You Sow (@AsYouSow) November 17, 2022
Petition to companies
The authors call on all companies to publish their EEO-1 forms within the next year, a request investors have made for more than a decade, and to also share recruitment, retention, and promotion data so that this research can continue to grow in breadth, depth, and precision.
The current disclosure of this data set of the 1,000 largest public companies is tracked in a score card with 31 key performance indicators hosted by As You Sow and maintained by Whistle Stop Capital.
“This report shifts expectations for DEI reporting from anecdotal to quantitative. It utilizes data to demonstrate the importance of diversity and inclusion for companies making hiring and promotion decisions while looking to outperform their competitors. From an investor’s standpoint, it energizes the demand for deeper disclosure of material information to assist in critical decision-making. We can now see the metrics linking diversity in management to financial performance and the impact of broker bias. This report demonstrates the power of actionable data and explains why shareholders continue to require more granular DEI data transparency from the companies they own,” noted Andrew Behar, CEO of As You Sow.
For his part, Joshua Ramer, CEO of DiversIQ, stressed: “Instead of fighting transparency, public companies should embrace the EEO-1 movement, publicly release their EEO-1 forms, and engage in a dialogue to improve the data collection and reporting process.”
This report was produced in collaboration with the New York State Common Retirement Fund, the New York City Comptroller's Office, BostonTrust Walden, Calvert Investments, the Unitarian Universalist Association, and other investors.