Analysis of 277 corporate EEO-1 reports shows white managers linked to underperformance and overvaluation by investment brokers

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BERKELEY, CALIFORNIA—NOV. 17, 2022—As You Sow and Whistle Stop Capital today released a report that compares Equal Employment Opportunity (EEO-1) diversity data of 277 companies to 14 key financial performance metrics. The report — “Workplace Diversity and Financial Performance” — shows that diversity data is a material factor and warrants pressure on companies from investors, legislators, and other stakeholders to increase their disclosure of quantitative diversity and inclusion data.

The report, which utilized EEO-1 data provided by diversity, equity, and inclusion (DEI) research firm DiversIQ, also found a positive association between diverse representation in management and stronger financial performance.

Key additional findings included:

• 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. 

A significant finding relates to brokers’ projections of companies’ expected future growth rates. The data indicates that brokers are more likely to assess future expected performance positively at companies with higher percentages of white managers. The past performance data of these companies does not support these projections. In contrast, greater BIPOC representation in management holds a positive relationship with past financial performance measures, yet brokers are more likely to have lower future growth expectations for these companies. As brokers provide investment advice and market intelligence, they exert significant influence over share prices. 

"The relationship between workplace diversity and financial performance is complex and more data, at a greater level of granularity is needed,” said lead author Meredith Benton, workplace equity program manager at As You Sow and founder of the consultancy Whistle Stop Capital. “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.”

Historically, there has been limited publicly available quantitative data sufficient to allow investors or other stakeholders to compare firms and empirically assess if company DEI program supports a company's financial performance. As a result of cultural and investor pressure, however, many companies have recently released standardized data, through their EEO-1 forms, on the diversity of their workforce to the public. 

“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,” said Andrew Behar, CEO of As You Sow. “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.”

Investors have been asking companies to release their EEO-1 forms for more than a decade. This report would not be possible without the tenacity of the New York State Common Retirement Fund, New York City's Comptroller's Office, BostonTrust Walden, Calvert Investments, Unitarian Universalist Association, and other investors.

The authors call upon all companies to release their EEO-1 forms within the next year and also release recruitment, retention, and promotion data so that this research may continue to grow in breadth, depth, and accuracy. The current disclosure of this dataset of the 1,000 largest public companies is tracked on a scorecard of 31 key performance indicators hosted by As You Sow and maintained by Whistle Stop Capital.

Broader societal trends indicate that the positive associations between corporate diversity and financial performance identified in this study are likely to become more defined over time. The United States is becoming a more diverse country. Census data show that by 2045, non-Caucasian individuals will make up the majority of the population. This change will affect the labor market as well as the customer base. 

Companies will need to be in tune with these changing demographics in order to remain competitive. It is anticipated that companies will need to be reflective of their communities to remain relevant and viable. An appreciation of the value of diversity and a clear understanding of current barriers to workplace equity will prepare companies to grow as the world around them changes. 

“The EEO-1 isn’t perfect, but it’s the best yardstick for workforce diversity available today,” said Joshua Ramer, CEO of DiversIQ. “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.”

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As You Sow is the nation’s leading shareholder advocacy nonprofit, with a 30-year track record promoting environmental and social corporate responsibility and advancing values-aligned investing. Its issue areas include climate change, ocean plastics, pesticides, racial justice, workplace diversity, and executive compensation. Click here for As You Sow’s shareholder resolution tracker.

Whistle Stop Capital is a consultancy that offers outsourced sustainable investment services, working with asset owners and advisors to assess and address material social and environmental exposures within their investment portfolios.

DiversIQ is the leading provider of public company diversity, equity, and inclusion data and insights. The only research firm focused solely on DEI, DiversIQ’s team of analysts deliver the most comprehensive set of benchmarks for thousands of publicly traded companies.