LEADERS: TOP 10

LAGGARDS: BOTTOM 10

The issue of workplace diversity, equity, and inclusion has direct material impact on investors as research shows financial returns correlated with strong diversity and inclusion programs. In addition to the deep societal harm that an economically unjust system causes, allowing biased and discriminatory employment practices to continue also damages the long-term health of companies. Below is a small sampling of available studies:

• Credit Suisse, in a study of over 3,000 companies, found that companies with women representing more than 20% of managers have had greater share price increases over the past decade than those companies with lower representations of women in management. [4]

• A McKinsey study found that companies in the top quartile for gender diversity in corporate leadership had a 21% likelihood of outperforming bottom-quartile industry peers on profitability. Similarly, leaders in racial and ethnic diversity were 33% more likely to outperform peers on profitability. [5]

• A 2019 study of the S&P500 by the Wall Street Journal found that the 20 most diverse companies had an average annual five year stock return that was 5.8% percent higher than the 20 least-diverse companies. [6] The benefits associated with diverse teams include: access to top talent, better understanding of consumer preferences, a stronger mix of leadership skills, informed strategy discussions, and improved risk management. Diversity, and the different perspectives it encourages, has also been shown to encourage more creative and innovative workplace environments. [7]

The benefits associated with diverse teams include: access to top talent, better understanding of consumer preferences, a stronger mix of leadership skills, informed strategy discussions, and improved risk management. Diversity, and the different perspectives it encourages, has also been shown to encourage more creative and innovative workplace environments.

This initiative is based on the need for material corporate disclosure on the effectiveness of workplace equity programs. Unfortunately, when we began this program current corporate disclosures of workplace diversity, equity, and inclusion (DEI) programs weare primarily anecdotal and qualitative. The provision of selective data provides information that is challenging to use – equivalent to offering revenues without expenses. Investors require consistent full data sets. Without data external stakeholders are unable to know the effectiveness of popular programs, such as employee resource groups, engagement surveys, and bias trainings. Without corporate disclosure of key diversity and inclusion metrics, investors are unable to identify which companies are “walking the talk” and which have strong public relations’ teams.

Key Performance Indicators and Scoring Rubric:

Methodology Details:

As You Sow, in collaboration with Whistle Stop Capital, has examined the websites and sustainability reports for each company in the S&P500 to determine their current levels of transparency. Corporate disclosures of the following data contributed to companies’ scores, all of which were identified on a binary yes/no.  That is, if a company releases the data set identified, it receives all of the possible points for that set.  The weighting of each data set is a reflection of how important the information is from a transparency perspective, relative to an investors’ ability to understand the effectiveness of a corporate DEI program.

Our researchers visited corporate websites, looking through company reporting, sustainability reports and career pages. It is possible that they missed some reporting, or that the company has increased its reporting since our review. To inform us of corporate reporting not captured here, please send us a note to [email protected].

Pillar 1: Workforce composition data (25% of total score)

• Has the company released any workforce composition data? (5%)

• Has the company released its Equal Employment Opportunity (EEO-1) form? (20%) Dependent on the number of employees and federal contract activities, companies are required to submit workforce composition data on an EEO-1 form to the Equal Employment Opportunity Commission on an annual basis. This non-public document tracks gender, race, and ethnicity of employees across different career categories. The data is standardized across companies and industries.
  Public release of EEO-1 data is a good first step. However, for investors it is insufficient as it only provides a snapshot of the company’s current employees, but does not show how the company is progressing over time, nor the inclusivity of the company’s practices. For example, a company might have a strong recruitment program, but have trouble retaining diverse employees. The EEO-1 data would indicate high levels of diversity, but would not flag that a far more pernicious problem exists. As such, key inclusion data – promotion, recruitment, and retention is also being requested.

Pillar 2: Pay equity data: (5% of total score)

• Does the company release mean pay gap data by gender? (1.25%)

• Does the company release median pay gap by gender? (1.25%)

• Does the company release mean pay gap by race/ethnicity? (1.25%)

• Does the company release median pay gap by race/ethnicity? (1.25%)

Pillars 3,4,5: Key inclusion data: (60% of total score)

• Has the company released the promotion rates of Male, Female, White, Black, Hispanic, Asian, Native American, or Other Diverse Employee Category? (each 2.5%)

• Has the company released the recruitment rates of Male, Female, White, Black, Hispanic, Asian, Native American, or Other Diverse Employee Category? (each 2.5%)

• Has the company released the retention rates of Male, Female, White, Black, Hispanic, Asian, Native American, or Other Diverse Employee Category? (each 2.5%)

Pillar 6: Explicit and quantifiable diversity, equity, or inclusion goals. (10% of total score)

• Has the company released a diversity, equity, and inclusion goal that can be quantified and tracked by external stakeholders?

Companies, particularly those that have recently begun to actively manage their workplace equity programs, may not be proud of, or wish to disclose, their current workforce statistics. They may be concerned that releasing their data will lead to condemnation in the media or disappoint valued employees. Given this, we encourage companies to help stakeholders understand their intentions for their programs going forward. 

Shareholder Advocacy Informed by the Scorecard:

Our workplace equity shareholder engagements will be informed by the data within the Workplace Equity Disclosure Scorecard. During company engagement companies will be asked to release promotion, recruitment and retention rates for diverse employees, as well as two, or more, years of EEO-1 forms. They will be encouraged to provide transparent disclosure; even a low starting baseline shows intent to disclose and positive changes will be tracked as a large proportional increase.

Conclusion:

America is becoming a more diverse country; census data shows 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. In recognition of this growing diversity, it is important for corporate America to adapt to and be prepared for this change to ensure they can continue to attract and retain the talent they need to serve their customer base. Companies 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.

Having accurate statistical data on diversity and inclusion targets and accomplishments can serve as guidance for measuring progress toward gender and racial equity and economic justice. As You Sow’s Workplace Diversity Equity Initiative seeks to highlight best practices to guide the conversation within each sector, track corporate progress toward that goal, and identify diversity factors that may lead to a company’s outperformance relative to its peers and the market overall.

Our preliminary findings indicate that corporate release of gender and racial diversity data is still needed. However, we are also seeing that leading companies are making significant efforts to move toward more transparent communications and honest conversations. This past year we’ve seen leadership from a number of companies as well as a rising tide in transparency, as some companies strengthen their internal HR systems, buckle down on their diverse recruitment efforts, and seek out best practice examples. This signals a chance for change. Tracking progress will be vital to the continuing move toward strong diversity, equity, and inclusion practices across corporate America.