Workplace Diversity and Financial Performance

What is the association between the workforce diversity of publicly traded companies and the financial performance of these companies? We ask this question because there are indications that discrimination in the workplace is pervasive and that this discrimination is at odds with the best interests of publicly traded companies.

Historically, there have been limited publicly available quantitative data sufficient to allow investors or other stakeholders to compare firms and empirically assess if company diversity supports a company's financial performance. Corporate disclosures of workplace diversity, equity, and inclusion (DEI) programs were primarily anecdotal and qualitative. The lack of quantitative data prevented systematic review and assessment by investors and made securities analysis based on DEI programs, performance attribution, or anything resembling it impossible.

As a result of cultural and investor pressure, many companies have recently released standardized data on the diversity of their workforce to the public. From August 2020 to October 2022, the number of S&P 100 companies releasing Equal Employment Opportunity Component 1 data (EEO-1) forms publicly more than quadrupled. The U.S. Equal Employment Opportunity Commission (EEOC) requires that all companies with 100 or more employees complete the EEO-1 employee information report to the federal government. In recent years, investors have asked that these forms, which were already prepared, also be provided as material disclosure. Federal contractors with 50 or more employees also must submit this form confidentially to the EEOC. The report includes demographic workforce data, including data by race/ethnicity, sex, and job categories.

PROCESS

In this report, we analyze point-in-time employee diversity report data from the 277 publicly traded companies that have posted their EEO-1 reports publicly online, matched against financial performance data for those same companies. Only the diversity data that appeared on a company’s EEO-1 form was utilized in our analysis. The results for the cross-sectional and diversity growth models were derived from Ordinary Least Squares (OLS) regressions.

There are many ways to define what diversity means and looks like within organizations. The metrics tracked by the EEO-1 form are limited, simplistic, and insufficient to build a nuanced understanding of a company’s diverse workforce. However, it is the best available dataset at this point in time, and, despite its flaws, it does allow for meaningful high-level insights and to observe emerging trends.

FINDINGS

This assessment of the newly publicly available EEO-1 forms strengthens and confirms previous research as it finds a positive association between diverse representation in management and positive financial performance.

• There are advantages to corporate cultures that are more inclusive and better at promoting and retaining their diverse talent. Positive financial performance is associated with smaller gaps in overall diversity and the diversity of the management team. Negative financial performance is associated with larger gaps between BIPOC representation in the broader employee base and BIPOC representation in the management team.

• Much diversity is lost between broader organizational representation and the management level, indicating that overarching challenges exist in the cultivation, retention, and promotion of diverse talent regardless of sector.

• The gap between overall female representation in the workforce and female representation in management has a negative performance association for the financial sector; the larger the gap between overall representation and women in management, the larger the underperformance.

• Five-year ROE has a slight negative association across all sectors when representation of White employees in management increases.

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