Companies that embrace diversity at the management level perform better on a number of financial metrics, a new report found.
Those with a greater representation of Black, Indigenous and people of color employees in management had higher cash flow, net profit, three- and five-year revenue, five-year return on equity, stock performance and lower volatility, a report by As You Sow, a shareholder advocacy nonprofit, and Whistle Stop Capital, an investment services consultancy, found.
The report compared diversity data reported to the U.S. Equal Employment Opportunity Commission by 277 publicly traded companies to 14 financial performance metrics.
“We can now see the metrics linking diversity in management to financial performance and the impact of broker bias,” Andrew Behar, CEO of As You Sow, said in a news release.
Companies with smaller gaps between the diversity of the overall employee base and the management team’s diversity were associated with more positive financial performance, the report found. And companies with greater gaps between diversity of the larger workforce and the diversity of managers underperformed financially.
The EEOC requires companies with 100 or more employees to submit Equal Employment Opportunity Component 1 data (EEO-1) forms, which provide information on employees’ job categories, ethnicity, race and gender, annually. From August 2020 to October 2022, the number of S&P 500 companies that have shared that same information publicly has more than quadrupled, the report found.
“The EEO-1 isn’t perfect, but it’s the best yardstick for workforce diversity available today,” Joshua Ramer, CEO of DiversIQ, which provided the diversity data for the report, said in a news release. “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.”