When the U.S. Supreme Court struck down the use of affirmative action in college admissions over the summer, some took note of the concurring opinion that suggested the concept may also have no place in company hiring or promotion strategies aimed at making workforces more diverse.
In fact, attorneys general from 13 states immediately sent a joint letter to the CEOs of the country’s biggest firms, citing the decision and reminding them that they’re legally bound “to refrain from discriminating on the basis of race, whether under the label of ‘diversity, equity and inclusion’ or otherwise.”
The letter noted that many companies employ racial preferences in recruiting and hiring, and in selecting suppliers for contracts. “We ask that you comply with … race-neutral principles in your employment and contracting practices,” the AGs wrote.
Looking to counterbalance the bubbling anti-DEI (diversity, equity, inclusion) sentiment, a nonprofit that advocates for greater social responsibility by public companies just released a report linking workplace diversity and financial performance.
“We hope this dataset will help to inoculate corporate boards and decisionmakers against recent attacks that conflate affirmative action with diverse corporate hiring,” Andrew Behar, CEO of As You Sow, said last week as the nonprofit held a webinar in conjunction with the report’s release.
“What we see is that higher percentage of diverse management are positively correlated … with financial outperformance,” he said.
The report, “Capturing the Diversity Benefit,” was written in partnership with Whistle Stop Capital, an adviser to investors on companies’ environmental, social and corporate governance positions, and DiversIQ, a research firm focused on DEI data.
The report used so-called EEO-1 forms companies provide to the U.S. Equal Employment Opportunity Commission on the makeup of their workforces — some 5,000 reports from more than 1,600 companies submitted between 2016 and 2022. From there, diversity variables (male, female, race) and financial metrics (revenue, profit margin, free cash flow) were identified and plotted.
“The data analyzed support the general view that there is a broad diversity benefit; companies are advantaged by having diversity of gender, race and ethnicity in their management teams,” the report says.
It acknowledges that more detailed data on companies’ hiring, promotion and retention rates would paint an even better picture but that many firms are hesitant to release the information. Questions remain, too, on why industries such as communication services, health care and information technology showed a “statistically significant relationship” between diverse management and financial performance while the fields of energy, materials and real estate did not.
Webinar panelists — many involved in the report’s production — spoke to the possibility of a “chilling effect” on DEI momentum from the Supreme Court decision.
But Meredith Benton, lead author and founder of Whistle Stop Capital, was emphatic in her assessment: “I do not think we’re going to step back into a time when companies don’t understand that this matters.”