Survey: Are DEI practices an effective tool or diversity washing?

Despite the significant emphasis placed on building diversity in the workplace via DEI practices in recent years, meaningful diversity has yet to take hold at public firms, especially in managerial ranks, according to a study by researchers at Columbia Business School and London Business School. The report also revealed that underperformance of diversity objectives around race often results in companies withholding diversity data from the public.

The report leveraged Equal Employment Opportunity EEO-1 reports filed by more than 800 federal contractors that became available in April. Employers are required annually to file EEO-1 forms confidentially with the government, but while some firms also publicly disclose these reports, the vast majority do not, saying the data could harm their competitive position, according to the report. About one-third of government contractors in the report’s sample objected to the release of their EEO-1 forms.

Broadly, the report revealed that women account for 39% of the workforce but only 35% of first- and middle-level manager positions. White individuals hold 72% of the first- and middle-level manager positions despite only accounting for 64% of the total workforce. The most significant underrepresentation occurs for Black managers, as the share of Black employees in managerial roles declines by half compared to the share of Black employees in all roles, the report said.

The report found 17% of the firms in its sample employed fewer than 10% minority managers and half of the firms employed less than 20% minority managers. “This finding confirms long-standing results in sociology that firm-initiated diversity training has not led to an equilibrium where minorities are properly accounted for in managerial roles,” said the report.

Public diversity disclosures expanded significantly from 0.8% of firms in the report’s sample in 2016 to 15% in 2020 due to pressure from investors and stakeholders. While the share of female employees was not associated with disclosure decisions, the overall share of minority employees is positively associated with the voluntary disclosure of EEO-1 reports. Firms with below-average representation of minority managers are significantly less likely to disclose their EEO-1 publicly. The study noted this finding tends to confirm a trend of “diversity washing,” in which firms disclose ambitious public commitments to diversity targets but largely fall short of reaching those targets in subsequent hiring practices. 

Related: The power of ‘centering’: How to sustain DEI during economic downturn

This lack of transparency has led to investors calling for the Securities and Exchange Commission to introduce a disclosure mandate so they can obtain comprehensive and comparable public data on a firm’s DEI practices, something they consider a material source of risk. If workforce diversity continues to be a critical source of information for investors, a disclosure mandate may be necessary to reveal the full scope of this information, the report concluded.