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: Racial diversity in management linked to positive financial performance, new analysis shows

A new analysis of data from nearly 300 companies has found more evidence of a positive link between diverse workforces and management and the financial performance of companies.

A report published Thursday by As You Sow, a shareholder advocacy group that has long pushed companies to release information about their workplace demographics, includes findings based on 277 companies’ workforce data compared against more than a dozen financial metrics.

Among the findings: Greater representation of Black, Indigenous and people of color (BIPOC) in management is tied to higher cash flow, net profit, three- and five-year revenue, five-year return on equity (ROE) and stock performance. Also, five-year ROE has a slight negative association across all sectors with higher representation of white employees in management.

“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,” the report said.

EEO-1 forms are federally mandated annual data reports that require private-sector employers with 100 or more employees to disclose demographic workforce data, including by race and ethnicity, gender and job categories.

See also: How old boys’ clubs and box-checking keep tech, academia and more from real progress

Whistle Stop Capital principal Meredith Benton, a consultant for Berkeley, Calif.-based As You Sow who wrote the report, told MarketWatch ahead of its release that what she found that’s “unique relative to the robust body of research that has said the same thing” is that positive financial performance is linked with smaller gaps between overall workforce diversity and the diversity of the management team.

On the other hand, companies’ negative financial performance is associated with larger gaps between BIPOC representation in the overall workforce and BIPOC representation in management, according to the report.

“We’re expecting more robust and clear associations in the future, as more companies release their data,” Benton added.

Benton, along with As You Sow, routinely urges companies to release their EEO-1 reports, as well as inclusion factors such as hiring, promotion and retention data. Among the companies they have persuaded to release diversity data is Oracle Corp.
which had long resisted making that information public.

Read more: ‘There’s a diversity grift right now’: Employees at center of racial controversies at tech companies speak out

Another notable finding: Brokers were more likely to have lower expectations for companies’ future growth if those companies had a higher percentage of BIPOC employees in management.

“The data used — provided through the Institutional Brokers’ Estimate System — showed that, while greater BIPOC representation in management holds a positive relationship with financial performance measures, it is not valued accordingly by brokers,” the report said. “This relationship is most clearly seen in brokers’ growth projections when there is higher representation of BIPOC women in management.”

Brokers, who provide investment advice and execute trades on behalf of their clients, can have significant influence over companies’ stock prices.

“In a way, because brokers’ future projections impact current share price, it may be dampening performance,” Benton said.

A possible explanation for broker expectations not lining up with actual company performance may be related to the lack of diversity within the ranks of brokers themselves, she added. “If we look at the financial-services industry, it’s not as diverse as the broader population,” Benton said. “That might be reflected in confidence they have in management.”

Related: Not a ‘woke mission’: Nasdaq, SEC say push for diversity on corporate boards is what investors want

Representation of women in the asset-management industry across most levels lags behind women’s representation in financial services overall, according to a 2021 McKinsey report.

In the financial sector, gaps between overall female representation and female representation in management were associated with negative company performance, the As you Sow report found.

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