Companies struggling with diversity, equity, and inclusion might be tempted to hide their workforce data. Why shine a light on a company’s limited progress—or worse, risk a public-relations headache?
It turns out, all news is good news when it comes to letting customers know how diverse—or not—your workforce is, says a recent paper by Harvard Business School researchers. Even when a company’s numbers aren’t ideal, their transparency sends the message that they’re trying to change, the HBS authors write.
“There’s definitely a sunshine effect where, when a company shares this information, it increases brand attitude, and the company is seen as having more commitment to diversifying the workforce.”
US law requires companies with more than 100 employees to report their workforce’s gender, race, and ethnicity by job category to the Equal Employment Opportunity Commission. Through five studies, the team investigated how consumers respond when companies voluntarily disclose that data, since sharing those numbers with the public is optional. Maya Balakrishnan and Jimin Nam, doctoral students at HBS, wrote the study with Ryan Buell, the C.D. Spangler Professor of Business Administration.
“There’s definitely a sunshine effect where, when a company shares this information, it increases brand attitude, and the company is seen as having more commitment to diversifying the workforce,” Buell says.
The paper, to be published in Production and Operations Management, suggests that disclosing diversity data—even if it shows a disparity in the representation of employees of color—doesn’t hurt consumer attitudes toward a company. And, when the numbers show that a company’s workforce is relatively diverse, consumers feel even better about the business and are more likely to buy its products.
“At the moment, many companies aren’t disclosing data on their workforce diversity,” Nam explains. “Simply disclosing this information is enough to improve customer attitudes.”
The research comes amid mounting concern that DEI efforts at some companies are languishing amid economic worries and the threat of lawsuits. A recent report found that companies were shedding diversity-related roles at a faster pace than non-DEI roles.
Just two years ago, companies seemed to be making nascent progress on DEI. While only 6.3 percent of Russell 1000 Index companies disclosed EEO-1 reports in 2021, that share had doubled from two years earlier, after the murder of George Floyd thrust deep racial disparities into the national spotlight, prompting business leaders to reevaluate their DEI efforts, say the researchers.
The role of business in social change
Since Floyd’s murder catalyzed the Black Lives Matter movement in 2020, consumers report being four times as likely to buy from companies that speak out against racism, according to Edelman research. Almost 90 percent of consumers say they expect companies to go beyond merely running their businesses, with some saying that businesses should address societal challenges.
“Since 2020, we’ve seen increasing calls for companies to disclose their diversity data,” says Balakrishnan. “We wanted to know, how do attitudes toward your company change once you make this information available?”
Some of that unrest was exacerbated by the COVID-19 pandemic’s uneven demands on labor markets and supply chains. The study notes that Amazon’s 2020 EEO-1 suggested that three in five workers hired to cover the pandemic surge in sales were people of color, but only 3.6 percent of its executives were Black.
To disclose or not to disclose
The researchers devised five studies involving more than 4,000 participants to probe how consumers feel about companies’ disclosure decisions.
While the data is collected at the job level, whether a company chooses to disclose it in aggregate or break it out by job matters. For instance, a 2021 McKinsey report found that Black workers make up 19 percent of frontline employees and 4 to 6 percent of executives. However, aggregating the data disguises the problem, showing Black workers technically comprise 12 percent of the total workforce.
The flagship study, with 1,000 participants, asked consumers about their attitudes toward a hypothetical e-commerce company and its commitment to DEI depending on what they learned about disclosure rules and the company’s method of sharing the information. They organized the test into five groups based on whether participants read about government disclosure requirements and a company’s decision to participate and the approach the company used to present employee demographic data.
The researchers found that participants rated the company most favorably when it aggregated employee data across disparate divisions, which made the company seem more diverse. In fact, they rated the company about 21.3 percent more favorably compared to when it was unknown that the company even collected diversity data. Participants rated the company least favorably when they learned that the company withheld its employee data even though they had been collecting it to fulfill government requirements.
What happens when your competitor discloses—and you don’t?
The researchers found that if the competition discloses its diversity data and you don’t, consumers have lower purchasing intentions toward you. Moreover, consumers react more negatively when they know that firms have collected data on their workforce diversity but have chosen to publicly withhold it. Importantly, the researchers find that if a company decides to disclose their own workforce diversity data, the act of revelation may additionally harm its competitors by making consumers aware of the government requirements alongside their own disclosure.
More diversity is better
It’s no surprise that companies that disclose better progress on diversity metrics fare better with consumers. When a company shares that its workforce is relatively diverse, brand attitudes increase, as do consumers’ perceptions of the company’s commitment to DEI and willingness to purchase its products. Still, disclosing a non-diverse workforce appears not to harm brand attitudes. The researchers found that consumers’ attitudes are about 9.7 percent more positive toward a company disclosing a non-diverse workforce than finding out that a company was publicly withholding this information.
Disclosing wisely
These experiments have several implications for companies wondering how to navigate the post-2020 landscape. The researchers recommend that companies:
Always disclose. Even if you are not where you want to be in workforce diversity, it is better to disclose before your customers learn that you are withholding—especially if they find out you are withholding from a disclosing competitor.
Make transparency a differentiator. Since not disclosing is the status quo, the researchers found that companies that disclose will get a boost over the competition—especially if they take care to point out that everyone collects this data. In a scenario in which a competitor chooses not to disclose, a company will gain an edge by pointing that out.
Nam warns that this will not remain the status quo forever. “In the long run, consumers may expect action from the firm,” she says.
Don’t try to aggregate the data too much. While companies that are savvy about how they present their data may appear more diverse, Nam points out that this strategy is shortsighted. “You have to consider your context,” she says. “If your competitor presents disaggregated data, it’ll be obvious that you’ve massaged your data if you present it in aggregate.”
Adds Balakrishnan: “Consumers are quite savvy.”
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