The United States House Committee on Financial Services held a hearing on Thursday, March 18 titled, “By the Numbers: How Diversity Data Can Measure Commitment to Diversity, Equity and Inclusion.”

During the Subcommittee on Diversity and Inclusion’s hearing co-chaired by Rep. Maxine Waters of California and Rep. Joyce Beatty of Ohio, DiversityInc CEO Carolynn Johnson testified on the importance of data transparency and accountability and how a lack of it can have an impact on diversity and inclusion oversight. Johnson’s testimonial touched upon the success some companies have had in making their data more available — and the boost in profitability and equitable workforce representation that those disclosures have helped to bring about.

“This is not about shaming any industry or any one company,” Johnson said. “This is about the tide all rising together.”

“One year and one day ago on March 19th, 2020, the U.S. Securities and Exchange Commission Office of Minority and Women Inclusion hosted a webinar that included an overview of the 2018 diversity assessment report,” Johnson said. “The self-assessment sent to 1,300 registrants, investment advisors, broker-dealers, municipal advisors and self-regulatory organizations received only 38 responses covering only 5% of firms asked to submit a company self-assessment report.”

“Second, and this is the good news, other industries have been openly talking about and disclosing their efforts and showing how they are necessary to achieve ethical corporate governance, profitability and return on equity,” Johnson continued. “Examples of these companies that complete the diversity survey and rank highly are Johnson & Johnson, AT&T, Kaiser Permanente, Novartis Pharmaceuticals Corporation, Marriott International, Hilton, Eli Lilly and Company, ADP, Accenture, TD Bank, Capital One, Moody’s Corporation and many others.”

Johnson also focused on how existing diversity data has already had an impact on enacting real change in the world.

“Let us take a closer look at affirmative action,” she said. “Here are the history and the facts. In 1961, President John F. Kennedy’s Executive Order 10925 used affirmative action for the first time by instructing federal contractors to take ‘affirmative action to assure that applicants are treated equally without regard to race, color, religion, sex or national origin.’ However, it was not until October 1967, following pressure from the surging women’s movement that President Lyndon B. Johnson amended the order to include gender provisions. That gender provision, the collection and required disclosure of gender diversity data made all the difference.”

“The numbers, presence of women in management named as CEOs and directors of boards of publicly traded companies prove it,” she added. “After two decades of affirmative action and the data being collected and analyzed without bias, it was white women who held the majority of managerial jobs compared to African American, Latino and Asian American women, the supposed beneficiaries of these policies, according to a 1995 report by the California Senate Government Organization Committee. Today, women are more educated and thriving in the workforce than ever before. And according to a Washington Post article from 2019, for the first time ever there are more bachelors, master’s and Ph.D.s going to women than men, yet we would not know that without the data.”

In a Q&A that followed the witness testimonies, Johnson was asked why firms that work with DiversityInc were willing to share data with the company while so many others refused to make their data public.

“I believe the firms that are sharing their data understand that this is not about PR or marketing, but this is about profitability and a return on equity,” Johnson explained. “These firms understand that they’re losing because they don’t understand the challenges of their workforce. They’re losing people because they’re not collecting, analyzing and studying the right data. So they have found a way to understand how this is profitable — not just about the ‘right thing to do’ or morals.”

In a follow-up question, Rep. Ayanna Pressley of Massachusetts asked Johnson how requiring regulated entities to disclose diversity data might increase accountability and transparency in the financial services sector.

“I would be remiss if I did not, in this moment, acknowledge the loss of the late Arne Sorenson, CEO of Marriott International. There is this idea that those of us who understand the power of diversity think that people are inherently bad. And I will tell you that the conversations I’ve been fortunate enough to have with Arne Sorenson usually led to him saying ‘I didn’t know this was happening until I saw the data.’ The opportunity here is for us to learn what has happened and whether it was done intentionally so that we can fix it and prevent it from happening again.”

Rep. Al Green of Texas asked Johnson: “How can public access to bank diversity data create more accountability for genuine diversity results, similar to the ones you measure in your annual [Top 50 Companies for Diversity competition]?”

In her response, she cited data from the Center for American Progress, which found that corporations lost an estimated $64 billion in 2019 because of discrimination lawsuits based on orientation, gender and ethnic discrimination. 

“A lot of those organizations were not collecting the same types of data that, by the way, every organization that completes the DiversityInc Top 50 survey does,” she said. “It is not industry-specific and it is not region-specific. It is standard across the board. We are collecting data, not just around the total workforce, which — depending on the type of company it is — may look very good. We are collecting data based on board diversity. We look at gender and ethnicity. We look at veterans’ status. We look at the trust in disclosure of whether individuals in your leadership team or your workforce are talking with you about a disability, whether it is seen or unseen.”

“We look at all of this information and we know, based on the human resource information systems, that it is something corporations can collect,” Johnson said. “These disclosures, this transparency is not just about consumers. It’s also about what you’re telling your workforce. Are you being honest with them about the opportunity for them to grow in the organization and one day be a leader in an area that they choose? This transparency is for external purposes as well as internal treatment and development of your workforce.”

Rep. Rashida Tlaib of Michigan asked Johnson to talk about how bringing lived experience into the corporate boardroom may help to break down some of the racist structures that prevent diversity and inclusion from succeeding in some environments. 

“When we think about gathering data, I think about the shock and awe that some of my peers went through, watching videos of people being killed by police officers who were supposed to protect them,” Johnson began. “I think that the opportunity to hear from and hear about the experiences of other people so that we can program and look for that bias is clearly a part of most systems that everyday Americans have to deal with in some shape or form.”

“I think that the opportunity to hear from people — to see and have proof of what’s actually happening — is why the Diversity Data Accountability Act should be mandatory,” she added.

“If I can just say one more thing, PwC, EY and KPMG have done outstanding work in standardizing how we report out on our financial performance. These three organizations have also developed and disclosed a diversity report that they share publicly. Most of these companies are advising, doing tax prep work or consulting for other companies that don’t disclose this data. Surely if they have found a way to do this, the companies that they’re advising can do the same.” 

The hearing was called to discuss the impact that a lack of data transparency has on D&I oversight as well as to gather testimony on the importance of diversity transparency and accountability. The Subcommittee on Diversity and Inclusion also examined how legislation requiring mandatory disclosure of such data may help to increase corporate diversity and inclusion, improve workforce diversity and boost board diversity and spending on contracts for professional services. 

Beatty also used the hearing to formally announce the “Diversity Data Accountability Act,” a proposal that would make the sharing of corporate diversity data for select corporations and industries mandatory.

In a memo written prior to the hearing, the House Financial Services Committee Majority Staff said: “To the extent that companies do not take advantage of the potential profitability associated with having a diverse and inclusive workforce and culture, they may be subjecting themselves to financial, reputational, and in some cases, litigation risk. A September 2020 Business Reporter article noted that ‘Boards with only a token attempt at diversity and inclusion, who practice ‘one and done,’ are unlikely to convince stakeholders that they are really making an effort.’ They may well damage the company’s reputation, especially in the eyes of investors looking for exemplary corporate governance practice.”

The memo also noted that “a company that lacks diversity or does not make diversity or equity a priority may damage its reputation with potential employees, especially younger, more diverse candidates. In February 2021, the Washington Post reported that many younger job seekers — those born in the Millennial and Gen Z generations — see D&I as a workplace requirement and may choose not to work for companies that lack workforce diversity or that are not making commitments to address the issue of systemic racism.”

In her opening statement, Beatty called upon the regulated financial entities to fully disclose their diversity data, saying “Only through the transparent examination of performance benchmarks will we achieve lasting and sustainable opportunities for women and people of color in the financial services sector.”

Beatty went on to say that “Good diversity and inclusion performance has been proven unequivocally to increase innovation and profitability while lowering regulatory risk.” 

“On average, more than 80% of regulated entities have failed to share any metrics of D&I performances with their primary regulator,” Beatty said. “By any measure, the voluntary self-assessment of diversity and inclusion performances by regulated entities has failed.”

In his initial testimony before the Financial Services Committee, New York State Comptroller Thomas DiNapoli agreed with the need for such an act and the importance of data transparency on a whole.

“Research has shown that companies face risks when their policies, practices, products or services are perceived to be discriminatory,” he said. “By contrast, companies that foster diversity and develop a culture of inclusion, equity and belonging are better positioned to drive long-term value for shareholders. More than ever before, it’s imperative for investors to encourage their portfolio companies to address DEI-related issues. To do so, investors must have timely access to accurate DEI information disclosed through the standardized manner to enhance the consistency and compatibility of the information for investors to use.”

Daniel Garcia-Diaz, Managing Director of the Financial Markets and Community Investment Team for the U.S. Government Accountability Office focused his testimony on how he had seen financial services firms impacted by increased data transparency and a willingness to share their data publicly.

“Our prior work has found general agreement among financial services representatives and other stakeholders on the importance of collecting and analyzing employee data to assess diversity and inclusion efforts,” he said. “Representatives from large banks noted that analyzing workforce data can help identify leaks in their internal pipeline and better understand why women and minorities are leaving before progressing into management positions.”

Garcia-Diaz added that ultimately, his work with the Government Accountability Office “points to the importance of collecting and analyzing employee data,” and that “data analysis allows firms to better understand their workforce so that they can tailor their diversity inclusion efforts, to better serve their employees and ultimately their clients.”

Rep. Beatty asked Anne Simpson, Managing Investment Director of Sustainable Investments for pension and retirement firm, CalPERS, how diversity data impacted her industry.

Simpson explained that “long-term value creation comes from the effective management of three forms of capital: financial, physical and human.”

“We regard diversity, equity and inclusion as an integral part of human capital management. And as with all corporate reporting, be it on financial or human capital management, investors need data that are material, reliable, timely and integrated,” Simpson said. “Without that data, we simply do not have the full information set for capital allocation, price discovery, litigation or stewardship through engagement and proxy voting.”

Rick Wade, Senior Vice President of Strategic Alliances and Outreach for the U.S. Chamber of Commerce shared a personal anecdote about how he had personally seen diversity efforts impact his life growing up in the South.

“I grew up in a very small town in South Carolina, where the textile industry was once the main stage of our local economy,” Wade shared with the Committee. “Connected to that economy was a vibrant district of Black business owners that we affectionately called The Hill. It was our version of Black Wall Street over in Tulsa, Oklahoma or Harlem perhaps in New York City. It was where one could find doctors, lawyers, retail stores, restaurants, fresh food, seafood markets and other services. These businesses were key anchors in our community and the owners were our role models. The Hill doesn’t exist today.”

“I’ve seen firsthand how entrepreneurship plays an important role in building wealth and families, communities and economies, but the opportunity to start and grow a business is not equal for white and Black Americans,” Wade continued. “Black Americans represent only 9.4% of our country’s business owners. Black-owned businesses have lower revenues, fewer employees and are less than half as likely to get financing as white-owned firms. More concerning is the study from the National Bureau of Economic Research, which reports that 41% of Black-owned businesses have already closed as a result of the pandemic and the downturn economy.”

“We need to address diversity urgently and through intentional action,” Wade emphasized. “We need data to truly identify where the system is broken so that we can analyze, diagnose and fix it. This issue is not just a moral issue. It’s about our economic competitiveness. The reality is that the economic impact and the full potential of Black ingenuity and talent have yet to be fully realized in America.”

To view the full congressional hearing, click here.