May 23, 2024

Corporate Transparency

Dan Berlingeri:  

Hey there. Welcome to People Count, a DiversIQ podcast where we talk about workforce diversity and human capital management from a data lens. DiversIQ is the leading provider of human capital and DEI data for the largest publicly traded companies in the world. We provide the most comprehensive dataset focused on DEI, human capital, and other social factors affecting the materiality of company culture, employee retention, and inclusion. I’m Dan Berlangeri, and I am joined here today again by Josh Ramer, the CEO and cofounder of DiversIQ. Today, we’re talking about transparency.

Josh Ramer:  

I’m doing pretty well. How are you doing, Dan?

Dan Berlingeri:  

Good. I’m happy to be at another Friday. For sure, it’s great having these talks on Fridays, too. You know? You’re unwinding from the week, looking at things in retrospect. It’s the perfect time to reflect.

Josh Ramer:  

We’re not doing this on Monday morning. Oh, woof. Right? Maybe it would be better. I don’t know. Maybe after a nice relaxing weekend, we could try that one.

Dan Berlingeri:  

One day. Bright, cheery, optimistic, naive. Well, look. We’re gonna talk today about transparency. I’m excited to dive into that. Just to start us out, why is transparency so important when it comes to company disclosures?

Josh Ramer:  

I mean, in general, when evaluating a company and how they’re doing in anything, if you don’t have information, you really have to trust what they tell you, or you have to trust other sources of information that are kind of looking and trying to gauge what’s going on without really having enough information to do accurate analysis. Human capital, people—this has always been an area where there hasn’t been a lot of information about what companies are doing. They’ve always said something like, “People are our most valuable asset.” But you didn’t really know what they were doing, what their strategy was to attract, retain, and develop great talent, and how that compared to other companies. Who was doing really well, and who wasn’t. So, the idea of transparency is really important, just to have some information to gauge. Are they even doing what they say they’re doing? How are they doing, and how do they compare to their peers?

Dan Berlingeri:  

There’s that age-old adage you mentioned before that you can manage what you can measure. Right?

Josh Ramer:  

Yeah, and I’m even gonna lose that, and it’s not really true. It doesn’t really… Again, having the information is a start, and I think, sadly, that’s still where we are with a lot of this information about human capital.

Dan Berlingeri:  

Got it. So who wants this information most? Who is this most important to, and what’s the history behind this? How did we get here?

Josh Ramer:  

It really started in early 2021, but I started looking into it in mid-2020, and that’s really where there was a huge push for more transparency after George Floyd. It was coming from large investors, the largest investors—State Street, BlackRock, and Vanguard. They were pushing companies to start being more transparent about who’s on your board, what’s their background, what’s the makeup of your board, what are their demographics, and just basic stuff about your workforce. So it started with making public your EEO-1 data, which you’re already giving to the government just so we have some idea of the demographics of your workforce, and it’s a standardized way of comparing it.

Calvert Research, which has been in the space for a long time, was pushing S&P 500 companies to disclose their EEO-1 data to the New York City Comptroller’s Office. So there are some big investors and stewards of money. It was also coming from employees, especially as they started to work from home and the culture came to the forefront. Companies started to form employee and business resource groups, and employees finally had a voice. Companies started to do engagement surveys and were getting all this feedback all of a sudden, and a lot of it was about, “Hey, what’s going on in our own company? Can you tell me about what you’re doing and why? Are there other people like me? What are you doing to try to make sure that I fit in and that I’m being given opportunities the same as other people?” So it was coming from all of these different places, and they were getting this pressure to start being a lot more transparent.

Dan Berlingeri:  

Yeah. How do we think about measuring this? I know we work with a lot of different kinds of stakeholders. Just love to hear some examples, and if you could walk us through our methodology, what we’re focusing on, what’s important to the people we work with.

Josh Ramer:  

Yeah. If you don’t get distracted by my daughter screaming. It’s okay. Again, our goal is to help stakeholders make better decisions, and so they’re the ones telling us this is the information we need to make better decisions. We build our framework based on what we’re hearing from investors, from the companies themselves that say this is how we measure performance internally, and from what we’re seeing from different frameworks out there—ESG frameworks, the way they’re thinking about it. So part of it is just what’s important to measure in terms of what’s material to the business and what helps you understand what’s going on inside the company and who’s doing well and who’s not. Some of it is diversity data because diversity has become important, and so measuring and benchmarking diversity in different ways.

Some of it is the idea of attracting, retaining, and developing a workforce. You need data around that. So what does data around hiring and promotion and turnover look like? Partly for those different groups for demographics for diversity, but also just is it costing you a lot? Because it costs a lot to hire somebody, and if you’re not retaining them and you have to hire somebody else, are you promoting from within? Are you having to hire externally at senior levels? What is your culture like? Do people want to work there? Are they motivated to work hard for you? Do they feel like they’re a part of something? Compensation— is it equitable, but also is it competitive? Are you offering your employees something that makes them want to be there and stay there? Are you treating your workers well? Part of that is benefits, part of it is safety, part of it is their ability to organize and negotiate, and not just employees, but the other vendors that companies are working with and contractors and their whole supply chain. So there are a lot of issues where it was always kind of a black box, and there were other services that tried to fill in some of those gaps, and there were some high-level data points. But now, because of this push, there’s a lot more data out there that companies are making available. So we’ve seen a wave of change in terms of companies disclosing a lot more.

Dan Berlingeri:  

That’s fantastic. Are there certain areas in which you’re seeing more accelerated progress and maybe some areas in which you’re seeing slower progress?

Josh Ramer:  

Yeah. I mean, the two main areas where we’ve seen huge progress are, you know, I mentioned the EEO-1 report. That was kind of low-hanging fruit, right? So the EEO-1 report, not to beat a dead horse, but it’s the intersectional workforce representation data that companies with over 100 employees or contractors with over 150 employees have to report to the government every year. It’s broken down by gender and race and ethnicity by job category, just for the US. So it’s consistently reported, it’s apples to apples, and when I started looking at this in mid-2020, 10 percent of the S&P 500 made it publicly available, and as of today, it’s over 81 percent. So, you know, that’s from this pressure on companies to make it public. A lot of them still say, “We don’t think of our workforce this way. We don’t use this data, but we’ll make it public.” So that was a huge change.

Workforce in general—we’re seeing a lot more granularity into, you know, by level broken down by gender and specific race and ethnicity, age groups, and then self-ID, which again wasn’t really a thing except for contractors. They have to report on veterans, and so there was some veteran data actually at defense companies, but now it’s really sexual orientation, disability, veteran status, and other things that we’re seeing, and again, that’s in response to these engagement surveys and what they’re hearing from employees, but also from stakeholders. So that’s been a huge change too.

For board of directors, most companies used to say, “Well, we have three women or 30 percent women,” and that was if they said anything. A big driver of change there has actually been laws and regulatory movement. So California passed several bills requiring reporting of board diversity, but also a mandate to hit certain thresholds of diversity. One of those bills was struck down, one of them is being challenged in court. But anyway, a large percentage of large companies are headquartered in California. There was another reporting rule in Illinois, and then NASDAQ passed the board diversity rule, which is also being challenged. It’s being challenged, but it was a mandate for NASDAQ-listed companies to report on the diversity of their boards. They suggested doing it in a specific matrix, and then also if you don’t hit certain thresholds of diversity, explaining why you haven’t hit those thresholds.

So it’s called the “comply or explain” rule. It’s being challenged in court, but essentially, that’s set the baseline for what’s expected. NASDAQ really set the baseline—intersectional gender and race plus asking the self-ID of disability, LGBT, veteran status. That’s where we’re moving; that’s kind of the baseline, especially for large companies. And so board reporting—we have a transparency score we use to measure the percentage of metrics that companies are reporting versus what they’re expected to report. So

 if they report everything, they get a one in each category, and for board, we’ve seen that score triple. Basically, they’re reporting three times as much as they were just in 2020.

Dan Berlingeri:  

Yeah, and recently, we’ve heard—I know a lot of people ask us, well, in thinking about diversity data, how do we implement this? Why is this important? What’s material about this information? I think recently we heard from a major consultant we talked to, look, your diverse employees are like the bellwether to your culture. If something is going sideways or something’s not going well, typically, you’ll be able to tell first from those folks who a culture might not be shaped around or formed around in the first place. So I’d love to hear some of your thoughts on that too, like how we think about this increase of more granular intersectional diversity data and how some of our stakeholders are implementing that information.

Josh Ramer:  

Yeah. Again, I think it’s not just diversity, right? It’s a lot more data and a lot of different cuts, and different people want it to do different things with it. Specifically, the diversity data—again, it’s benchmarking and understanding how you compare to your peers because it is a competitive advantage, especially because employees are really looking at where they want to work, do they fit in, and do they have the same opportunities as their peers. Traditionally, underrepresented groups were underrepresented, especially at leadership levels, and they still are, especially in certain industries. So now that there’s data out there, the employees have access to that. They can see that, and the employers are thinking about how to make sure that at least everyone has the same opportunity and that they’re not discriminating or losing diverse leadership because they’re not getting the right opportunities and they feel like they don’t have the same opportunities.

So, again, we don’t think about it like diversity. Demographics matter, and that’s what we should focus on. It’s diversity of thought and experience and a lot of other things, but that’s a part of it. There are a lot of companies that care about that and use that to measure performance, and there are a lot of other stakeholders too. Now, of course, you’ll hear about a lot of people that completely disagree with that, and I just saw a conservative publication really pushing back against the idea of even measuring any of this, like going back to the Equal Employment Opportunity Commission and the idea of even collecting demographic data. The rationale is not that every country does a census and there have been censuses done for thousands of years, right? The idea of just counting people because you need to be able to make decisions based on how many people are there and where they live and who they are. But the idea that once you break people into groups, you have tribes, and those tribes—it’s a zero-sum game. Once you do that, there are government programs based on those tribes, and so it is really all of those tribes competing for federal dollars.

Dan Berlingeri:  

There’s that idea of tribalism.

Josh Ramer:  

Right. There’s programs that are only open to certain of these groups, and when you add a new group, that group is going to want their share. They were really talking about the OMB, the Office of Management and Budget, which sets the census designations. They just decided they’re going to break off Middle Eastern and North African into a separate group, and it’s going to be broken off from white. Their argument is basically the more that you do that, the more you’re just creating another group that is going to be competing. Their argument was that it’s a big reason why we have this tribalism now and why politics is becoming all of these groups fighting against each other.

The argument there—there’s some sense to it. You could argue that every time you create a department or a program, it’s almost impossible to get rid of it. There are always going to be carve-outs, exemptions, and special interests that are going to fight for their piece of the pie. So that was kind of the argument. But anyway, getting back to this, we’re in a place where there are these groups of people that feel like, “I am part of this group and I want to feel part of something and represented.” I would also argue that these groups feel a lot of pride in their heritage, where they came from, their culture, and their traditions. The idea that we’re just gonna get rid of demographic groups altogether is kind of crazy too.

Dan Berlingeri:  

Right. There’s gotta be some happy medium. It’s actually a really great segue into this headline we found from this last week, thinking about the opposite end of this conversation, which is where certain pensions and states have taken a hard stance against “woke culture” within a pension system. I’m gonna read a quick quote here from Fortune magazine: “According to a Council of State Governments report, at the state level alone taxpayers face $1.3 trillion of unfunded liabilities from government employee pension systems. Administrators of these pension plans need every tool available to them to protect taxpayers against massive bailouts. Passing restrictive laws at the federal or state level, instructing these administrators to avoid certain industries or banks perceived to be too woke or not woke enough could put them in fiscally untenable positions.”

So it’s interesting, back to this tribalism you talked about, that we’re kind of getting to as a country. If we’re talking about fiduciary duty, what’s in the best interest of the folks we are protecting with these pension funds? I think certain states are taking stances, and we start to forget about the overall goal of why we’re setting out to do this. So it all comes back to the purpose of transparency. Why do we gather information? Why is information imperative to our responsibility to these asset managers and their fiduciary duties? In some of these cases, it just seems a little absurd how we can get so caught in semantics and tribalism.

Josh Ramer:  

It’s both hypocritical and ironic, and that’s just my personal opinion. It is politics—the party that is for free enterprise, free market, and hands-off government is trying to restrict access to information or the ability to use information to make decisions. There was a piece years back that was just called “ESG’s Information.” The idea that any investor, whether it be someone managing a pension fund or the state government that wants to raise money through municipal bonds and is not allowed to work with a certain financial institution because they’re on a blacklist. That’s directly costing state governments or city governments money.

I think the quote was Texas is paying an additional several hundred million dollars a year because they have to pay higher interest rates on their municipal bonds because there’s a smaller market of investors they can work with. In terms of investment, I’m not saying that those pension fund managers should use any of these data points we’re talking about, but the idea that they can’t incorporate it and look at those things. Texas is accusing these institutions of blacklisting fossil fuels. It’s the same idea—you don’t want to restrict the available pool of investments. They’re also restricting companies. These woke companies you’re not allowed to invest in—there are certain companies where if you’re not allowed to, a small number of companies are responsible for a large percentage of the gains in any given year in an index. Trying to beat an index is really hard because if you don’t own the 10 companies responsible for a large percentage of the gains in any given year, you’re not going to beat it. Trying to find the ones that are going to outperform is really hard.

If you’re not allowed to invest in certain companies, it’s going to be really hard to meet your benchmark, and for pension funds, that means having unfunded liabilities. Most pensions have to hit an 8 percent return to meet the expectations to be able to pay out and have all their liabilities funded. Most of them have been under that benchmark for many years. Hamstringing them even more by saying you can’t work with certain institutions to manage the money or use certain information in your decisions is just going to make it much harder for them to reach their goals and cost them money.

Dan Berlingeri:  

Yeah. This is an ever-evolving conversation and argument, and I’m glad that we’re on the side of data, and we’re continuing to see a downhill trend. Any other last thoughts or trends that you’re seeing in terms of where we’re going in the future? Any predictions?

Josh Ramer:  

Yeah. Beyond board diversity, we’re going downhill, and we’re seeing very little backtracking. Companies that were like, “Oh, I had to do this” are continuing to drive towards more transparency and even commitments to diversify their board with language saying, “When we recruit new board members, we really are looking for women and people of color.” That’s a strong consideration. Workforce is the same thing. It’s really just about more granular reporting about the workforce, and now the trend is towards the whole funnel. Here’s our workforce at a point in time, which is great, and over time, you can see this workforce. But what are the levers a company can pull, and how are people moving through the funnel? It’s recruiting into the entry level, and then how are people promoted through the funnel up to senior levels, and then where are they falling off? So it’s the hiring, retention, and promotion information also broken down really granularly so you can see not just the overall workforce, but broken down by levels and by all these groups. You can really see what performance looks like across that whole funnel. Then we’re just seeing a lot more granular information, qualitative information about the storytelling.

Here’s our program. Here’s what’s important to our company in attracting, retaining, and developing talent. Here’s how we’re doing, and here’s what we’re doing. Here are our goals, and here are our focus areas. So, for a utility company, it’s gonna look very different than a tech company, which is gonna look very different from a manufacturing company. This isn’t going to be the same at every company in every industry. The transparency is going to look very different. Some companies feel that really granular reporting is intellectual property and that competitors could glean information if it gets too granular. Some of it’s just not as relevant to certain industries or to their own employees and what they care about, so it’s going to look very different. There can’t be a one-size-fits-all framework. Hiring, promotion, turnover by gender and race is kind of the push by those EEO categories. There’s been a push from As You Sow, which has been a leading activist for that and has had shareholder proposals and has pushed a lot of large companies to agree to start reporting that. So, like, Nike has agreed next year to start reporting that on a level of detail, and then pay equity information, pay gaps, like unadjusted raw median pay gaps for women and people of color, has been really sparse.

I think there are maybe like 20 large companies that report it now, but Arjuna Capital has been a leading proponent of getting companies to report an adjusted statistically adjusted pay gap, but also that median raw pay gap. They put out a scorecard every year ranking companies on this issue, and they’ve gotten almost 50 or 60 large companies to agree to do it if they’re not already doing it in the future. So I think we’ll see a wave of companies start to report that unadjusted pay gap, which more than anything, what it’s showing is a representation gap, but it also shows that work needs to be done to address pay disparities, especially at senior levels.

That’s usually where it is, at the senior level. So it’s both underrepresented women and people of color in those senior levels, and there are also issues with pay disparities. The best-in-class companies have started doing it; they’ve been doing it for years, and they say, “Listen. Here’s where we are. We need to do this so that we can get better, and here’s how we’re trying to get better.” Also, BNY Mellon has been doing this; they’ve been putting out a report since 2017. They talked on a podcast with Arjuna Capital about why this is a competitive advantage and why it’s so important to them to not only do the study but to integrate pay equity and this granular look at data into every decision they make. They’re making sure that there is equity when they hire somebody, when somebody gets promoted; it’s part of every manager’s core toolbox.

Those are the areas we’re really starting to see. It’s early; those two are really emerging. We’ve seen a lot of companies start to set specific goals around DEI, representation goals. We’re just starting to see this wave of ESG and sustainability reports come out in the last few weeks. So it’ll be interesting to see how that changes. I think most companies are not—representation goals seem to be okay. If you say we want to get to a level where we reflect the population where we’re located or the national population, or at least be more equitable at senior levels, that seems to be okay. But there are definitely a lot of companies thinking about, are we gonna get sued? Every day, you see a company get sued based on some program or something they’ve said about their DEI.

Dan Berlingeri:  

Red Hat’s in the headlines this week.

Josh Ramer:  

Yeah. So the threat of a lawsuit is actually having a big effect, but also the Supreme Court decision and whether some of these programs get challenged and it goes up to that level. You see some conservative organizations suing or filing shareholder proposals saying, basically, these companies are discriminating against white men. That’s essentially what they’re saying. If you make a program that is only available to a certain group or you set a threshold for hiring, then you are giving opportunities to certain groups and not others. In this case, people of color. If you’re saying that half of all VP and above roles are gonna go to people of color this year, that’s probably at risk of being a little bit discriminatory.

Dan Berlingeri:  

Right. It’s the zero-sum game.

Josh Ramer:  

What we’re seeing change is the structure of programs, the language strategy, constant shift in strategy, what’s working and what’s not. But in terms of the transparency into the underlying data, the ball is rolling downhill. We continue to see more granular information. Certain industries have been at the forefront, and it’s changing faster. The stakeholders were mostly targeting larger companies, like the 100 largest, the 500 largest. We’re seeing that start to trickle down to small and midsize companies. It’s coming because they’re competing with the larger companies for talent and for those investments too. So they’re starting to realize that they need to be more transparent and do a better job telling their story.

Dan Berlingeri:  

Right. Showing their work.

Josh Ramer:  

The biggest thing that everyone’s waiting to see is if there’s going to be more regulatory movement. Everyone is waiting for the SEC to come out with new human capital rules, which would require more reporting. We’re assuming more granular, detailed reporting. We don’t know what that’s going to look like. There are a lot of other state bills pending around these areas. With the political environment, I’d be very surprised if we saw any new laws or rules that are going to affect this, that are going to require reporting anytime soon. I’d be really surprised if Congress was able to pass anything that would do anything, but you never know.

Post-election, I don’t think anything’s going to happen before the election, but it’s possible if there’s a huge change in the makeup of Congress that things could happen because bills are pending that would require the EEO-1 to be made public or would require more pay equity transparency and things like that. But I don’t think we’re going to see that. I think this is still going to be voluntary for the foreseeable future.

Dan Berlingeri:  

Great. Well, let’s hope companies continue to share their work and be transparent about it. I think that’s about as much time as we have for today. Josh, did you have anything else you want to share with us before we hop off?

Josh Ramer:  

No. I think just a couple of examples that are best in class. What does best in class look like? For board reporting, I think what we’ve seen is a handful of companies—I think we have 6 or 7 companies that have a perfect score on board transparency. Most companies have a skills matrix where for each director, they list their skills, like accounting expert, board experience, C-suite experience, ESG experience, HR experience. Now they’re actually listing their gender identification, race and ethnicity identification, veteran status or military experience, disability, and sexual orientation like LGBTQ+. For companies that have international exposure, nationality or citizenship. For each person, they list their attributes, and some people say, “I don’t want to list them.” So we’ve seen a handful of companies start to do that.

For workforce representation and the idea of this funnel, TD Bank does something really interesting. They have their EEO-1 information, which is actually how they think about their workforce structure. There’s overall workforce, senior managers, first-line managers, professionals, and others. For each of those categories, they not only have gender, race, and age, but for all those categories, they have hiring information, promotion information, turnover information. They even have the number of people in development programs, like new hires that are in a development program. For so many new characteristics, they have current workforce, hires, promotions, and turnover. It’s the most granular we’ve seen for that whole funnel, and I thought it was pretty cool to see that.

For pay equity, BNY Mellon again, the reporting, not just the statistically adjusted pay gaps, but the raw median pay gaps. Every year, they report what they’re doing, what’s new, and how they’re addressing any inequality. It’s cool to see the different ways different companies are starting to address that and what best-in-class companies are doing.

Dan Berlingeri:  

Fantastic. Well, snaps, hats off to TD, to BNY. You’ll be receiving a cake in the mail. We’ll be sending that to you to celebrate. Well, thank you so much for your time. Again, we hope you enjoyed today’s episode. If you like this content, there’s plenty more to check out at diverseiq.com. That’s diverseiq.com. We have blogs, articles, white papers, and webinars on topics like this, and if you join our newsletter at diverseiq.com/newsletter, we will send you all of those things directly to you once a week. Thank you so much for dialing in, and we’ll talk to you next week.

Josh Ramer:  

Thanks, Dan. Have a great weekend.

Dan Berlingeri:  

You too.