The Hidden Cost of Corporate Diversity Pledges

Why It Matters
After the Black Lives Matter (BLM) movement, companies promised sweeping reforms on racial equity. This study shows most of the progress happened only where the public was watching, while diversity at the workforce level quietly declined.

Key Takeaways

• Firms boosted the number of Black board directors, but largely by reducing seats held by other minority groups.
• Black employee representation dropped, even in regions with more Black talent available.
• Diversity rating agencies reward visible leadership changes over meaningful workforce progress.
  

Boardroom Progress That Masks a Bigger Problem

Corporate America pledged transformation after the wave of BLM protests. But instead of widening representation across the organisation, companies made changes mainly in the most visible place: the boardroom.

Across 4,078 protests in 636 U.S. counties, firms headquartered in those areas increased the share of Black directors by 0.213 percentage points, about 6% above the average. Yet this rise came not from expanding minority representation overall, but from reducing board seats held by other minority groups. The share of non-Black minority directors fell by 0.485 percentage points.

In effect, companies swapped one minority group for another to signal progress rather than broadening inclusion at the top.

A distinctive feature of the study is its use of GPT-4 with chain-of-thought prompting, an AI approach validated against hand-checked samples and outperforming 13 benchmark algorithms, to classify directors and executives by race and ethnicity. This gives the researchers unusually rich visibility into who sits where in the corporate hierarchy.

Workforce Diversity Quietly Went Backwards

Boardrooms became more diverse, but the ground-level picture tells a starkly different story. Black employee representation declined by 0.105 percentage points, around 1.4% relative to the mean. A broader workforce diversity index also fell.

The declines were sharpest in areas that saw the largest protests, where Black employee share dropped by roughly 3.1% relative to the mean. This is despite the fact that the same regions had higher levels of Black educational attainment.

In short: even where the talent pipeline was strongest, workforce diversity went backwards.

This finding counters the common explanation that companies struggle to recruit or retain Black employees due to supply-side shortages. Instead, it points to a different reality: public scrutiny prompted rapid, visible action at the top but did little to shift deeper organisational systems that affect hiring, promotion and retention.

Diversity Ratings Reward Optics, Not Outcomes

One of the most striking insights is how diversity rating agencies may be reinforcing this surface-level change. A firm that increased the proportion of Black directors by 10 percentage points received, on average, a 4% higher diversity score, even when its workforce diversity stayed flat or declined.

The data shows a clear pattern:

• Board diversity strongly boosts ratings.
• Executive diversity has a modest effect.
• Workforce diversity, where most employees are, barely counts, and sometimes counts negatively.

This ratings bias gives companies a rational incentive to focus on quick, high-visibility moves rather than deeper reforms that take years and are harder to communicate.

Even when the researchers extended the analysis to a five-year window, the results barely shifted. Executive diversity showed some improvement, but workforce representation did not meaningfully recover. The symbolic boardroom changes did not cascade down the organisation.

Business Implications

Headlines do not equal progress
Appointing diverse directors helps shape a company’s public narrative, but without structural changes underneath, these gains do not improve inclusion for the majority of employees.

Firms need to redesign the system, not just the optics
Real progress depends on recruitment reform, fairer promotion pathways, transparent reporting and clear accountability mechanisms. Without these, change at the top remains symbolic.

Rating agencies must update their playbook
Current methodologies reward companies for visible leadership changes but overlook employee-level data. Rebalancing these criteria would better reflect genuine progress and reduce incentives for tokenistic moves.

This research raises a difficult but necessary question: Has corporate America been celebrating diversity wins built more on optics than on substance? The findings suggest the answer is “yes” and they highlight the urgent need for more rigorous measures of whether diversity efforts truly improve opportunities across entire organisations.

 

Authors & Sources

Author: Kelvin Law (Nanyang Technological University), Jingdan Tan
Original Journal: Journal of Accounting Research

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