A high performing retail employee applies for a promotion and is told, “Girls can’t sell.” These days, a remark like this would not be uttered by a manager of a major U.S. company, right? Wrong. Surely, the recent spate of headline grabbing settlements topping $50 million for alleged unfair hiring and promotion practices would discourage, at least, the most blatant forms of discrimination; would they not? Not always.

In December 2005, during the all-important holiday season, a federal class action lawsuit brought by current and former employees charged the electronics retail giant Best Buy with widespread race and sex discrimination. On behalf of current and former African- American, Latino and female employees, Best Buy is accused of a pattern of bias in pay, promotions and job assignments. The “girls can’t sell” comment was attributed to Best Buy managers in response to a promotion request made by a 40-year-old woman. She reportedly lost the promotion to a part-time male employee, despite her strong performance reviews and more extensive experience.

Forty years after the passage of the Civil Rights Act of 1964 and the creation of the Equal Employment Opportunity Commission (EEOC), 15 percent of employees believe they have been victims of workplace discrimination during the past year, according to a December 2005 Gallup Poll. Of those respondents reporting job discrimination, the most frequently cited biases were gender (26 percent), race (23 percent) and age (17 percent). Nearly one third of Asians and over one quarter of African Americans reported experiencing discrimination in the workplace in 2005.

Is Perception Reality?

The evidence pointing to persistent inequality in the workplace is compelling. Moreover, with each step higher in the corporate chain of command the levels of disparity are greater . For example, of the top 10.8 percent of jobs in private industry, 55.6 percent are held by white men though they represent just 36.9 percent of the total workforce, according to the latest data available from the EEOC on the composition of “Officials and Managers” (O&M). Women comprise 35.2 percent of O&M positions, but 47.9 percent of employees. Minorities fare least well, holding 15.5 percent of O&M jobs despite representing 30.1 percent of employees.

While significant progress has been achieved since the passage of the 1964 Civil Rights Act, momentum toward breaking the “glass ceiling” barriers to advancement appears to be waning. Peopleclick Research Institute, a nationally recognized research and consulting organization specializing in Equal Employment Opportunity (EEO) analysis, examined trends in management positions for the decade ending 2000 using U.S. Census Bureau data. The Institute found that, while the number of women at the highest levels of management increased over the decade, their share of these jobs decreased from 31.9 percent to 18.8 percent. The proportion of executive positions held by minorities was generally unchanged over the decade at about 11 percent.

These findings are particularly disappointing in the context of increasing participation of minorities and women in the labor force. Between 1994 and 2005, according to public policy research organization Hudson Institute’s Workforce 2020, minorities were 51 percent and women 62 percent of net new entrants into the workforce.

Why So Persistent?

Employment inequality based on race and sex continues for a variety of reasons that extend well beyond the workplace. Within companies, the most often cited reasons are: lack of role models and mentoring opportunities; insufficient leadership and accountability on hiring and promotion practices at senior levels; exclusive informal communication networks; absence of line management experience (profit-level responsibility); and inadequate policies on work-life balance.

Level of educational achievement, a key determinant of employment success, is moving closer to parity, particularly for women. Just over half of college graduates at the bachelor’s and master’s level are women, though men have proportionately more doctorate and professional degrees according to research by the National Science Foundation. Among college graduates, approximately 20 percent are self identified minorities. Continuing progress in the attainment of college and advanced degrees would bode well for further advances by minorities and women in the workplace.

An Investment Concern

The negative ramifications of persistent inequalities in the workplace pose risks not only to society, but also to long term business success. Companies with a good record on workforce diversity are likely to have a competitive advantage in employee recruitment and retention. Moreover, U.S. customers are becoming increasingly diverse. A representative workforce is apt to anticipate and respond effectively to evolving consumer demand. The CEO of Procter & Gamble, A.G. Lafley, asserts that diversity is a fundamental business strategy, saying, “Our consumers, customers, and suppliers become more and more diverse every day, so our success depends on our ability to understand diverse consumers’ needs and to work effectively with customers and suppliers around the world.” (www.pg.com, February 2006)

Conversely, allegations of discrimination in the workplace have created a significant burden for shareholders due to the high cost of litigation and potential loss of government contracts. Such litigation, which touches all industries, may also damage a company’s reputation. In 2004 alone, Abercrombie & Fitch Stores, Boeing Co., and Morgan Stanley & Co. all settled discrimination lawsuits for $50 million or more, costs that ultimately are incurred by shareholders. Nor can the harmful impact of the negative media attention faced by each of these companies be quantified.

Business Accountability

Many investors are calling for greater disclosure of EEO information in order to build a more complete picture of investment risks and opportunities. Along with added transparency comes greater corporate accountability, and increased motivation to improve performance. These investors agree with the Federal Glass Ceiling Commission recommendation offered a decade ago:

Public disclosure of diversity data— specifically, data on the most senior positions— is an effective incentive to develop and maintain innovate, effective programs to break glass ceiling barriers. The Commission recommends that both the public and private sectors work toward increased disclosure of diversity data.

Minorities and women have far to go to obtain parity in the workplace. Concerned investors are seeking greater accountability from companies because they believe progress in removing the glass ceiling is good for society, good for the economy, and good for business.
—H. Soumerai

Side box:

CALL TO ACTION

Walden was the primary author of A Call to Action: For greater corporate transparency 10 years after the Glass Ceiling Commission recommendations, a December 2005 report of the Social Investment Research Analyst Network (SIRAN). Based on SIRAN research pointing to a relatively low level of voluntary disclosure, the report asks companies to boost voluntary disclosure of equal employment opportunity (EEO) data and for U.S. legislators to study the feasibility of mandatory disclosure.

Specifically, SIRAN surveyed the EEO disclosure practices of companies included in the S&P 100 and received 46 responses. Nearly half of respondents confirmed that that they do not release their EEO data in full. Assuming that companies choosing not to respond to the survey are least likely to voluntarily disclose, the true disclosure rate among America’s 100 largest publicly traded companies is likely to be much lower.

This work is a continuation of Walden’s emphasis on EEO disclosure that began with our testimony before the Federal Glass Ceiling Commission more than ten years ago. We testified that greater EEO transparency helped analysts assess certain risks and opportunities associated with existing or potential investments. A full copy of the report is available at www.waldenassetmanagement.com or www.siran.org.