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Meggin Thwing Eastman

Meggin Thwing Eastman
Executive Director

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Is the US tech sector ignoring minority talent?

Is the US tech sector ignoring minority talent?

  • We used a combination of geospatial analysis and readily available data from the U.S. Census Bureau to evaluate utilization of minority talent by U.S. companies.
  • While our sample was small, we found that some industries — especially IT — dramatically underutilized highly qualified minority talent, especially at more senior levels of company management.
  • Reviewing gaps between minority talent availability and employment at individual firms could help shed light on how companies might maximize human capital.

Workforce diversity is a key aspect of human-capital utilization. Research suggests more diverse groups are more creative and make better decisions, among other competitive advantages.1 We asked a simple question: Have companies tapped into locally available pools of qualified talent with equal effectiveness, regardless of race?

We began with the workforce diversity data disclosed by 103 large publicly traded U.S. companies.2 We first mapped the locations of each company’s U.S. facilities to urban areas that fell within 20-mile “commutable zones,” based on U.S. workers’ average commuting distances. (We use Workday as an example in the exhibit below.) We then used a combination of geospatial analysis and U.S. Census Bureau data on race and education to create a picture of the available talent pool for each facility. Finally, we compared each company’s reported workforce and management diversity numbers against the makeup of the relevant local talent pools. While this initial sample was relatively small, the results revealed a wide range of practices and implied abilities to source the best talent.

 

How we mapped our data: Urban areas surrounding Workday company sites in the US

How we mapped our data: Urban areas surrounding Workday company sites in the US

Source: MSCI ESG Research, Workday company website

It was immediately apparent that some companies were utilizing wider ranges of available talent than others. It was also evident that this utilization pattern varied considerably among different racial or ethnic groups. In the technology sector, for example, which accounted for one-fifth of all firms we looked at, there was a major gap between the availability of well-qualified blacks and Hispanics3 and their employment in the sector, even though these same companies employed many Asians.

 

Information technology sector’s racial disclosures

Information technology sector’s racial disclosures

Source: MSCI ESG Research, company disclosures, talent availability data from the U.S. Census Bureau’s “Educational Attainment” (2017), Craft company locations; sample size: 22 companies

Outside of IT, the gap between employment of blacks and Hispanics and their availability in surrounding communities was smaller and, in some cases, nonexistent for the workforces at large. Among managerial employees, gaps remained, but they tended to be smaller than what we saw in the tech sector.4

 

The role of human capital may move front and center

In August, the U.S. Securities and Exchange Commission (SEC) proposed requiring companies to include human-capital “measures or objectives” where “such disclosures would be material to an understanding of the registrant’s business,” including those that involve “attraction, development and retention of personnel.”5

The SEC’s proposal, if adopted, has the potential to transform how businesses disclose data on workforce composition, and add another tool to help investors evaluate companies. Despite the relatively small size of our current sample, the patterns revealed were compelling. For both corporate managers and investors, this information could be a wakeup call to pay more attention to diversity as a key element of human-capital utilization.

 

 

1For example, see: Hewlett, S. A., Marshall, M., and Sherbin, L. 2013. “How Diversity Can Drive Innovation.” Harvard Business Review; “Fostering innovation through a diverse workforce.” Forbes Insights, July 2011.

2We reviewed and collected the voluntary racial demographic disclosures of the largest 1,100 constituents of the MSCI ACWI Index as of Nov. 30, 2018. Of these, 373 were U.S. companies; approximately 28% of these firms disclosed their racial demographics to some extent, giving us a final sample of 103 companies.

3We used the U.S. Census Bureau’s standard terminology for racial groups.

4 In financial services, blacks and Hispanics were employed in excess to their local availability across the workforce at large (26% of these companies’ workforces on average versus 15.9% of local populations). However, blacks and Hispanics were slightly underutilized at the management level (comprising 15% of managerial workers versus 15.9% of local populations). Figures for managerial employees were similar for consumer discretionary companies in our sample, with blacks and Hispanics at 12% of managerial employees versus 14.6% of the local talent pool.

5“SEC Proposes to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors Under Regulation S-K.” U.S. Securities and Exchange Commission. As the SEC put it, “Today’s companies are increasingly dependent on their workforces as a source of value creation. Indeed, for many of the most dynamic companies, human capital is their primary source of value.”

 

 

Further Reading

Women on Boards and the Human Capital Connection

What innovative companies and women on boards have in common

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