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Public Contract Law Journal

Public Contract Law Journal Vol. 53, No. 1

“Sunlight Really Is the Best Disinfectant”: How Employee Demographic Disclosure Motivates Companies to Improve Diversity Efforts

Carmen Palumbo

Summary

  • Demographic disclosures force companies to realize the lack of diversity at all levels and be held accountable to make changes.
  • Diversity includes identities, races, genders, ethnicities, backgrounds, abilities, personalities, and lifestyles. 
  • A company’s diversity helps avoid groupthink, enhances cultural competence, attracts top talent, and improves profitability. 
  • The Office of Federal Contract Compliance Programs holds federal government contractors responsible for complying with legal requirements and has several enforcement procedures. 
  • Congress should mandate the public disclosure of Type 2 EEO-1 reports and expressly override the applicable Freedom of Information Act exemption.
“Sunlight Really Is the Best Disinfectant”: How Employee Demographic Disclosure Motivates Companies to Improve Diversity Efforts
Francesco Carta via Getty Images

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Abstract

Diversity is severely lacking in government contracting, specifically in leadership positions. Shareholders and the public should have access to the information needed to require accountability and demand change in order to pave a better path forward. With billions of taxpayer dollars spent on government contracts every year, government contractors need to be held to a higher standard and act as pioneers in effecting change towards greater diversity initiatives. Disclosure of the demographic makeup of government contracting companies is an essential first step in allowing the contractors to enact change from within while ensuring public confidence in the company. This Note explores the ways that the government is currently treating demographic disclosure and suggests a path forward to mandate disclosure through EEO-1 reports. The government collects EEO-1 reports, but they are kept confidential.

I. Introduction

Nick Wakeman, a government contracts writer for Washington Technology, wrote about the progression of women in board positions, specifically in government contracting companies. He points out, utilizing research from the Government Accountability Office (GAO), that government contracting companies have improved gender diversity on boards. The GAO (pooling from the top fifteen government contracting companies, such as Lockheed Martin and Raytheon) found that 18.9% of board members in government contracting companies were women. Wakeman noted that, although the percentage of women on boards has gone up from 7.8% to 18.9% in the last decade, this change is still astoundingly slow progress. While there has been improvement in the ratio of women represented, 18.9% is still low when considering women make up half of the 330,000,000 people that live in the United States. We cannot celebrate the inadequacy of 20% female representation. Diversity is important because it creates a space to develop new perspectives, fosters innovation, enhances cross culture competence, and attracts top talent; it is through these benefits that a company profits. The GAO has compared the results of companies with a more diverse board with those that are lacking and has found that companies with a “broader range of perspectives represented in diverse groups require individuals to work harder to come to a consensus, which can lead to better decisions.” Evidence indicates that these decisions end up having “a positive impact on a company’s financial performance.”

Despite the clear cultural and financial benefits of diversity, there is a severe and purposeful lack of data regarding diversity demographics in government contracting companies. Most of the evidence that diversity is lacking in government contracting is anecdotal or from a few voluntary demographic disclosures. The federal government spends over $637 billion on government contracts each year. Of that pool of money, over $180 billion goes to companies who refused to turn over diversity data, and at least a “dozen companies—collectively reaping more than $100 billion—that paid to settle disputes with the Department of Labor (DOL) had findings of job discrimination over the last decade.” The public deserves to have adequate knowledge to hold companies accountable for their lack of diversity efforts.

One method to improve diversity throughout a company is to mandate disclosure of demographic data. Public disclosure of demographics (such as race, ethnicity, or gender) within a company, from board members, CEOs, and directors all the way down to service workers, serves as a vehicle for change.Demographic disclosure forces companies to realize the lack of diversity and to be held accountable to fix it: “what gets measured gets managed.” The path to disclosure is a simple one. Companies are already required to collect demographic data on all of their employees on a yearly basis. Every year, companies are mandated to fill out a chart for a Type 2 EEO-1 report, categorizing all of their employees’ demographic information: ethnicity, gender, race, job category, and pay scale. However, the chart contained in the EEO-1 report is currently kept confidential by a Freedom of Information Act (FOIA) exemption and is only disclosed to the public voluntarily or through extensive litigation efforts.

This Note proposes that Congress should mandate the public disclosure of Type 2 EEO-1 reports and expressly override the applicable FOIA exemption. Current efforts to challenge the applicability of the FOIA exemption in court have been slow to success, despite favorable verdicts. Even after a federal judge decided that EEO-1 reports were not covered by the FOIA exemption, access to those very reports took years of prolonged and arduous litigation. Furthermore, safeguards created by the DOL that allow companies to opt out of disclosure are still in place. Congress needs to enact a statute to force the hand of the DOL to mandate disclosure of government contracting companies’ diversity efforts.

This Note first introduces the concept of diversity as the practice of embracing every person and their vital perspectives that they bring to corporate culture. From there, it highlights the lack of diversity data in government contracting. Further, it explains how demographic disclosure is a necessary first step to improving diversity in government contracting companies. Disclosure creates greater public awareness and provides tangible evidence that allows the public to hold contractors accountable for their lack of diversity. Building on this base, it will show how the government already views disclosure as a necessity and has attempted to establish initiatives. Other regulatory arms such as those at the Securities and Exchange Commission and Nasdaq are also moving in the direction of mandatory disclosure. Lastly, this Note explains why congressional action is necessary to achieve full public disclosure of the mandated EEO-1 report.

II. The Benefits of Diversity in the Workforce

Diversity should be embraced and promoted throughout all aspects of government contracting. These efforts need to start at the highest levels. The general purpose of having boards run a company or firm, rather than a single individual, is to open the company to embrace many perspectives and thoughts, rather than limiting the focus of the company to the viewpoints of one individual. Corporations like General Motors have found that employing a diverse workforce benefits the company through improving its ability to embrace varying perspectives, foster innovation, create a better workplace culture, and ultimately contribute to the company’s financial success. Below, this Note will discuss the definition of diversity and why diversity is important, utilizing arguments by General Motors and attorney David Hinojosa.

A. Defining Diversity

In 2021, the White House defined diversity in an executive order on Diversity, Equity, Inclusion, and Accessibility in the Federal Workforce. The executive order states: “[T]he term diversity means the practice of including the many communities, identities, races, and ethnicities, backgrounds, abilities, cultures and beliefs of the American people, including underserved communities.” Diversity means understanding and embracing every person and their unique and vital perspective that they possess and bring to society. A broader definition of diversity can also include the vast differences in personalities, lifestyles, and personal expression.

B. General Motors and David Hinojosa’s Arguments for Diversity

Although a plethora of research and writing speaks to the importance of diversity in the workforce, this Note pulls primarily from two sources. This Note narrows the scope of sources to these two authorities because of the roles that they have played in the argument for affirmative action. A number of the same arguments made for affirmative action can be made for greater diversity efforts in the workforce. The first source is an amicus brief written by General Motors in 2003 in support of affirmative action in law schools for the case Grutter v. Bollinger. It is a unique perspective centered on how promoting the education of diverse individuals in law schools leads to companies being able to hire a more diverse pool of people. The second is an oral argument by attorney David Hinojosa who, just this past year, represented students and alumni of color in the affirmative action cases just heard by the Supreme Court. General Motors and David Hinojosa list all the benefits that a diverse pool of people can bring to an environment.

General Motors outlined several reasons in its brief as to why diversity is necessary in the company and therefore should be a priority in law schools, as the respondents argued. Justice O’Connor wrote the groundbreaking opinion in 2003 deciding that it was lawful for the law school to consider race when admitting students. When writing this opinion, she cited to the General Motors brief, writing: “These benefits are not theoretical but real, as major American businesses have made clear that the skills needed in today’s increasingly global marketplace can only be developed through exposure to widely diverse people, cultures, ideas, and viewpoints.”

The second source is an oral argument from David Hinojosa, an attorney who represented students and alumni of color in two consolidated affirmative action cases recently heard by the Supreme Court, where he explained the benefits of diversity. In response to a question from Justice Thomas as to why diversity matters, Hinojosa stated that diversity fosters innovation, creates a space to broaden perspectives, and reduces stereotypes. There are many synergies between the points that General Motors made in its amicus brief and Hinojosa made in oral argument. Overall, diversity creates a space to avoid groupthink and fosters innovation by allowing new perspectives to thrive; it allows a space for cross cultural competence, lessens racial tension amongst the employees of a company, attracts top talent, and improves a company’s profitability.

1. Diversity Avoids Groupthink and Creates a Space That Fosters Innovation Through Embracing Perspectives

It is important that all levels of a company have access to unique perspectives and avoid a homogenous atmosphere. Groupthink, a term developed by Irving Janis, occurs when a group of individuals make decisions due to “group social pressures.” Companies should seek to avoid a corporate culture involved in groupthink for a myriad of reasons.

First, bad decisions are often embraced due to a lack of alternative perspectives or life experiences. A diverse group is able to “stimulate one another to reexamine even their most deeply held assumptions about themselves and their world.” Oftentimes, leaders in a company, such as board members, are picked due to proximity to the current board. Instead of hiring board members from outside the elite circles, companies appoint members who are already at the highest levels of the company or similar companies. In doing so, the company forgoes fresh insights from an outside perspective. Hiring “outside” individuals with diverse backgrounds allows the company to grow and expand under the leadership of individuals who have experienced the problems and have tested the solutions. As General Motors stated, “[O]pen-mindedness and complex thinking are skills best honed through exposure to multiple ideas and challenging debate in an educational environment.”

Second, creativity is often stifled when employees are so similar that they do not bring unique viewpoints. In its amicus brief, General Motors quoted Justice Powell’s statement in Regents of University of California v. Bakke: when individuals are “surrounded only by the likes of themselves,” they are more likely to hold “highly parochial and limited perspectives.” When companies have a homogenous demographic, they miss out on the value that fresh new perspectives and approaches to problems that diverse individuals bring to the table.

Lastly, groupthink instills undeserved confidence in company decisions. When everyone around an individual thinks and reasons similarly, this creates a space that promotes self-assurance or pride in individual decision-making. As General Motors pointed out, it takes a group of individuals with vastly different perspectives longer to come to a decision on matters than a group of individuals who think similarly. Differing perspectives can create tension when individuals disagree. Inevitably, though, the best decisions come after long debates and a thoughtful discussion of all possibilities.

2. Diversity in the Workplace Allows a Space for Cross-Cultural Competence to Grow

Companies with diversity throughout various positions promote an understanding and acceptance of different cultures that generate better service to the vast array of individuals that they serve and employ. A diverse group of board members is in the best position to craft solutions to meet the needs of every employee, customer, and community member of different ethnicities and cultures. A lack of diversity among key leadership positions leads to a knowledge gap. As General Motors stated, “[T]o succeed in this increasingly diverse environment, American businesses must select leaders who possess cross-cultural competence.” The ability of board members and managers to be able to understand and view issues from different and unique perspectives is essential to be able to work in the socially diverse world that global enterprises operate in.

Some critics argue that the promotion of diversity leads to the expectation that those representing different racial, ethnic, and cultural groups are expected to think and behave the same way. However, the promotion of diversity does not assume that certain minorities will all have the same perspective. The ideal result is an array of different outlooks that can work together to encourage thinking beyond the normal viewpoint.

3. Diverse Leaders Create Less Racial Tension Throughout a Companyand Attracts Top Talent

The ability of diverse individuals, at the lowest tiers of companies, to see leaders of similar backgrounds, genders, and races as them creates a better work environment for all. Far from causing racial tension, as some critics argue, diversity at top positions actually creates a culture of acceptance and showcases a pathway up the ladder. Giving those in the lowest positions of a company hope and an incentive to strive for leads to a better work product. Furthermore, a company that has been proven to promote and hire diverse talent through all levels consequently attracts top talent.

Young top talent wants to work for and represent a company that is growing, embracing, and inclusive of all prospective employees. One way to showcase this embrace is to have diversity at top-level positions. As Gokulan Abhilasha stated in his piece arguing for greater board diversity in companies, “[C]ompanies that excel in this area, particularly in the boardroom, achieve a competitive advantage by ‘[w]in[ning] the war for talent.’” When a company promotes and showcases diversity at the board member level, the company benefits from a reputation amongst its peers for inclusivity that extends to those searching for a position. General Motors has stated that “the capacity of many businesses to recruit and retain talented labor—a critical resource—therefore increasingly will depend upon the sensitivity of their managers to interracial and multicultural issues.” Furthermore, “companies with strong records for developing and advancing minorities and women will find it easier to recruit [and retain] members of those groups.”

4. Diversity Improves a Company’s Profitability

As explained above, an emphasis on diversity throughout a company avoids groupthink, invites new perspectives, enhances cultural competence, and attracts top talent, which in turn improves a company’s profitability. The correlation between diverse leadership and improved profitability has been researched and analyzed for many years. For example, a study from McKinsey and Company showed that when gender diversity was prioritized in executive teams, companies outperformed their peers by twenty percent. During this study, McKinsey also tested whether having more individuals from cultural and ethnic minorities improved profitability. Here, too, firms were 33% more likely to experience higher profitability than their peers. Another study by McKinsey & Company, “Why Diversity Matters,” surveyed more than 1,000 companies over 12 different countries and found that “companies in the top quartile for gender diversity on their executive teams were 15% more likely to experience above-average profitability than companies in the fourth quartile.” Diversity is good for all companies—not just to improve corporate culture, but for the overall success of the company.

III. Lack of Demographic Data from Government Contractors

Despite all the benefits of diversity, there is a lack of data surrounding the demographic makeup in government contracting. No database or other means exists to check if billion-dollar companies are promoting a diverse workforce. Most of the readily available evidence suggesting a lack of diversity in government contracting companies is anecdotal or from a few voluntary disclosures. The leading source of information revealing this lack of diversity was the result of a yearlong court battle from Will Evans at Reveal, which will be discussed later. USA Today conducted an analysis on the information obtained by Reveal on 19,000 different federal contractors. They found that white men hold exactly 59% of executive ranks, Black females hold 1.7%, Hispanic women hold 1.5% and Asian women 2%. Furthermore, they found that white men “are the only demographic group that holds a higher proportion of top positions [executive ranks] than of all other jobs” in a company.”

Before this recent release, the most prolific information known about diversity in government contracting came from Internet searches of biographies and pictures of board members or voluntary demographic disclosures. Out of fifty board members between Lockheed Martin, Boeing, Raytheon Technologies, and General Dynamics, thirty-four are white men, sixteen are women, five are people of color, and one is Hispanic or Latino. Boeing voluntarily published a 2021 Global Equity, Diversity & Inclusion Report in which it released the total percentage of employees from racial or ethnic minority groups. Boeing broke down the percentages of employees in each position according to their race/ethnicity. Across all employees, 31.2% of Boeing’s employees identified as being from a racial or ethnic minority. In leadership positions: 79.2% “executives” were white, 8.3% Asian, 6.5% Black, 4% Hispanic, and 2% identified as mixed race. Furthermore, 77% of managers were white, 7.9% Asian, 6.2% Hispanic, 6% Black, 2.9% mixed race, and 0.8% native American. Climbing down the corporate ladder to positions such as “production and maintenance,” the percentage of white employees to racial and ethnic minorities evened out. Sixty-four percent of male laborers were white and thirty-six percent were from racial or ethnic minorities. These percentages showcase, overall, a lack of diversity, especially in leadership positions, where diversity is arguably most impactful. Leaders set the tone for the company and have the ability to put in place initiatives to create a culture of acceptance in the company.

IV. Enhanced Disclosure: A First Step Toward Improving Diversity

Demographic transparency is an impactful first step in the effort to improve diversity in government contracting. In a 2021 brief regarding President Biden’s goal to increase equity in federal contracting, the White House noted that “there is clearly still work to be done to lower barriers to entry and increase opportunities for underrepresented” but “data transparency is a first step.” The public should have the opportunity to know companies’ diversity demographics (racial, gender, sexual orientation, nationality, religion, etc.). This information is especially crucial given that diversity data is largely unknown, and, as explained above, the little that is known is anecdotal or from voluntary disclosure.

However, companies are reluctant to disclose their demographic makeups, ostensibly due to fear of talent being poached by other companies. This is just another excuse for companies to avoid having to justify their lack of diversity efforts. Greater representation is necessary; outside pressure can be the first step towards inclusionary efforts of companies. Disclosure gives the public adequate knowledge and evidence to push for change. In fact, other countries have shown how successful disclosure can be in creating that meaningful change.

A. Public Pressure Creates Change

Companies have increasingly found that “what gets measured gets managed.” Government contracting companies have the most concrete and immediate power to make changes within their own organization to promote diversity, but sometimes it takes public pressure to push companies to make the necessary change. Duke Law Professors Veronica Root Martinez and Gina-Gail S. Fletcher wrote an article in the Yale Law Journal calling for companies to release “equity metrics.” They define equity metrics as “systematized corporate disclosure of the current demographic diversity of the workforce and supply chain.” Regular disclosure leads to tangible benefits, such as awareness and knowledge. While many companies promise to make greater efforts towards enhancing diversity, without the requisite evidence to call companies out for their shortcomings, the public does not have the ability to have a meaningful voice and hold them to their word.

Demographic disclosure by companies helps the public gain awareness of the lack of diversity; it offers a tangible way to recognize the issue and hold companies accountable for their deficient efforts. Under a system that encourages demographic disclosure, no longer could companies promise the promotion of diversity while still maintaining a predominantly homogenous board and workforce. Although public accountability cannot guarantee a change in diversity, it will certainly force a corporation to think twice about whom they hire in the future as public pressure and reactions play a role. As Datamaran CEO Marjella Lecourt-Alma stated: “[W]hen we see a lack of transparency on important issues like diversity and inclusion, we . . . have to question the company’s governance and culture.”

B. Excuses for Refusal to Disclose

Efforts by companies to keep diversity numbers hidden are extensive, indicating that these companies could have something to hide from the public. The most frequently cited argument for keeping diversity demographic data confidential is that it is a “trade secret.” This excuse was used recently by a Washington, D.C., consulting firm called Chemonics, which stated: “[T]he company blocked releasing its own diversity data because it considers that confidential commercial information . . . .” This excuse revolves around the notion that companies do not want competitors to know their diverse talent that they have and try to poach them. Furthermore, companies argue that if their demographic numbers are released and are not comparable to their competitors, they risk losing business, which could impact their bottom line. For example, in 2011, CNN filed FOIA requests to gain access to twenty different tech companies’ demographic data. Of those companies, Apple, Google, IBM, and Microsoft submitted objections stating that the “data would cause a ‘competitive harm’ under trade secret law.” Only one tech company, Intel, responded to CNN’s request and offered to disclose all of its demographic data. Instead of having its talent poached or losing business to competitors, Intel stated that the disclosure redounded to its benefit. Intel saw the effect that transparency can have on creating a “genuine dialogue” between their company and the public to drive change. Intel believes that, instead of giving into their “fears that the numbers are a poor reflection” on the company, it should look at disclosure as an opportunity to ask for advice from the community on how to improve their diversity numbers.

C. Learning from the Success of Disclosure in Other Countries

Intel enjoyed the same success from disclosure enjoyed by companies in other countries with demographic disclosure requirements. Canada, France, the United Kingdom, and the Netherlands, to name a few, have passed legislation to require companies to disclose their diversity metrics. In October 2014, the European Parliament amended its original 2013 directive regarding disclosure of non-financial and diversity information through certain large undertakings. The purpose of these undertakings was to improve the transparency of companies’ non-financial information. Required in this non-financial information are diversity policies from each company regarding their employees demographics and educational backgrounds. The amendment specifies that the company’s corporate governance statement should contain this information. In its reasoning for the directive, the European Union specifically stated that making the public aware of a company’s lack of diversity creates indirect pressure on the company’s leaders to have a more diversified board. Articles reporting on the amendment state that “this information is . . . key for civil society and public authorities to assess and monitor corporate responsibility and accountability.”

The arguments in these articles were proven in a study in Denmark. In 2006, a law required “35 employees to publicly disclose the discrepancies in pay between their male and female employees.” The study utilized a control group of firms that did not have to disclose their data. The results were that “from 2003 to 2008 the gender pay gap at the reporting companies shrank 7% from 18.9% down to 11.5%, while the wage gap at the non-reporting firms held steady.” Not only did disclosure of disparities in pay equity help resolve the lack of diversity, it also promoted better hiring practices.

V. Industry Practices Already Leaning Toward More Disclosure

While the United States has not mandated public or private companies, including government contracting companies, to disclose their demographics, the Nasdaq Stock Market (Nasdaq) and the Securities and Exchange Commission (SEC) have both tried to advance diversity through listing and reporting requirements of board members.  Nasdaq explained that it sought “to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors.” Furthermore, shareholders themselves have pressured companies to complete yearly demographic disclosure assessments such as racial equity audits.

A. The Securities and Exchange Commission and Nasdaq: Disclosure Requirements

The SEC has received pressure from shareholders of various companies to enhance disclosure of the diversity characteristics of board members and executives among publicly traded companies. Pending legislation, introduced in 2019, would require demographic disclosure of board members and executives in publicly traded companies. Along the same lines, at the end of 2020, Nasdaq proposed two new listing rules: Rule 5605(f) (The Comply-or-Explain Rule) and Rule 5606. Rule 5605, under its “diversity requirement,” states that “each company must have, or explain why it does not have, at least two members of its board of directors who are diverse, including (i) at least one diverse director who self-identifies as female; and (ii) at least one diverse director who self-identifies as an underrepresented minority or LGBTQ+.” Nasdaq defines someone “diverse” as “an individual who self-identifies as: (i) female, (ii) an underrepresented minority, or (iii) LGBTQ+.” If companies did not meet this two-person minimum, then they would be required to offer an explanation to Nasdaq. Rule 5606 would require “each company [to] . . . annually disclose, to the extent permitted by applicable law, information on each director’s voluntary self-identified characteristics” and would look like a “board diversity matrix.” This Board Diversity Matrix would have the gender identity, the demographic background (underrepresented, LGBTQ+), and the position within the company. The government should require all government contractors to follow rules similar to 5606.

B. Shareholder Pressure for Greater Disclosure: Requesting Racial Equity Audits

Although both the SEC’s and Nasdaq’s efforts are noble, shareholders still question the lack of information and have pushed for greater disclosure regarding diversity and equity within companies. One tactic that shareholders have taken is to propose racial-equity audits at shareholders meetings. Racial-equity audits (REAs) are “an evaluation—usually conducted by an external law firm—of an employer’s policies, procedures, and practices to identify and address systemic bias and discrimination.” REA’s evaluate the environmental, social, and governance elements of a company. Corporate governance “considers how a company governs itself and holds itself accountable taking into account the structure and diversity of a company’s board of directors.” Although companies have pushed back against REAs, citing concern over the fact that they have no control on the information that is presented to the public, shareholders and companies alike have benefited from REAs.

A great example of an REA is Meta’s first REA, conducted in 2018 by Laura W. Murphy. Murphy is a civil rights and civil liberties leader. Among other concerns, Murphy and her team of attorneys found a “ lack of representation in senior management and the number of people of color (with the exception of Asians and Asian Americans) in technical roles”; “a lack of recognition for the time [underrepresented minority (‘URM’)] employees spent on mentoring and recruiting other minorities to work at Meta—feedback that was particularly pronounced with resource group leaders who are also managers”; and “a lack of awareness of all the internal programs available to report racial bias and/or discrimination.” After this audit, shareholders were pleased with Meta’s immediate response in acknowledgment of its lack of diversity among senior level positions. Meta responded and stated that the overall corporate ignorance of this issue:

[Meta made a commitment] to have 50% of Facebook’s workforce be from underrepresented communities by the end of 2024. (Facebook defines URM to include: women, people who are black, Hispanic, Native American, or Pacific Islander, people with two or more ethnicities, people with disabilities, and veterans) and over the next “five years, a commitment to have 30% more people of color, including 30% more Black people, in leadership positions.”

In November 2021, a year after Meta conducted its racial equity audit, it publicized a report on the progress that it had made towards its commitments thus far. At the time that the report was released, 45.6% of Meta’s workforce came from underrepresented communities. Although it had not reached its goal (that fifty percent of its workforce belonged to an unrepresented community), this report was completed one year after the audit (2021), demonstrating that massive progress had been made toward the goal. Furthermore, Meta made a statement about increasing diversity in leadership positions:

With regard to leadership positions, Meta has similarly made progress, increasing the number of U.S.—based black and Latinx leaders at the company by 38.2 percent and 18.6 percent respectively in the first year of our five-year goal. U.S. based Black leaders at Meta now represent 4.7 percent of leadership and U.S.-based Latinx leaders represent 5.1 percent of leadership.

Meta’s racial equity audit is a prime example of how disclosure not only informs a company about its disparities and inequities, but also holds companies accountable and forces the company to push for change. A company that discloses a lack of racial equity among senior level positions will need to account for this disparity and demonstrate willingness to change or suffer the consequences of a newly tarnished reputation.

The largest government contracting companies have already felt this shareholder pressure to conduct racial equity audits and have offered their own version of a REA. In 2022, one of the largest government contracting companies, Lockheed Martin, conducted a human rights audit. Lockheed conducted the audit under pressure from shareholders concerned about the makeup of the company’s employees and disclosure. The audit also contained a sustainability report. This report was a page long, containing diversity goals and highlighting an increase in female representation (twenty-three percent of employees) and people of color (twenty-nine percent of employees) throughout the company. Although this information is revealing in some respects, a company’s internal audit must be treated with a critical eye. Companies should not determine what diversity information is material and what to disclose. This is the key difference between the REA that Meta conducted and the report that Lockheed released. In the Meta example, an unbiased third party disclosed all the information discovered—both the good and the shortcomings—to the public. However, Lockheed’s team might have only released the most favorable data points to showcase among its diversity numbers—the true state of the company remains unclear. Lockheed’s human rights report demonstrates both the necessity and the movement towards further disclosure within the government contracting industry. Although a company must respond to shareholder pressure for greater disclosure, this response should not involve cherry-picking information that portrays the company in the best light.

VI. Current Disclosure and Reporting Obligations Are Insufficient

The government has long taken issue with federal contracting companies’ lack of diversity at senior level positions. The first initiative intended to combat this was Lyndon Johnson’s Executive Order 11246 that remains in effect today. The order requires federal contractors to take “affirmative action” to “ensure that all individuals have an equal opportunity for employment, without regard to race, color, religion, sex, or national origin.” Two of the requirements in the order pertain directly to disclosure: filing an annual EEO-1 report and allowing the Office of Federal Contract Compliance Program (OFCCP) access to the contractor’s books and records. An EEO-1 report is a breakdown of a company’s demographic makeup, including the employee’s race and gender. The OFCCP uses this report to decide if the company needs to be audited for potential pay disparities or diversity throughout employment.

A. EEO-1 Reports

EEO-1 reports are completed by all businesses in the United States that employ over 100 employees. They are reviewed by the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC “is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person’s race, religion, sex (including pregnancy, transgender status, and sexual orientation), national origin, age (forty or older), disability or genetic information.” EEO-1 reports are mandatory for all companies with 100 or more employees. EEO-1 reports contain seven sections of questions for companies to answer. Section A and B require information about the location of the company and which report they are filing (i.e., multi-establishment or single establishment). Section C asks questions to ensure that the contractor meets all the requirements to fill out the form (for example, that the company has 100 or more employees). Section D is a chart in which the company must disclose the demographic makeup of each employee in each division. A sample of the chart is provided below. Horizontally, the chart has a section for “job categories” ranging from executives to service workers, a section for salary compensation across twelve salary ranges, a section for gender, and a section for “gender + ethnicity.” The contractor would answer it by filling in each box with the number of employees that it has within each category. A Type 2 EEO-1 Report has all the information in figure one but does not contain the salary compensation band.

Figure 1

Type 2 EEO-1 reports contain the precise information that government contracting companies should disclose—reports about its makeup and other information that the public requires to hold companies accountable for any lack of diversity. If the public can see the total number of diverse individuals holding positions within a company, then it has tangible evidence of the makeup of the company. While these reports showcase exactly the information that would be critical for government contractors to know, they have become a concealed, compulsory requirement that has not realized its potential as a vehicle for change.

B. The Office of Federal Contract Compliance Programs

OFCCP, a Department of Labor program, vows to “protect workers, promote diversity and enforce the law.” OFCCP holds federal government contractors responsible for “complying with the legal requirement to take affirmative action and not discriminate on the basis of race, color, sex, sexual orientation, gender identity, religion, national origin, disability, or status as a protected veteran.” The OFCCP has several enforcement procedures, including (1) offering compliance assistance to federal contractors, (2) obtaining conciliation agreements, (3) monitoring contractors progress fulfilling their compliance reports, (4) recommending enforcement actions to the Secretary of Labor, and (5) and deciding when a contractor should be audited. The OFCCP uses EEO-1 reports from the EEOC to determine if a federal contractor should be audited. During a “desk audit,” the OFCCP will follow up if it finds any concerns, such as pay disparities, inconsistencies with pay policies, and “statistical analyses or other evidence that a group of workers is disproportionately concentrated in lower paying positions or pay levels within a position based on a protected characteristic.” If, upon further review, the OFCCP sees that the contractor has systemic issues (such as any of the aforementioned concerns), it will require the company to implement an “action-oriented program.” While the OFCCP seems to have the teeth to create change, it has not yet produced the results that would come with full disclosure of a company’s employee makeup.

VII. Government Contractor’s Required Diversity Disclosure: Congressional Statute to Mandate Disclosure of Type 2 EEO-1 Reports

The main issue with EEO-1 reports is that they are kept confidential by the EEOC under the Freedom of Information Act (FOIA), unless companies choose to voluntarily disclose the report. FOIA is “a law that allows any member of the public to request copies of federal government records, including EEOC records.” Although this Act should encourage disclosure, companies employ a vast array of exemptions to avoid disclosure. The OFCCP decided that EEO-1 reports were protected from disclosure under FOIA Exemption 4. Exemption 4 protects “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.” According to the OFCCP, an EEO-1 report is protected from disclosure due to Exemption 4 because it falls within the category of “commercial or financial information obtained from a person that is privileged or confidential.”

To remedy this issue, Congress should create a stand-alone statute that overrides Exemption 4 to mandate the disclosure of Type 2 EEO-1 reports in full. Congress should act for several reasons. First, it is difficult to obtain EEO-1 reports even with court orders. Second, non-government contracting companies are already taking measures to disclose diversity data, even Type 2 EEO-1 reports. Third, the disclosure of diversity data will not be impacted by the recent litigation involving affirmative action.

A. It Is Difficult to Obtain EEO-1 Reports Even with a Court Order

Over the past four years, civil rights activists, members of Congress, and government contracting scholars have made a greater push to make government contractors’ EEO-1 reports public. This conflict came to a head in December 2019, when the Center for Investigative Reporting (CIR), a nonprofit investigative news organization, and Will Evans, a reporter for Reveal, sued the OFCCP to gain access to a group of EEO-1 reports. The OFCCP refused to release ten of the EEO-1 reports of big tech government contracting companies in Evans’s FOIA request.

In August 2019, Judge Kandis Westmore ruled for Evans and CIR in Center for Investigative Reporting v. U.S. Department of Labor. Concluding that EEO-1 reports are not commercial in nature and therefore not covered by Exemption 4, Judge Westmore stated that “diversity reports merely disclose the workforce composition to ensure compliance with Executive Order 11246 which prohibits employment discrimination by federal contractors.” In this holding, the judge ordered the government to produce the ten remaining EEO-1 reports that the OFCCP had not released to the CIR or to Evans after the initial FOIA request.

Three years after this court case, instead of requiring the disclosure of all EEO-1 Type 2 reports, OFCCP instead gave all government contracting companies thirty days to argue why the information in these reports should remain confidential. The Director of the OFCCP stated in the notice that “OFCCP has reason to believe that the information requested may be protected from disclosure under the exemption” (referring to Exemption 4), but that each company would have to state why it believed its EEO-1 information qualifies under this exemption. Furthermore, the notice stated that all companies from 2016 to 2022 objecting to the disclosure had to address the following five questions in their official objection:

  1. What specific information from the EEO-1 Report does the contractor consider to be a trade secret or commercial or financial information?
  2. What facts support the contractor’s belief that this information is commercial or financial in nature?
  3. Does the contractor customarily keep the requested information private or closely-held? What steps have been taken by the contractor to protect the confidentiality of the requested data, and to whom has it been disclosed?
  4. Does the contractor contend that the government provided an express or implied assurance of confidentiality? If no, were there express or implied indications at the time the information was submitted that the government would publicly disclose the information?
  5. How would disclosure of this information harm an interest of the contractor protected by Exemption 4 (such as by causing foreseeable harm to the contractor’s economic or business interests)?

In April 2023, the OFCCP released only the EEO-1 reports of companies who did not object. While this was a win for demographic data release, thousands of companies objected in time and thousands more objected after the fact and are being shielded from disclosure until further litigation is conducted. Although some would say this is progress from the OFCCP towards greater transparency, it should not take extensive litigation to gain information from federal contracting companies. Furthermore, this type of information is simply not protected information that falls under FOIA Exemption 4.

A congressional mandate would take the decision out of the OFCCP’s hands. No longer would the EEO-1 Type 2 Report be protected by the language of the FOIA Exemption 4. There would not be an option for companies to object to the disclosure of their report due to the harm that it would create under Exemption 4.

B. Recent Disclosure Initiatives Outside of Government Contracting

Outside of government contracting, there have been many initiatives to increase disclosure. Some companies have even released Type 2 EEO-1 reports on their own volition. Recently, there has been momentum amongst the corporate world to disclose diversity data. As previously discussed, Nasdaq and the SEC have created listing and reporting requirements regarding board member diversity. Furthermore, shareholders of companies have taken it upon themselves to push companies to conduct racial-equity audits to learn more about a company’s makeup before investing. For example, Meta saw success in releasing its racial-equity audit and getting critical feedback from the public.

Two well-known companies that have taken initiatives to increase disclosure are Paypal and Amazon. These are two of the first companies to publicly release their EEO-1 reports voluntarily. Each company posted this information on its respective website; Amazon in particular has a tab on their website listed “Our Workforce Data” where all of its EEO-1 data is visible. Amazon utilizes a separate chart (like the one above showing the makeup of the entire company) to showcase the demographic makeup of each level of the workforce; there is a separate chart for corporate employees, people managers, and senior leaders. This report provides the necessary information that is pertinent for the public to know, such as pay, job category, gender, ethnicity, and race.

In addition, Lockheed Martin, one of the largest government contractors, has seen this trend of voluntary demographic disclosure and has released a “human rights report.”

Contained in this human rights report was a document called the “2022 Proxy Statement,” which listed the “Corporate Governance Highlights” of Lockheed Martin. The document highlighted thirty-eight percent gender and ethnic diversity throughout the company, including four female directors and one African American director. This Proxy Statement is evidence that the company understands that its shareholders want more disclosure and that the company’s demographic makeup should be the focus of this disclosure.

C. Mandating Disclosure Would Still Be Permissible Under Recent Supreme Court Affirmative Action Jurisprudence

A congressional statute mandating the disclosure of EEO-1 reports would not be affected by the recent litigation involving affirmative action or any other government diversity initiative. Simply requiring companies to disclose demographic data would not be vulnerable to a constitutional challenge. The recent Supreme Court case Students for Fair Admissions, Inc. v. President and Fellows of Harvard College is an example of government diversity initiatives facing constitutional challenges. It was a consolidated case about affirmative action at colleges and universities. The term “affirmative action” refers to “positive steps to increase the representation of women and minorities in areas of employment, education, and culture from which they have been historically excluded.” In Students for Fair Admissions, the Supreme Court considered whether to allow universities to consider an applicant’s race in college admissions. The plaintiffs claimed affirmative action discriminates against applicants on the basis of race, in violation of the Civil Rights Act of 1964. Ultimately, the Court found in favor of the plaintiffs and rejected the use of race as an admissions factor “[b]ecause Harvard’s and UNC’s admissions programs lack sufficiently focused and measurable objectives warranting the use of race, unavoidably employ race in a negative manner, involve racial stereotyping, and lack meaningful end points,[and] those admissions programs cannot be reconciled with the guarantees of the Equal Protection Clause.”

Within the context of this Note, court-ordered limits or restrictions on government enforced diversity initiatives will not affect disclosure requirements. The Supreme Court, in the case above, decided that universities could not be able to consider race in college admissions, but this ruling will not affect a disclosure statute. Rather, the Court’s decision that affirmative action is unconstitutional likely means that government-mandated diversity quotas in companies or mandatory diversity consideration in hiring is also unconstitutional. This is because both affirmative action and mandatory quotas force the hand of the school or company to actively take measures to increase diversity. Requiring diversity disclosure, however, is distinct. Mandating the disclosure of Type 2 EEO-1 reports asks a company to share information but does not require it to take additional active measures to promote or enhance diversity. Disclosure measures are shielded from any effect of the recent affirmative action cases or any future limits on governmental diversity initiatives.

Disclosing EEO-1 reports exposes companies to public accountability without requiring these companies to comply with quotas, held by the Supreme Court to be unconstitutional. If there is enough outrage by the public due to a lack of diversity within companies, these companies will likely decide on their own to make changes.

VIII. Conclusion

With $637 billion of taxpayer dollars spent on government contracts per year, these companies should serve as pioneers for diversity initiatives. Government contracting companies have ignored calls for diversity, specifically in leadership positions, rather than leveraging their market power to pioneer disclosure reform. A crucial way to increase diversity at companies is by mandating disclosure of demographic data. This disclosure is relatively easy, considering that these companies are already required to track demographic information and that companies like Paypal and Amazon have demonstrated that disclosure is not only possible but not burdensome to business. Type 2 EEO-1 reports are mandatory and contain all the information that the public should know about a company’s demographics, including job categories, race, ethnicity, and gender. Currently, these reports are confidential unless they are voluntarily disclosed or mandated for release as in a lawsuit. A congressional statute that overrides the FOIA exemption currently allowing EEO-1 reports to stay confidential is the best path for release of diversity demographics of government contractors to the public. Although there is no quick fix to the issue of diversity in government contracting, disclosure is a necessary first step.

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