Corporate responses to diversity, equity, and inclusion (DEI) controversies often focus on public messaging rather than substantial changes in hiring practices, according to a new study led by David Larcker, professor emeritus of accounting at Stanford Graduate School of Business and visiting scholar at the Hoover Institution. The research team, which also included scholars from the University of Chicago, Yale, and the University of Washington, analyzed nearly 1,300 DEI-related incidents at 315 U.S. public companies between 2008 and 2022.
The study examined how companies responded to incidents such as Wells Fargo conducting fake interviews with diverse candidates for already-filled roles and Google settling a gender discrimination lawsuit involving 15,000 female employees. Researchers tracked changes in hiring and retention data as well as market performance following each controversy.
Findings show that after a DEI incident, companies increased their hiring of women and people of color by only 0.8% above a baseline rate of 58%. These increases were more pronounced when controversies received significant media coverage or resulted in negative stock price reactions but generally occurred slowly over two to three years.
Most gains were concentrated in lower-paid positions. Diversity among junior hires rose by 0.9 percentage points while declining by one percentage point among senior hires. Similarly, there was a small increase in diverse hiring for non-core back-office roles but no statistically significant change in core business functions.
“Most companies respond at the surface level,” Larcker says. “They modestly increase hiring, but mainly in junior or non-core roles. And when you look at who’s leaving, it’s often the same demographic they just brought in. So, when you net it out, nothing really changes.”
Turnover rates for women and people of color also increased after DEI controversies. Netting new hires against departures resulted in only a modest overall workforce diversity increase of 0.4 percentage points.
“It’s easy to hire at the staff level; it’s much harder higher up the organization,” Larcker says. “And the data shows that while companies bring in more diverse people at the bottom, they’re also the ones leaving. That’s a troubling statistic. It suggests there’s not a real career path – just churn at the bottom of the organization.”
Economic consequences for firms experiencing DEI controversies included an average stock price drop of 0.7% within weeks after an incident and underperformance compared to industry peers by about 3.5% annually for up to four years afterward—a result attributed to factors like litigation costs and reputational damage.
Employee morale also declined following these events: Glassdoor reviews indicated drops in overall ratings and leadership approval.
Despite limited internal changes, companies significantly increased public references to diversity following controversies—by nearly 18% in proxy statements, 16% in corporate social responsibility reports, and over 11% on social media platforms—and announced more formal diversity targets.
However, these communications did not translate into meaningful shifts within organizations: The study found no statistically significant relationship between increased DEI messaging and actual changes in workforce composition—a phenomenon described as “DEI washing.”
“There’s a lot of talk – ‘People are our greatest asset,’ ‘We value diversity’ – but the evidence is pretty thin,” Larcker says. Firms facing a DEI incident are more likely to face another one the following year.
External ESG ratings showed little improvement post-controversy; S&P, Sustainalytics, and Bloomberg scores remained largely unchanged while Refinitiv ratings declined.
A subset of firms did make progress by setting clear representation goals or linking executive pay to diversity outcomes—actions associated with avoiding prolonged stock underperformance relative to less proactive peers.
Charles McClure from University of Chicago Booth School suggests employee feedback is key: “Executives want to have the best people working at their firms. If they can determine what truly matters in attracting and retaining high-performing staff, it will only help their bottom line,” he says.
Edward Watts from Yale School of Management notes shifting attitudes toward DEI programs amid political scrutiny: “Many of the same executives and boards that initially promoted DEI several years ago have recently reversed course and eliminated their DEI programs,” he says.“Were these companies’ DEI policies beneficial to corporate performance or detrimental? At some level,it seems like companies must admit they were either wrong before or wrong now.”
The study concludes that most firms emphasize promoting rather than implementing substantive DEI initiatives.
