After DEI Controversies, Companies Made Limited Changes
Companies tended to respond with ‘diversity washing,’ research suggests.
- By
- December 30, 2025
- CBR - Accounting
When US companies get called out for inattention to diversity, equity, and inclusion, executives typically apologize and vow to improve their workplace culture. But while they do tend to then hire additional women and non-White males, these hirings are modest and almost entirely erased by a simultaneous uptick in diverse employee departures, according to research from Stanford’s David F. Larcker, Chicago Booth’s Charles McClure, University of Washington’s Shawn X. Shi, and Yale’s Edward M. Watts.
Recruiting more of these candidates is expensive and time-consuming, says McClure. For some companies, the results suggest “those costs seem to outweigh the benefits, which are maybe more nebulous and longer term,” he explains.
But businesses that have faced DEI scandals in the past decade or so have had an economic incentive to invest in diversity, the research suggests. In the years following a DEI incident, companies’ stock prices underperformed by roughly 3.5 percent compared with their peers. When those businesses hired more diverse employees, they largely overcame those financial consequences.
The research builds on past findings that many US companies engage in “diversity washing.” In 2024, a team of researchers including Larcker, McClure, and Watts reported significant discrepancies between companies’ public DEI stances and their hiring practices. They wondered if they might get different results by focusing only on companies with identified DEI problems. In theory, McClure says, “if you’re getting a bunch of pushback from stakeholders for having done something wrong on a DEI issue, that’s probably going to induce you to make a change.”
A lower-level response
After a DEI-related problem, companies tended to make more DEI hires—but mostly junior employees rather than senior ones.
To understand how businesses responded to DEI controversies, the researchers analyzed two datasets for 2008–2022. One came from RepRisk, which scanned news articles and other public sources to create a list of DEI-related incidents at publicly traded US companies. The other was from Revelio Labs, which scraped publicly available online profiles and résumés to obtain workforce diversity data from a large sample of US companies.
The team compared the demographics of incoming and outgoing employees before and after DEI-related snafus. “We’re never going to be able to identify changes like updates to the parental leave policy or recruitment at historically Black colleges. But we can look at the outcome of those changes, which is the actual hiring of people,” says McClure. “We assume people from different demographic backgrounds are going to be attracted to firms that have instituted better policies for them.”
In the years following an identified DEI problem, the proportion of companies’ new hires who were women and non-White males increased by almost 1 percent, the researchers find. But that boost was largely offset by a nearly identical jump in the proportion of such employees leaving the company, resulting in only a small overall change in diversity.
The increase in new hires of women and non-White men was mostly concentrated among early-career and noncore positions, such as interns, junior analysts, and human resources professionals—roles less connected to main business operations.
Businesses were more likely to hire diverse employees when they faced heightened external pressure after a DEI controversy, such as negative returns or media coverage in large outlets. However, even in these instances, the changes were small, according to the study.
Publicly, companies talked about diversity more after DEI incidents, the research suggests. However, behind the scenes, they put limited resources toward enacting real change—further evidence of diversity washing. Overall, the researchers write, the results suggest “firms respond to DEI controversies modestly by improving diversity where doing so is easiest and the least costly.”
Public sentiment has shifted in recent months, and the average US company feels less need to proactively promote DEI. But many stakeholders will still want companies to address deficiencies and earlier missteps, McClure says. The researchers’ analysis indicates that regardless of what executives may vow, they’re unlikely to follow up with action.
“As more data like these become available, people can look under the hood and see what companies are really doing.” he says, “It’s going to be harder and harder for companies to talk the talk without actually walking the walk.”
- Andrew C. Baker, David F. Larcker, Charles McClure, Durgesh Saraph, and Edward M. Watts, “Diversity Washing,” Journal of Accounting Research, December 2024.
- David F. Larcker, Charles McClure, Shawn X. Shi, and Edward M. Watts, “The Limited Corporate Response to DEI Controversies,” Working paper, August 2025.
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