Beyond Headcounts: Rethinking Corporate Diversity and Inclusion

• Applicants: Dr. Philipp Richter; Professor Dr. Peter Schäfer
• Subject Area: Accounting and Finance
• Term: since 2026
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 575063391

Diversity and inclusion (D&I) can enhance innovation and improve team performance by bringing together different perspectives and ideas. Even though we know that these benefits stem from diversity of ideas and inclusion, most firms and policymakers continue to equate D&I with demographic representation, measuring progress by the number of women or minorities on boards. While demographic representation is important, the mere demographic approach to capturing D&I is incomplete. It is tempting to focus on demographics because they are easy to measure. Yet, demographic numbers do not tell us whether employees are motivated to contribute their ideas and feel equally valued. A company may meet demographic diversity targets and still silence different voices, or even majority-group employees may feel excluded from decisions. This project addresses this gap by developing a new, holistic D&I measure based on employee and management communication. Rather than counting who is present, we focus on whether management aims to include the ideas of all employees and whether employees feel equally valued. Using the proposed measure, we will investigate how firms can foster inclusion and how they can benefit from it: How can firms ensure that minorities not only sit at the table, but that their ideas are heard? Does demographic diversity lead to meaningful inclusion, as many assume? Can long-term-focused compensation systems motivate executives to build inclusive cultures? And what are the benefits when they succeed? Together, our project has three key objectives: 1. MEASURING D&I: We will develop a new D&I metric that moves beyond demographics, using text analysis and machine learning. It will draw on employee reviews, differences in satisfaction across different groups of employees, and management tone in earnings calls. The data will be made publicly available and cover firms globally from 2009 to 2024, enabling cross-country and longitudinal studies. 2. EXPLORING DRIVERS OF D&I: We will examine potential governance mechanisms that may help firms foster D&I. We will study whether board gender quotas and long-term CEO incentives promote D&I. Using quasi-experimental variation stemming from staggered regulation and quasi-random outcomes of shareholder voting at the margin of being accepted or rejected, we aim to move closer to causal evidence than previous literature. 3.PREVENTING FRAUD THROUGH D&I: We will examine whether strong D&I helps prevent financial reporting fraud, using data from U.S. public firms and SEC enforcement records. We expect that inclusion encourages employees to speak up and reduces groupthink, making misconduct harder to conceal. Our findings will inform firms, researchers, and policymakers. By making our D&I metric public, we aim to accelerate future research on D&I in its holistic sense. Our findings on governance and fraud prevention will guide policymakers and corporate leaders in fostering more inclusive organizations.

• DFG Programme: Research Grants
• International Connection: Denmark
• Cooperation Partner: Dr. Sebastian Oelrich