Professor Tracy Yue Wang

Using the murder of George Floyd in May 2020 as an exogenous shock to public attention to racial inequality, these researchers examine the role of public opinion in shaping corporate demand for diversity, equality, and inclusion (DEI) in the U.S. Using textual analysis of listed companies’ proxy statements, they construct proxies of corporate attention to DEI, which is more of a reflection of corporate demand for DEI than of supply side factors. They have found that the George Floyd event led to the biggest leap in corporate attention to DEI in the past decade, an effect that cannot be explained by potential confounding events such as diversity-related state regulations and exchange proposals or the COVID pandemic. The surge in corporate attention to DEI is more pronounced in firms that are more exposed to pressure from public opinion, which cannot be explained away by heterogeneity in the presence of Black directors or pro-diversity institutional investors. Does the observed surge in corporate attention to DEI reflect an increase in authentic corporate demand for DEI or "cheap talk" under social pressure?

Although too little time may have elapsed, there is some evidence of real progress. Since the George Floyd event, there is a significant increase in the number of companies that link DEI goals to executive compensation, which prior research suggests to be an indication of serious commitment. But the fraction of listed companies that do so remains small. There is also a significant increase in the appointments of Black directors after the George Floyd event, but the benefit does not seem to spill over to directors of other minority races or female directors. Overall, this research is suggesting that public opinions can play a powerful role in shaping corporate governance and corporate culture towards DEI.