Currently, EEOC requirements do not include disclosures on employees’ LGBTQ+, veterans, or differently-abled status, which is hindering fuller inclusion
As financial storytellers of companies’ performance and operations, accountants are critical in reporting mandatory annual data via the Employment Information Report (EEO-1), which requires private sector employers with 100 or more employees, and federal contractors with 50 or more employees meeting certain criteria, to submit demographic workforce data, including data by race, ethnicity, sex, and job categories. This form, which is submitted to the U.S. Equal Employment Opportunity Commission (EEOC), serves as the foundation for the government’s understanding of pay gaps and representation of underrepresented communities among U.S. employers.
However, EEOC requirements currently do not include disclosures on employees’ LGBTQ+, veterans, or differently-abled status. In particular, this is problematic for the LGBTQ+ community because one of U.S. President Biden’s first executive orders barred workplace discrimination on the basis of sexual orientation or gender identity. The order came after the landmark decision by the U.S. Supreme Court in Bostock v. Clayton County in June 2020 that protected members of the LGBTQ+ community from being terminated by employers on the basis of sexual orientation or gender identity under Title VII.
The pressure seems to be mounting for the EEOC to do more. Late last month, the U.S. Securities & Exchange Commission (SEC) stated that it should be working with the EEOC to learn how the SEC might leverage the information companies send to the EEOC via the EEO-1 form. Indeed, shareholders of public companies are increasing demands for workplace data as well.
John Sensiba, CPA, Managing Partner of the accounting firm Sensiba San Filippo, notes the importance of this change. “We, as accountants, serve the public trust, and we report on financial information to allow the capital markets to work,” Sensiba says, adding that 80% to 90% of the value of a company could be off-balance sheet. “And the risks that you have by not embracing diversity in all its forms are huge.”
Sensiba is a vocal supporter of expanding reporting requirements on LGBTQ+ individuals and touts the benefits of this expansion in large part because of the growing demands of employees, consumers, investors, and shareholders of public companies on the transparency of environmental, social and governance (ESG) issues. Sensiba says he became a champion of ESG issues from his exposure to the topics as a member of the National Association of Corporate Directors.
Understanding how off-balance sheet risks serves public trust
The goal of public companies is to serve companies’ purpose and deliver on their vision; as such, human capital is both one of those inputs into companies’ business models and a mechanism to deliver on their vision.
Trust is an innate part of accountants’ role in verifying company information, and if the data set on human capital is incomplete or shortfalls in transparency result, it can cause challenges for investors and research analysts who make buy or sell decisions. Moreover, ambiguity in human capital reporting will result without the full, accurate representation of LGBTQ data, even if organizations believe they are doing the right thing with respect to ESG.
In addition, accountants validate their companies’ information, and because employee information does not show up on the balance sheet under the liability section, short or long term, it is not quantified. As with the responsibility of serving the public trust, human capital data must be reported to people in order to understand the risks of the organizations’ intangibles, such as the potential for an exclusive culture and a less-than-ideal diverse workforce.
This cultural component for collecting additional LGBTQ+ information is essential, especially for tax and accounting firms, because it requires LGBTQ+ individuals to self-identify. However, unless an organization’s culture is supportive and psychologically safe, accurate LGBTQ+ employee representation and pay data will be a challenge. Indeed, almost half of LGBTQ accountants, for example, move to other employers — and up to 20% of them leave the accounting profession altogether — because of poor diversity and inclusion practices at their firms. This talent drain represents a huge risk and cost to the industry.
Breaking down the resistance to additional requirements
Those opposed to expanding reporting requirements for LGBTQ+, veterans, and differently abled employees argue that it is burden for companies to implement processes and track and report the data. To counter this resistance, Brad Monterio, Chief Learning Officer of the California Society of CPAs, looks to past movements, such as the one a decade ago around XBRL requirements, which forced multinational companies to digitize their regulatory reporting to national securities regulators. Looking back at pushback on the XBRL reporting rules, there was a lot of people claiming the change was too burdensome and costly to implement.
“But when you look at the tradeoff and what is seen as a ‘burden’ by some preparers of this information for their reports, companies will be seen as having a positive impact on its employees, ecosystem, partners, its whole supply chain, customers, the market, the public, and investors,” Monterio explains. “It ultimately attracts more capital and lowers the perceived risk.”
Coincidentally, Monterio’s work on the XBRL standard that made companies’ regulatory filings machine-readable is how he came to understand the importance of integrated reporting around sustainability and ESG issues. Monterio noticed that more U.S. public companies were reporting financial and non-financial data on corporate social responsibility in their annual reports and other quarterly filings about a decade ago.
Since then, additional global standards have emerged around sustainability reporting, such as the Global Reporting Initiative and the Sustainability Accounting Standards Board, which “connects business and investors on the financial impacts of sustainability” and is only going to grow in importance over time.