Diversity, Equity, and Inclusion Hiring in Public Accounting

Over the years, numerous studies have revealed racial disparities in hiring practices, specifically detailing the favoring of White over Black applicants by employers. By conducting a blind study of callbacks for eight fictitious applicants of various races, genders, and resume qualities, a recent study found that although White applicants still held a significant advantage when quality of resume was considered, marked improvements have been found in these racial disparities from a similar study that was conducted 20 years ago. This article explores the implications of this research and provides recommendations for those seeking to adjust their hiring practices.

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In 2004, a landmark study by Bertrand and Mullainathan revealed stark racial disparities in job callbacks across all industries, with resumes bearing White-sounding names receiving 50% more callbacks than those with Black-sounding names. In addition, those applicants with White-sounding names and high-quality resumes received 30 percent more callbacks than low-quality resumes, while this increase was almost insignificant for high-quality resumes from perceived Black applicants. In other words, the racial disparity in callbacks between White and Black applicants only widened when resume quality was introduced. This groundbreaking research shed light on the implicit biases prevalent in hiring practices among various professions (M. Bertrand and S. Mullainathan, “Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination,” American Economic Review, vol. 94, no. 4, pp. 991–1013, 2004). A later study by Kessler and Low modified the approach from Bertrand and Mullainathan by focusing on large and prestigious companies across all industries, which tend to hire via networks and school relationships, like many public accounting firms. The authors determined that racial and gender biases still existed; white males were shown preference, mainly in STEM fields, and no preferences were shown in any field for minorities or females (J. Kessler and C. Low, “Research: How Companies Committed to Diverse Hiring Still Fail,” Harvard Business Review, February 11, 2021). In addition, Kline et al. graded race and gender callbacks of Fortune 500 companies and also found that discriminatory hiring practices still existed in specific industries, although this study did not include any accounting firms (P.M. Kline, E.K. Rose, and C.R. Walters, “Systemic Discrimination Among Large U.S. Employers,” National Bureau of Economic Research, July 1, 2021). In fact, Riach and Rich (2002) looked at field experiments of discrimination in the marketplace, including employment, dating back to the 1960s and covering 10 countries. They found demonstrated, pervasive, and enduring discrimination against Black applicants with regard to being denied employment, housing, and insurance purely because of their race [P. A. Riach and J. Rich, “Field Experiments of Discrimination in the Market Place,” The Economic Journal (London), vol. 112, no. 483, F480–F518, 2002]. Today, the question remains: have these biases been addressed and have hiring practices been improved, specifically in public accounting, due to continued and focused efforts to promote diversity within the profession?

The AICPA and other professional organizations have made significant efforts to promote diversity within the accounting profession for decades, going back to a landmark resolution issued in 1969, at a time when there were fewer than 150 Black CPAs in the United States. The resolution helped launch a campaign encouraging young students from disadvantaged groups specifically to attend college, majoring in accounting, and called for these students to be hired to be better integrated into the profession. Due in part to this resolution and the associated campaigns, the number of Black accountants employed by U.S. CPA firms rose quickly to more than 700. Continuing that success, the number of Black accountants in U.S. CPA firms continued to rise by another 43 percent between 1976 and 1989 (K. Drumgo, “How a Landmark AICPA Resolution Helped Diversify the Profession,” Journal of Accountancy, December 1, 2019). The AICPA and the profession have continued similar awareness campaigns up through the present day. Despite these initiatives, however, the profession still struggles with underrepresentation of minority groups, especially Black professionals. Research published last year [M. Nickerson, L. Walters, and S. Yu, “Are Madison and Jacob (Still) More Employable than Aaliyah and Xavier (in Public Accounting Firms)?” Journal of Applied Business and Economics, vol. 26, no. 3, July 12, 2024] aims to reassess the current state of racial disparities in hiring practices within public accounting firms and evaluate whether progress has been made since the 2004 study.

Current Landscape

The demographic composition of accounting graduates and professionals provides insight into the state of diversity in the field. In the 2017/2018 academic year, 16% of accounting graduates were Latino, 13% were Asian, and only 6% were Black. These figures reflect a continued broader trend of underrepresentation of Black individuals in the accounting profession. Despite the efforts to promote diversity, Black professionals make up about nine percent of all accountants, but only one percent of CPAs, according to the U.S. Bureau of Labor Statistics. In fact, from 2000 through 2020, Black graduates represented only between three to five percent of overall new hires in U.S. CPA firms, an amount that remained stable during this period with no notable increases.

These low graduating percentages—and even lower hiring percentages—in accounting education persist, while the overall enrollment of Black students pursuing degrees in areas other than accounting has increased. According to the U.S. Census’s American Community Survey, 23% of Black residents aged 25 years or over had earned a bachelor’s degree or higher, an increase from 18% in 2010. In addition, in 2020, 36% of Black individuals between 18 and 24 years old were enrolled in college. The AICPA has recognized these issues and continues to advocate for increased diversity through various programs and initiatives. Despite those practices and increased degree-seeking, why are Black students still not attracted to public accounting?

Why Diversity Matters

The importance of diversity in the workplace cannot be overstated. There is much research showing that diverse and inclusive workplaces lead to better decision-making, increased innovation, and improved financial performance. In the context of public accounting, diversity can enhance the quality of client service and contribute to a more dynamic and adaptable workforce. A workforce that possesses a wide variety of perspectives and experiences, can generate more creative solutions and better understand clients’ needs. For public accounting firms, this means being able to serve a broader range of clients more effectively. Furthermore, diverse teams are better equipped to identify and mitigate risks, leading to more robust financial reporting and auditing processes.

Nevertheless, Black accounting graduates often report lower satisfaction with organizational culture and representation within firms, according to a recent Center for Audit Quality (CAQ) survey (“Increasing Diversity in the Accounting Profession Pipeline: Challenges and Opportunities,” 2023, https://tinyurl.com/j4v4unwb). This dissatisfaction can lead to higher turnover rates and a less-inclusive work environment. Addressing these issues is crucial for the long-term success and sustainability of the profession. Creating an inclusive organizational culture, one where all employees feel valued and respected, is essential for retaining diverse talent. This process involves not only recruiting a diverse workforce, but also ensuring that the workplace environment supports their growth and development. Firms must be proactive in addressing biases, beginning with hiring practices, and creating policies that promote equality and inclusion.

The Study

The authors’ recent JABE study sought to generally recreate the Bertrand and Mullainathan 2004 study by using eight fictitious resumes in order to apply for entry-level positions in public accounting firms using a popular job-seeking online engine. The resumes varied by race (Black and White), gender (male and female), and quality (high and low). The eight resumes produced covered four U.S. cities with similar economies: Buffalo, NY; Grand Rapids, MI; Providence, RI; and Louisville, KY. As in the Bertrand and Mullainathan study, candidates were assigned Black- or White-sounding male and female names (Nickerson, Walters, & Yu, 2024).

Whether a name sounded White or Black and male or female, was determined by using ChatGPT to distill U.S. Census Bureau research for popular baby names given between 2001 and 2002, as seen in Exhibit 1 (U.S. Census Bureau, “Frequently Occurring Surnames from the Census 2000,” June 16, 2020, https://tinyurl.com/5dn2skus). The chosen names were tested using a sample survey, with the results showing overwhelmingly that the names’ races and genders were identified as the researchers intended. Resumes were also assigned as high or low quality. High-quality resumes had four differentiating characteristics from low-quality resumes. The high-quality resumes held master’s degrees in accounting, compared to bachelor’s degrees for low-quality resumes, and listed GPAs as either 3.75 or 3.85 while low-quality resumes did not list any GPA. Also, high-quality resumes listed two previous internships, one of which was at a public accounting firm, as well as indicating two sections of the CPA exam already being passed. Low-quality resumes listed only one internship, outside of public accounting, and made no mention of the CPA exam.

These resumes were used to apply for a variety of entry-level public accounting positions over the course of two months across the four cities listed, assigning the resumes to locations where their respective education and experience occurred. The initial location was Buffalo, New York. The other three locations were chosen using Metroverse (https://metroverse.cid.harvard.edu/), an online tool built at Harvard University’s Growth Lab. This tool “assesses the similarity between urban economies by calculating whether they are competitive in the same industries.”

If the applicant received an email requesting an interview, this was considered a positive response for callback. If the applicant received a rejection email or received no reply, these were considered negative responses. The “no reply” is considered a negative response because the online job search engine alerts posting firms that an applicant has responded; furthermore, it indicates that these applications were viewed. Responses were tracked to determine whether there were differences in callback rates based on race, gender, and resume quality.

Findings

Surprisingly, the results revealed that the racial disparity shown by the 2004 study was only the slightest bit evident when simply measuring the rate of callbacks between Black versus White applicants overall (Exhibit 2). While White applicants did receive a 29.6% positive callback rate, compared to only 27.8% for Black applicants, this difference is far less than the 50% higher positive callbacks received in the 2004 study. The reason for this improvement is not specifically identified by the study; however, one could draw the conclusion that the strong DEI initiatives pushed by the AICPA and others in the profession have led to this improvement in racial disparity from 2004 and specifically for public accounting. It is worth noting that, in general, gender alone did not play any statistically significant role in receiving positive interest from applied-for jobs.

In addition, when considering resume quality—which is important to the public accounting profession, considering the 150-hour requirement as well as the importance placed on taking and passing the CPA exam—high-quality White candidates had a significant and distinct advantage over high-quality Black candidates (Exhibit 3). High-quality White candidates received a positive callback rate of 44.4% compared to only 29.6% for high-quality Black applicants. While this disparity is certainly concerning, and something the authors believe that the profession must continue to aggressively address, significant strides have been made when compared to the 2004 study—when high-quality White candidates received 30% more callbacks than high-quality Black candidates.

Implications

While improvements appear to have been made in hiring practices within public accounting firms, the continued significant and persistent disparity remaining between high-quality Black and White applicants highlights the need for continued efforts to promote diversity and inclusion. To address these issues, CPA firms should continue to take proactive steps to ensure that their hiring processes are fair and unbiased. The following are some practical recommendations for accounting firms:

Promote Diversity and Inclusion Initiatives: CPA firms should continue to support and expand their diversity and inclusion programs. These initiatives should include targeted recruitment efforts, mentorship programs, and diversity training for all employees. Such programs should not only focus on entry-level recruitment, but also on the retention and promotion of minority employees to leadership positions.

Implement Blind Recruitment Processes: To eliminate potential biases in the hiring process, CPA firms should consider using blind recruitment techniques. This can involve removing names, addresses, and other identifying information from resumes during the initial screening process. Blind recruitment can help ensure that candidates are evaluated solely on their qualifications and experiences.

Foster an Inclusive Organizational Culture: Creating an inclusive work environment where all employees feel represented and valued is crucial. This can be achieved through regular diversity training, an open dialogue about biases and discrimination, and policies that promote equal opportunities for advancement. CPA firms should also encourage employee resource groups and support networks that provide a sense of community for minority employees.

Encourage Mentorship and Support Networks: Providing mentorship and support networks for underrepresented groups can help bridge the gap in representation and career advancement. Mentorship programs can offer guidance, support, and networking opportunities for minority employees. These programs can also help identify and address any barriers to advancement within the firm.

Regularly Review Hiring Practices: Firms should regularly review and assess their hiring practices to identify and address any biases. This can include analyzing data on recruitment, retention, and promotion rates for different demographic groups. Regular assessments can help ensure that diversity and inclusion efforts are effective and identify areas for improvement.

Signs of Improvement

The authors’ research highlights drastic improvements relative to the previous study, while also demonstrating the need for ongoing efforts to address racial and gender biases in hiring practices within the public accounting profession. Despite initiatives to promote diversity, and the racial disparity seemingly improving because of those initiatives, significant disparities remain when specifically factoring in resume quality. By taking proactive steps to continue to promote diversity and inclusion, firms can build a more equitable and effective workforce. Addressing these issues is not only a moral imperative, but also a business necessity. Diverse and inclusive workplaces are better equipped to meet the challenges of a rapidly changing business environment and provide superior service to clients. As the accounting profession continues to evolve, embracing diversity and inclusion will be key to its long-term success.

By implementing the recommendations outlined in this article, public accounting firms can continue taking meaningful steps toward creating a more inclusive and equitable profession. These efforts will not only benefit minority groups, but also enhance the overall quality and effectiveness of the accounting profession.