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Companies that want to maximize shareholder value need to maximize their revenue -- and that means not leaving money on the table. According to estimates, the American LGBT (lesbian, gay, bisexual and transgender) market is worth close to $835 billion. To help LGBT consumers sort the gay-friendly companies from those that are less so, the Human Rights Campaign issues an annual "Corporate Equality Index" that rates hundreds of companies and publicizes their findings.
As investors (as well as consumers), it's instructive to see which companies are taking steps to appeal to as broad a consumer base as possible. The Equality Index results for 2012 were recently released.
For starters, 148 fewer companies received perfect scores this year than last year -- only 190 of them. That sounds terrible, but it's largely due to the CEI toughening up its standards. The index considers factors such as equal health-care coverage for all employees, equal employment opportunity policies, non-discrimination policies covering sexual orientation and gender identification, corporate philanthropy, and more. For context, in 2002, the index's first year, just 13 companies got top marks.
The top 10
Among the 20 largest companies in the Fortune 500, 10 received scores of 100:
- Bank of America (NYSE: BAC )
- Ford (NYSE: F )
- JPMorgan Chase
- Hewlett-Packard (NYSE: HPQ )
- Citigroup (NYSE: C )
- Cardinal Health
- Wells Fargo
Among the biggest companies with less stunning numbers were General Electric (NYSE: GE ) and Wal-Mart, each scoring 60. ExxonMobil earned the booby prize, with a score of -25. Among companies improving their showing was Office Depot, boosting its score from 45 last year to a perfect 100 this year. Among many new initiatives, the company extended equal health-care benefits to transgender employees and formed an employee group to examine LGBT issues.
What specific things are some of these companies doing? Well, Bank of America recently announced plans to reimburse gay employees for the extra costs they incur when they're taxed on the value of health insurance the bank provides for their domestic partners. Hewlett-Packard has the oldest identified LGBT employee resource group. Ford pledged $250,000 toward building an LGBT community center in Ferndale, Michigan.
In general, companies have been improving over time on the various index criteria. For example, back in 2002, 60% of companies surveyed demonstrated a public commitment to the LGBT community. Today it's 81%, with many doing so recently by proclaiming their support for marriage equality in New York state. Such companies included Alcoa (NYSE: AA ) , Google, McGraw-Hill, and Xerox (NYSE: XRX ) . Other methods include marketing and recruiting efforts and philanthropic support.
Both President Obama and Secretary of State Hillary Clinton recently expressed support for LGBT rights at home and abroad, and the Corporate Equality Index highlights one avenue to greater LGBT rights abroad: U.S. corporations. Consider that about 66% of rated employers -- hundreds of companies -- have operations outside America's borders. Over time, more and more of them will likely institute LGBT-friendly policies for all their employees, including in some nations where homosexuality is criminal or not very legally protected.
In the meantime, while LGBT support may earn some companies demerits from some customers in LGBT-unfriendly nations, it will also quietly earn the business of those customers seeking progressive businesses.
Increased diversity, increased performance?
The overall trend toward greater LGBT acceptance should be welcome to investors chasing high-performing companies that can deliver great results. Companies earning high marks from the HRC index are likely to curry the favor of gay consumers, who make up more than 6% of the population, according to various estimates.
As the financial incentives of greater equality become clearer, it's likely that next year, many more companies will have made the necessary changes to earn perfect scores. As long as score disparities are large, the high-scoring companies will enjoy a competitive advantage.