With racial disparities and inequities on center stage in 2020, many companies have joined discussions and initiatives around diversity and inclusion.
Despite those displays of solidarity, there is certainly work to do. Of a sampling of 46 brand-driven companies that posted support for the Black community following George Floyd’s murder, none had a Black individual in a leadership role, one Marketing Week columnist pointed out in early June.
For investors who want to identify racially inclusive businesses as a step toward supporting positive social change, this kind of disconnect may feed worries about impact washing. Two-thirds of respondents in the 2020 Global Impact Investing Network survey identified this disingenuous behavior as a significant issue.
To help investors cut through the noise, here are three ways of gauging corporate racial inclusivity.
1. Company Leadership: Who Is Running Things?
The best place to start an assessment of a company’s inclusiveness may be its management team. American companies have a poor diversity record at the CEO level: a quick scan by Fortune editors of the 2020 Fortune 500 identified only five Black chief executives. The magazine also reported that there have only been 18 different Black CEOs since 1999.
Of course, the CEO role represents the top of the longer corporate ladder, which includes numerous rungs of management. Diversity in broader leadership positions matters, too.
For example, while Facebook grew its workforce and leadership ranks more than six-fold between 2013 and 2018, the number of its Black executives grew from zero to 32, or about 3% of its leadership team, according to USA Today research. Following broad-based criticism, the company announced in July 2020 that it was targeting a 30% increase in people of color among its leadership team by 2025. It will also resume incorporating diversity and inclusion measures within performance assessments for certain vice presidents.
One company that has made a clearer impact on the diverse management front is discount retailer TJX, which reports that 34% of its managers are people of color. While some will dismiss the Facebook-TJX disparity as a tech versus consumer services divide, consider that 57% of TJX’s total workforce is racially diverse. Additionally, TJX claims that a pay equity analysis found “no meaningful difference in base pay between associates based on gender or race/ethnicity.” Self-reported corporate responsibility assessments cannot always be taken at face value, but they may offer a useful starting point for deeper investigation.
To learn more about investing for diversity and inclusion, read Racial Equity Investing: Opportunities for Impact & Alpha.
2. Workforce Composition: Who Is Getting the Job Done?
The pandemic-driven recession hit workers of color hard, with 16.8% of Black workers and 17.6% of Latinx workers unemployed in May, compared to 12.4% of white Americans, according to Bloomberg. The difference in unemployment rates between white and non-white workers has rarely fallen below 4% over the past five decades, a disparity many companies have recently vowed to address.
For example, bicycle manufacturer Trek Bicycle Corp. recently committed to fund a $2.5 million program designed to bring 1,000 people of color into careers as bike retailers and mechanics over the next 10 years. (Trek also plans to invest $5 million over the next three years to increase the volume of bike shops in underserved neighborhoods.)
Beyond diversity statistics lies inclusion—that is, fostering a culture where different voices are heard, valued, and incorporated into everyday business practices. “It is not enough to have an invitation to the party—you must also have a seat at the table,” argues Forbes writer Janice Gassam.
While it can be difficult to quantify an inclusive culture, the presence of employee resource groups for employees of color, robust internal grievance processes, and clear development opportunities may indicate that a company takes its diverse workers’ needs seriously. Turnover rates among employees of color may also provide insight into how welcome, appreciated, and supported they feel in a particular corporate environment.
3. Goods and Services: What Consumers Are Being Ignored?
Just as corporate America has only gradually awakened to the value of diversity in the workplace, it has been slow to grasp the value of the multifaceted consumer market. Many consider this a missed opportunity, as Nielsen estimates that Black consumers account for $1.3 trillion in annual sales alone.
Many companies struggle with how to approach this underserved market segment, perhaps an outcome of their homogeneous leadership teams. Some organizations’ responses have focused on societal change; for instance, ice cream-maker Ben & Jerry’s outlined four calls to action in support of “dismantl[ing] white supremacy in all its forms” in the United States. Yet racial justice extends from policy to the pocketbook, and Black-owned businesses and Black consumers have long felt frustrated with the historically myopic American marketplace.
Advocating for greater economic impact in the Black business community, entrepreneur Aurora James’s 15 Percent Pledge asks companies to commit a minimum of 15% of their shelf space to products from Black-owned businesses. An early commitment to the 2020 initiative came from cosmetics retailer Sephora, which had already begun diversifying its offerings in 2017, when it took on the Fenty Beauty makeup line and registered $72 million in sales in the first month. Developed by singer Rihanna, Fenty Beauty’s inclusive product line offers products for consumers with skin types and tones long ignored by legacy industry leaders.
Fostering and sustaining racially inclusive businesses requires conscious effort and commitment, along with a willingness to upend business as usual on multiple levels—all rooted in challenging conversations about past practices and future realities. Twenty years into the 21st century, it is long past the time for empty promises around racial equity. Fortunately, a number of organizations are leading the way.