The pandemic and nationwide unrest over the killings of unarmed Black men and women has forced Wall Street and corporate America to talk more about race and inequality. Money managers and some of the country’s biggest corporate executives this week have started to map out how to turn that talk into action.
“These civil rights issues are at the front door of corporate America in ways they haven’t been before,” said Mellody Hobson, co-chief executive of fund firm Ariel Investments, at a virtual panel this week during the annual Milken Institute Global Conference. “You have to recognize the risk embedded in not talking about these issues and not having representation in business.” As more environmental risks crop up in proxy statements, Hobson raised the question of when race will end up as a risk for companies that aren’t diverse.
The comments come as 150 businesses and nonprofit groups, including the Chamber of Commerce, on Thursday urged the Trump administration in a letter to withdraw its September executive order that limits some diversity training, raising concerns it will create confusion and uncertainty, and diminish the amount of training that takes place.
The pushback comes as more companies are focusing on race and inequality. Last week, JPMorgan committed $30 billion to advance racial equality, and the issue was discussed on several panels at the Milken conference, which brings together business leaders, policy makers and Wall Street power brokers. The Business Roundtable, whose members include 208 of the country’s biggest companies, released a report Thursday tackling similar issues, the latest indication that race has gone from a taboo subject to one corporate executives and investors see important enough to confront in the midst of the worst economic crisis since the Great Depression.
“The weight that killed George Floyd also was the weight of history—400 years of discrimination against Blacks in this country. Together, these forces conspired to crush him. That weight needs to be lifted,” wrote Doug McMillon, chairman of the Business Roundtable and Walmart chief executive officer in an op-ed in USA Today on Thursday.
The group’s report, which outlined recommendations across six areas—employment, finance, education, health, housing and the justice system, offered a glimpse of the compounding nature of inequities. Black Americans are half as likely to benefit from a wealth transfer than white Americans, a third less likely to have a four-year degree, six times as likely to be involved in the justice system and earn 87 cents on average to the $1 of white Americans. They are also almost twice as likely to lack access to credit, and to have chronic health issues, and more likely to rent rather than own their home, all of which leaves them with less than a fifth of retirement savings of white Americans, according to the report.
The attention to inequality comes as the connection between societal issues and bottom-line implications becomes clearer. “How much are you leaving on the table, if you don’t have a diverse point of view? Usually, shareholders don’t like to see money left on the table,” said Catherine Mann, Citi’s global chief economist and co-author of a report that put the economic cost of racial inequities over the past 20 years at $16 trillion.
Here are some of the initiatives money managers, business leaders and economists think can move the needle.
• Ensure accountability and align incentives and pay with progress. “For everything else in corporate America, we get measured and paid if we make it happen—and don’t get paid or lose our job if we don’t,” Hobson said. “The only area that is not true is diversity. It’s the only area you can work on and not show meaningful progress and keep your job.”
On that front, the Business Roundtable called for public disclosure of diversity metrics, at least annually, at the board, senior executive and workforce level, as well as among suppliers. Hobson encouraged companies to think beyond the old view of procurement and look for supplier diversity across the business services they increasingly spend money on—from legal to banking services.
• Improve employment and education opportunities. The Business Roundtable reiterated support for raising the federal minimum wage and ensuring paid family and medical leave benefits. It also launched an initiative for companies to account for the value of skills, instead of degrees, in hiring and promotion.
Also important: Focusing not just on mentorship but advocacy or sponsorship, Mann said.
The Business Roundtable also endorsed legislation that would strengthen education and workforce training programs for incarcerated individuals and legislation that would automatically expunge certain nonviolent federal records.
• Improve access to capital. “Capital deserts” plague Black communities, with 70% not even having a branch bank in their community, Robert Smith, head of Vista Equity Partners, said on the Milken panel. Smith’s recommendation: Build out and modernize community lending institutions, including with technology to make their lending more efficient. The Business Roundtable’s members set a $1 billion goal by 2025 to support these institutions.
• Improve financial security. The Business Roundtable outlined a $30 billion goal to build affordable rental units by 2025. It also urged policy makers to pilot a test of “baby bonds” to help build wealth and provide tax credits for emergency savings.
The Business Roundtable also agreed to join with groups that ease the burden of student debt. On the Milken panel, Smith noted that 60% of wealth in African-American communities goes to servicing student debt. Smith, the wealthiest Black person in the U.S., has agreed to pay $140 million in a nonprosecution agreement with the Justice Department, ending a criminal tax probe, according to The Wall Street Journal. Last year, Smith said he would pay the college debt for the entire 2019 graduating class of Morehouse College, a historically Black men’s college in Atlanta.
All the recent attention to inequality means that a broader group of Americans—customers, employees and investors—are likely to monitor if any of these goals and initiatives yield change.
Write to Reshma Kapadia at email@example.com
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