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How a company’s profit could soon be tied to its diversity initiatives

The movement to address the challenges facing us in the field of diversity, equality and inclusion may now begin to seep into the SME sector (small and medium enterprises with $10 million to $1 billion in sales), and eventually the SMB (small and medium-sized businesses with revenue of $5 million to $10 million).

On a recent trip back from Texas, I was sitting beside a gentleman who runs (what he called) a successful molding company out of Indiana with sales of about $40 million and 90 workers.

Talking about his business and the outlook going forward, he mentioned one of his biggest customers recently asked him for a written document listing his board members and management personnel. The customer had never asked for that information in the decade-plus relationship. Since the company was private without any structured board makeup, he gave the names of seven individuals he considered a part of his management team. There were seven men and one woman in that group, and among them was one Hispanic male.

He believes his largest customer is reviewing all its vendor relationships and the diversity of the companies before renewing contracts.

Stories like this are about to become the norm – and companies of all sizes better get ready to answer some questions if they want to expand their business.

After years of extreme disparity, where whites made up the supermajority of boards and management teams, 2020 may be remembered for more than just the year of the pandemic. Most of the nation’s biggest corporations are now strongly advocating for a sea change in the way they set their boards and management teams. Some have even said the future hiring of rank-and-file workers may have to undergo changes.

While all this has to be executed legally without running into discriminatory issues regarding sex and racial and ethnic makeup, many corporations already have taken some bold actions.

ISS Corporate Solutions (ICS), a provider of compensation, governance and sustainability tools and advisory services to help companies improve shareholder value and reduce risk, recently came out with a report stating nearly a 200 percent increase in the count of newly appointed S&P 500 board members who are Black.

According to ICS, between last July and this May, 32 percent of all newly appointed directors were Black while just over one-half (54 percent) were white. Those figures stood at 11 and 74 percent, respectively, in the previous 12 months.

These corporations that control trillions of dollars in contract work awarded to mid-size and small businesses may soon require every vendor of significance to detail their management and workforce makeup. The goal? To change the makeup of companies. If companies resist making changes, they are likely to be overlooked in favor of companies that embrace and accept the inevitable.

The movement to address the challenges facing us in the field of diversity, equality and inclusion may now begin to seep into the SME sector (small and medium enterprises with $10 million to $1 billion in sales), and eventually the SMB (small and medium-sized businesses with revenue of $5 million to $10 million).

Despite the progress, obviously much work needs to be done. For example, a recent analysis by Deloitte and the Alliance of Board Diversity concluded that only 18 percent of board members at Fortune 500 companies are Black. About 21 percent are women and 62 percent are white men. In 2010, white men accounted for 75 percent of all board seats.

To execute a meaningful change, the shift has to come from the SMEs and the SMBs that create the largest number of jobs every year. According to the U.S. Small Business Administration Office of Advocacy, small businesses (companies under 500 workers) have generated 64 percent of net new jobs over the past 15 years.

Diversity is not just a word anymore for companies — there are measurables and there are consequences.

Sougata Mukherjee is editor-in-chief of Triangle Business Journal. Reach him at sougata@bizjournals.com.

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