Minority-Owned Businesses and Supplier Diversity
“In future decades the U.S. labor force will grow much more slowly than in the past, and any growth that is realized will be accounted for entirely by minorities—whose growth, in turn, will be accounted for largely by immigrants. The success or failure of minority-owned businesses will increasingly drive the success or failure of the overall U.S. economy.”
–Andrew B. Bernard, Dartmouth College, and Matthew J. Slaughter, National Bureau of Economic Research; “The Life Cycle of a Minority-Owned Business: Implications for the American Economy,” prepared for the Minority Business Development Agency, 2004.
Entrepreneurship is a key element of the American Dream. For millions of Americans, starting and owning a business has been the route to success and security.
Small businesses play a huge role in our economy. According to the Small Business Administration, businesses with fewer than 500 employees make up 99.7 percent of U.S. employer firms, accounting for nearly half of private sector employment and 64 percent of net new jobs created from 1993 to 2011.
People of color own 4.1 million firms that generate $694 billion in revenues and employ 4.8 million people, but communities of color continue to lag behind whites in terms of small business ownership and profit:
- Latinos own 6.6 percent of all U.S. businesses; Blacks, 5 percent; Asians, 4.6 percent; American Indians or Alaska Natives, 0.8 percent; and Native Hawaiian or other Pacific Islanders, 0.1 percent. Whites own 82.9 percent of all businesses, and 88 percent of all employer firms.
- On average, for every dollar that a white-owned firm makes, Pacific Islander-owned firms make about 59 cents, Latino-, Native American-, and Asian-owned businesses make 56 cents, and African American-owned businesses make 43 cents.
To promote diverse-owned small businesses, Greenlining strongly encourages supplier diversity—that is, encouraging large corporations and government agencies to contract with diverse firms for the products and services they need. When such efforts succeed, it is usually because they include several key elements: Buy-in from top management, voluntary-goal setting for diverse contracting, standardized reporting of progress, robust outreach to diverse-owned small business networks, and a commitment to diverse contracting through the whole organization, becoming part and parcel of all procurement practices.
In the banking/financial field, we are moving these efforts forward on several fronts:
Partnering with the Offices of Minority and Women Inclusion
The Dodd-Frank financial reform law created Offices of Minority and Women Inclusion (OMWIs) in 20 federal financial regulatory agencies. The OMWIs are tasked with promoting diversity within regulatory agencies and with ensuring that regulated financial entities “[fairly include and utilize] minorities, women, and minority-owned and women-owned businesses … in procurement, insurance, and all types of contracts.” In particular, the OMWIs are responsible for drawing a critical eye to contracting policies and practices in 18 professional service areas, such as legal services and accounting. We are working directly with OMWI directors and staffs to promote these goals.
Economic Inclusion Database
One area where the financial industry has been particularly weak in terms of diverse contracting is professional services – law firms, insurance companies, accounting firms, etc. Because bankers often tell us they have had trouble locating firms with the appropriate expertise, Greenlining has launched an innovative effort to connect financial firms with diverse professional contractors. The Economic Inclusion Database will contain hundreds of minority-, woman-, veteran-, and disabled veteran-owned firms that offer services in the 18 professional services industries identified in Section 342 of the Dodd-Frank Act. We have begun with the legal sector and are beginning to add other classes of businesses, including insurance, accounting and brokerage firms.
Working with Banks and Small Businesses
We regularly meet with financial institution leaders to get their latest diversity data, suggest ways to make bidding and contracting easier and more accessible for diverse businesses, and to promote and facilitate more robust outreach to these firms. We have sponsored three annual “Let’s Do Business” trade shows to promote diverse contracting. Typically, these events bring together over 500 small business owners and roughly 70 representatives of major financial institutions and their large prime suppliers to create contract opportunities for diverse business owners.