06/08/2021
The business case for inclusive growth is not novel. Over the past decade, there have been countless reports and think pieces written to make the case plain to private sector leaders and economic developers. There is, however, a new sense of urgency among business leaders to tackle racial equity specifically and to acknowledge and utilize their power to disrupt the nation’s legacy of racism and promote a more just economy.
Prompted by the COVID-19 pandemic’s disparate impacts as well as widespread instances of racial injustice by police and citizens against Black Americans, a growing number of CEOs and private sector leaders have stepped up their support of Black communities through philanthropy and other actions. These actions must now go further, extending beyond philanthropy to include deeper changes in business practices in which investments in Black and Latino or Hispanic workers and entrepreneurs matter for businesses’ bottom lines and long-term economic prosperity. This is the new economic competitiveness agenda.
This report offers CEOs and CEO groups a three-part framework for action to make meaningful progress toward a more equitable economy, starting in their home regions. CEOs can: 1) adopt individual company actions on diversity, equity, and inclusion to demonstrate credible commitment; 2) act as a regional coalition of CEOs to deliver a multiplier effect on racial equity in local economies; and 3) use their influence as board members of civic organizations such as chambers of commerce and public-private partnership groups to champion change within local institutions and collaborations.
Table of contents
This report also provides new and existing data that can serve as regional performance metrics for CEOs interested in moving the needle on racial equity and equitable growth as a collective. These include metrics to improve the representation of Black and Latino or Hispanic residents in occupations at the center of the post-pandemic digital economy. As the demand for diversity in suppliers and services vendors grows, we offer data on how well Black and Latino or Hispanic entrepreneurs are represented in each region’s business ecosystem. We also provide data to inform income and wealth creation in underserved neighborhoods, which often have assets the marketplace has overlooked or devalued.
Every regional economy has a different starting point for improving the economic participation of Black and Latino or Hispanic talent. Rather than abstract commitments, the data in this report aims to root CEOs’ actions in the context of their home markets, so they can make tangible improvements toward shared prosperity.
The report closes with compelling business actions emerging across the country. There has been a surge of CEO coalitions for racial equity, signaling the seriousness of businesses that are trying to do better for stakeholders and the overall economy. These efforts ought not be fleeting. Rather than working in isolation, business communities can learn from one another to create better outcomes for their companies and the people in their regional economies, which, in turn, can bring the nation together. Considering the power that the private sector has in shaping local economies, the coordinated, intentional efforts of CEOs and regional business leaders—or lack thereof—will ultimately shape the arc of future growth and the course of history.
“We are striving to forge a union with purpose. To compose a country, committed to all cultures, colors, characters, and conditions of man.”
These words from Amanda Gorman’s powerful Inauguration Day poem capture the critical work ahead. At stake is whether the soul of America stands for equal opportunity for all. This has been a generations-long battle, with racial injustice long existing as de jure and de facto realities. The murder of George Floyd and other Black Americans last summer finally galvanized large swaths of the public to demand change.
To create a more perfect and inclusive union ought not rest on government solutions alone. This moment requires collective responsibility across multiple sectors of civil society. Among them, the business sector stands out. For one, the public is increasingly holding the private sector accountable for producing an economy and society that works for all people, including by taking actions against racial injustices.
Mellody Hobson, co-CEO of Ariel Investments and chair of Starbucks’ board of directors, argues that the current racial reckoning marks the third chapter in the nation’s civil rights struggle—and that this moment “has landed at the feet of corporate America.” While government formalized emancipation in 1863 and enacted landmark civil rights laws in the 1960s, this “Civil Rights 3.0” requires business to change. As stewards of the economy, business executives must address structural racism head on, including by acknowledging their role in perpetuating it.
This moment also requires more than national-level actions by large companies. There must be demonstrable progress for Black and Latino or Hispanic communities in the regions where firms do business and where workers and families seek opportunities. Some of these cities may have made headlines in recent years: Minneapolis (George Floyd), Louisville, Ky. (Breonna Taylor), Baltimore (Freddie Gray), Chicago (Laquan McDonald), Cleveland (Tamir Rice), Sacramento, Calif. (Stephon Clark), St. Paul, Minn. (Philando Castile), and St. Louis/Ferguson, Mo. (Michael Brown). But all metro areas, large and small, can do more to address the systemic discrimination and unequal opportunity that have failed people of color.
To that end, when CEOs work in concert with other executives in their home markets and in partnership with public schools, community colleges, local governments, philanthropy, transportation providers, and others, they can exert even greater influence on systemic solutions that meet the needs of families, workers, and employers in achieving a stronger economy and society. This kind of collective action would create greater change than any one commitment by an individual firm.
To its credit, the business sector has stepped forward. CEOs of some of the nation’s largest companies have begun a long overdue examination of their own practices, taken concrete action to advance racial equity, and started to embrace the tenets of stakeholder capitalism, which looks beyond shareholder interests and recognizes the needs of diverse customers, employees, suppliers, and communities as critical to long-term success. Furthermore, coalitions of CEOs in cities and metropolitan areas have approached Brookings Metro seeking ideas on what they can do to create a racially equitable economy. Their interest has not waned, even as national headlines on this topic have.
With twin demands to rebuild for the post-COVID-19 economy and address racial injustice, business executives can pave the way toward a more equitable economy, especially in their home regions. This report provides a three-part action framework for CEOs in regions to do just that. This includes recommendations for CEOs within their headquarters regions to act as a collective, setting goals and benchmarking progress on key performance indicators by race, ethnicity, and metro area. The report concludes with examples of promising private sector initiatives on racial equity and a just economy that we hope can inspire others.
Since the summer of 2020, major corporations have stepped up their commitments to racial justice. By one count, the nation’s 1,000 largest firms have pledged $66 billion in total contributions to racial justice causes. Companies such as Netflix and JPMorgan Chase have announced bold initiatives to invest in Black communities and tackle systemic racism. And through the Business Roundtable, over 200 of the nation’s largest companies have joined forces with a pledge to close the racial opportunity gap through policy changes in employment, housing, finance, education, health, and criminal justice.
Business executives can build on these important early efforts by putting greater emphasis on internal practices and actions that may hold promise for tangible improvements in communities.
While corporate giving is essential, it is insufficient. As our colleague Andre Perry wrote, “We’re not going to ‘nonprofit’ our way out of poverty, housing unaffordability and economic injustice.” The market needs to work for more people.
To start, business leaders must not view Black Americans through a charity mindset or as “social” problems to be solved. The vast majority of Black Americans simply want good jobs, economic dignity, and a fair shot at upward mobility. One prominent survey of 30,000 Black Americans, led by Black Futures Lab, found that the number-one issue among those polled—even more pressing than police brutality—is that Black workers’ wages are too low to support their families. Black workers are disproportionately relegated to low-wage jobs, including frontline essential occupations in retail, home health care, and meatpacking industries, which puts them at risk of COVID-19 exposure for little pay or no health benefits. Black workers are also highly underrepresented in the good-paying, growing digital jobs of the future, many of which do not require workers to have a college degree.
It’s also worth pointing out that the prevalence of low incomes and low wealth among Black and Latino or Hispanic workers is not because these workers simply need more education. As this chart produced by Brookings’s Richard V. Reeves shows, Black and Latino or Hispanic heads of household who have a college degree still have dramatically less net wealth than heads of white households (Figure 1). In other words, even when Black and Latino or Hispanic workers play by the same economic rules as white workers, they are not rewarded. This is why statements by CEOs claiming that there is not enough Black talent show that racism and systemic marginalization still permeate the marketplace, and must be undone.
Chief executives must shift their mindsets. Adopting the theory of stakeholder capitalism, they should embrace often-overlooked Black and Latino or Hispanic talent, consumers, businesses, and communities as assets that contribute to company bottom lines and power local economies. There is plenty of evidence that proves companies gain when doing so. For instance, companies with greater racial and gender diversity in their management teams and boards are more likely to outperform and out-profit their peers. These companies often create organizational cultures where staff feel comfortable proposing novel ideas, which makes them more likely to introduce new product innovations that appeal to wider, more diverse audiences—thus increasing overall competitiveness and improving financial performance.
Companies that commit to a culture of diversity and inclusive belonging are also more likely to attract and retain talent. A survey conducted by The Harris Poll on behalf of job site Glassdoor found that 76% of job seekers consider diversity an important factor when evaluating companies and job offers. And as the workforce increasingly becomes less white over time, intentionally hiring people of color and supporting an inclusive workplace will become even more imperative. This will improve bottom lines and allow regional economies to prosper as companies embrace the business case for diversity, equity, and inclusion and reap their benefits.
The shift from social to economic motivations also means that business leaders need to adopt more authentic changes in corporate practices—not just expand their philanthropy.
The group CEO Action for Diversity & Inclusion has been helping executives make workplace reforms since 2017. However, several notable reports find that corporate America, including big tech companies, are still falling short on their commitments to racial equity and stakeholder capitalism more broadly. A McKinsey & Company review of the 1,000 largest U.S. companies found that most corporate commitments to racial justice have yielded greater levels of philanthropy but fewer internal changes, such as board composition, hiring, and procurement (Figure 2).
A comprehensive review of stakeholder capitalism found that business rhetoric remains ahead of company performance in elevating the needs of other stakeholders beyond shareholders. In other words, companies have yet to make enough demonstrable improvements for their workers, customers, suppliers, the environment, and local communities.
We would add that CEO commitments should come from a greater number of executives. There ought to be leadership from those at the helm of large global firms, small and midsized employers, and venture-backed startups that, together, anchor many local economies. We also believe that company executives can exert wider and more systemic impact when their internal changes are made collectively in regions in coordination with other firms and nonprofit and public sector partners. There’s greater “return on investment” when individual actions are matched by others, with each entity doing its part to expand equity and opportunity at scale across a community.
In many cities and metro areas, CEOs are stepping up through existing regional CEO councils or as members of CEO groups, such as the Columbus Partnership or the Civic Council of Greater Kansas City. Others are forming new coalitions, such as the Corporate Coalition of Chicago or the Minnesota Business Coalition for Racial Equity. (More on these and other efforts in the “Emerging Models” section.)
In short, it is time for business executives to act with greater intention to value Black and Latino or Hispanic communities. This includes diversity, equity, and inclusion actions within the workplace and as coalitions within our regions and neighborhoods, as the CEO of Redfin recently argued.
To not act in this moment is to affirmatively decide to maintain a status quo perpetuating conscious and unconscious bias that has held Black and Latino or Hispanic people back and deprived them of good economic opportunities.
When asked what business executives in cities and metro areas can do to advance racial equity and an equitable economy, we offer this three-part framework. In sum, private sector leaders can:
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