The impact of the U.S. Supreme Court’s decision to ban race-conscious college admissions, or affirmative action, has been playing out across corporate America. The ruling has added fuel to the anti-DEI backlash, placing leadership at some of the largest companies in the United States in a challenging position. Early indicators of this pressure have started to show – U.S. executives are openly speaking about their company’s diversity, equity, and inclusion (DEI) less frequently.
Despite this, JUST Capital data shows that the business and investor case for this work – one key area of which is supplier diversity – remains strong. Implementing programs aimed at doing business with minority- and locally-owned suppliers is an important way companies can advance racial equity and bolster their business, according to many esteemed corporate leaders, advisors, and researchers. Supplier diversity programs may face their own challenges following the Supreme Court’s ruling, but experts underscore that they remain core to building brand value and driving inclusion.
We’d previously tracked whether or not companies have supplier diversity policies in our annual Rankings of America’s Most JUST Companies. We expanded our approach in 2023 and started tracking diverse supplier spend – examining whether companies shared how much they spent with diverse suppliers rather than just a policy to do so. Notably, a supplier diversity policy is also a requirement of federal government contractors and we focused our tracking on spend to see if companies were going beyond compliance in this space. To examine if, and how, companies were following through on their stated commitments to spend with diverse suppliers, we looked at disclosures of both supplier diversity policies and spend among a subset of the Russell 1000 included in both our 2022 and 2023 Rankings.
We found that while a slight majority of companies (53%) in the Russell 1000 in both 2022 and 2023 disclose a supplier diversity policy, less than half of that group (22%) shares how much they spend with these contractors.
While spend is less commonly disclosed than a general program to promote supplier diversity, policies are not enough to convey action. We previously measured supplier diversity policy (not including spend) in three categories – diverse, veteran, and local suppliers. In our 2023 Rankings, we focused only on spend and expanded our groupings to include more commonly disclosed Small Business Association (SBA) designations by adding woman- and minority-owned suppliers as two additional categories. To understand if and how companies disclose spend in addition to policy, we examined three data points included in both the 2022 and 2023 Rankings: general supplier diversity policy and spend, local supplier policy and spend, and veteran supplier policy and spend.
Of the 892 companies ranked in the Russell 1000 in both 2022 and 2023, 22% disclosed spend amounts in any of the three categories and 31% disclosed at least one of the three types of supplier diversity policies, but did not publicly disclose how much they spend with those communities.
Of the companies disclosing how much they spend with diverse suppliers, here’s how their spending breaks down per category:
We found that having a policy does not necessarily translate into a clear and actionable spend disclosure. Of the 431 companies that got credit for having a general supplier diversity policy, only 45% disclosed spend. Among the 339 companies that got credit for having a veteran supplier policy, just 12% disclosed spend. In the group of 243 companies that got credit for local business supplier policies, only 24% disclosed spend.
While it is important that companies disclose spending on diverse suppliers, breaking this spending down into categories demonstrates the impact and magnitude of supplier diversity efforts. In our 2023 Rankings, however, companies were more likely to disclose general supplier diversity spend than any of the more specific categories – including women- and minorities-owned suppliers. While 206 of the 951 Russell 1000 companies included in our 2023 Rankings disclose spend in at least one category of diverse suppliers, very few disclosed spending across all five categories, with 55% disclosing one and only 10% disclosing all five.
Companies ranked as more just in our 2023 Rankings were more likely to disclose a spend amount than their peers. In 2023, 68% of JUST 100 companies disclosed at least one kind of spending on diverse suppliers compared to 15% of the rest of the Russell 1000. In addition, 60% of 2023 JUST 100 companies who disclosed any diverse supplier spending disclosed multiple categories of diverse supplier spending. In comparison, only 37% of the 138 companies not in the 2023 JUST 100 who disclosed diverse supplier spend disclosed in more than one diverse supplier category.
HP Inc. provides a leading example for companies on supplier diversity spend, particularly with its clear disclosures and engagement with suppliers. Clear disclosures include specific categories, show progress across multiple years, share results, and include future goals. In addition, best practice for companies includes engaging with suppliers, ensuring they can attain certifications, and that they uphold company values. Additionally, ensuring that suppliers are representative in high-margin, high-growth sectors of business partnerships such as financial services is essential in demonstrating commitment to inclusion of people who may have lost trust in a system where they are rarely represented.
HP leads the way. The company has an active program to engage suppliers and meaningful partnerships and initiatives that support this work. In its annual report, HP clearly discloses spend amounts across all categories, and provides context for spend by breaking down the percent of supplier spending represented by each spend disclosure. The company has also included disclosures over multiple years so stakeholders can transparently see progress over time, and track future targets. This allows HP to demonstrate economic impact throughout its value chain.
Importantly, HP includes diverse business partnerships in high-growth sectors. In finance, HP considers diversity in its banking allocation decisions and partnerships every year, and partnered with Black-, Latino-, women-, veteran-, and disabled veteran-owned banks as part of its bond offering – distributing $100 million in bonds in the process. The company continues to partner with underrepresented businesses in this space, including around short-term borrowing and share repurchase programs.
HP has made similar strides in inclusion efforts with legal partners, where representation and diverse perspectives are important in tackling challenges. HP requires law firms to staff a minimum of one racially or ethnically diverse attorney and one underrepresented minority or woman attorney, and that these partners be responsible for at least 10% of all billable hours.
Firms who fail to meet these requirements have 10% of all invoiced spend withheld. In 2020, HP reported that 93% of their engaged firms met these requirements.
In addition, HP works to support diversity beyond Tier 1 suppliers by requiring their direct business partners and suppliers to spend a minimum of 10% of work contracted on behalf of HP with diverse businesses.
This approach to diversity in business partnerships demonstrates a deep commitment to improving diversity in key industries and across HP’s value chain. Deep and sustained commitments like these show measurable action, but also demonstrate larger economic impact and value.
In our 2022 Americans’ Views on Business Survey, 86% of Americans agreed that companies “often hide behind public declarations of support for stakeholders but don’t walk the walk.” As corporations navigate an environment where commitments and statements made by leadership are more closely followed, they should transparently disclose how they are honoring commitments in a measurable way.
The pledges many companies made in 2020 to advance racial equity have been difficult to track, and may be even more so post-SCOTUS ruling on affirmative action. While this is in part because of political headwinds, it’s also because companies struggle to balance disclosure of measurable and impactful actions with other business needs. If done well though, supplier diversity disclosures are actionable, high-impact opportunities to follow through on diversity commitments while boosting business.
“Companies can, by virtue of what they need to buy to exist, actually lift up Black, brown communities, women business owners in a way that I don’t think they truly understand,” Mellody Hobson, Co-CEO and President of Ariel Investments, said at a JUST-hosted roundtable in 2021. And, earlier this year, Ariel Investments announced it had raised $1.45 billion for Project Black – a private equity fund aimed at converting businesses to be minority-led and positioning them as suppliers to major companies. Supplier diversity makes up one part of an overall integrated business diversity – with workforce, leadership and board diversity as equally important components. However, supplier diversity is one of the more easily measurable ways that companies can demonstrate their commitment to advancing racial equity.
Incorporating a program that increases spending with diverse businesses encourages review of partnerships, introduces flexibility in procurement, and drives up product or service quality while keeping costs competitive. The benefits of purchasing relationships with minority business partners and suppliers extend beyond offered services, and is enhanced when companies can demonstrate that they extend contracts to minority suppliers in high-margin, high-growth sectors of the economy such as financial services, legal services, and technology fields.
These sectors have been traditionally underrepresented by minority suppliers and offer an outsized opportunity to drive both business value and economic opportunity. Introducing competition in these sectors drives innovation, increases competition, and wards off complacency in suppliers making supply chains more resilient and agile.
Incorporating diversity throughout a company’s value chain has numerous benefits for companies. Companies have enormous leverage to ensure success in these spaces, and the resources to do so. Demonstrating deep commitments that go beyond surface promises and show follow through helps companies develop strong reputations and fosters trust.
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