The stage is set for a New Reconstruction led by corporate America. All Americans, taxpayers, corporations, and investors stand to benefit from the reduced cost of systemic barriers and the unleashed productivity potential of Black Americans. According to McKinsey, there is a 36% likelihood that racially diverse companies will financially outperform more homogenous white companies, while closing the wealth gap for Black Americans would add a whopping $1.5 trillion to our economy each year. How can corporations support a New Reconstruction? The author offers four recommendations for CEOs and their C-Suite colleagues.
A police officer’s knee on George Floyd’s neck vividly illustrated the oppression that has literally sucked the life out of Black people in America. The weight of the knee obstructing the flow of air is a metaphor for the obstruction of access to capital and opportunity that has created such massive wealth and asset imbalances between white and Black America.
It is now time for a New Reconstruction — and this time, it should be led by corporate America. All Americans, taxpayers, corporations, and investors stand to benefit from the reduced costs of systemic barriers and the unleashed productivity potential of Black people. Business just needs the courage and conviction to act.
The first two U.S. Reconstructions failed. The first Reconstruction, intended to help freed slaves after the Civil War, failed because it was met with violent resistance (literal and figurative) by former Confederate officials and former slave owners; oppressive decisions by the U.S. Supreme Court; and the Compromise of 1877 that led to the removal of protective federal soldiers from the South and the emergence of Jim Crow. The second Reconstruction of the 1950s and 1960s, intended to give Black people the rights to full citizenship, failed because of polarizing racial rhetoric pitting working class whites against Black people, and corporate efforts to advance conservative values and lead a retreat from civic and employee gains made after World War II. It took economic pressure in the form of boycotts and civil disobedience to end government-sanctioned de jure oppression of Black people.
Oppression of Black people historically has been seen as a “Black problem.” New research reveals the truth: Citigroup estimates systemic racism cost the American economy $16 trillion over the last 20 years. Not only does oppression of Black people exact a terrible toll on the American economy and its taxpayers, but the elimination of systemic barriers would deliver profit potential. According to McKinsey, there is a 36% likelihood that racially diverse companies will financially outperform more homogenous white companies, while closing the wealth gap for Black Americans would add a whopping $1.5 trillion to our economy each year.
How can corporations support a New Reconstruction? Here are four recommendations for CEOs and their C-Suite colleagues:
1. Educate yourself.
Read the classic Harvard Business Review article, “Race Matters.” The author, Morehouse College President David Thomas, is a former Harvard Business School professor and one of the nation’s foremost experts on barriers to Black employees and pathways to success. The article is a powerful tool to improve conditions for Black employees and business performance because it identifies (i) the specific forms of disadvantage Black employees face, (ii) the distinctive strengths and professional assets Black employees develop (e.g., resilience, cultural agility, strategic political thinking, relationships) in order to survive a system designed for them to fail, and (iii) how smart companies can leverage the strengths and assets of their Black employees to advance their entire businesses. Thomas also coauthored a new piece in HBR this summer called “Getting Serious About Diversity: Enough with the Business Case.”
2. Follow the leaders.
Tim Ryan, PwC’s U.S. Chair and Senior Partner, helped launch CEO Action for Diversity & Inclusion in 2017 after Alton Sterling and Philando Castile were shot to death by police, sparking protests and violence across the country. Candid conversations with PwC’s people during this time made him realize he needed to do more to advance diversity and inclusion in the workplace so he started the coalition in order to better collaborate with other CEOs to make progress faster. Today, it is the largest business collaboration dedicated to addressing diversity and inclusion, with nearly 2,000 signatory organizations.
In September 2020, Connecticut State Treasurer Shawn Wooden and Ford Foundation President Darren Walker launched the Corporate Call to Action initiative (“CCA”) with the CEOs of some of the world’s largest and most prestigious institutional investment managers. CCA’s purpose is to facilitate concrete steps to address racial economic disparities in the U.S. and diversity within their companies. The initiative is intended to tear down the walls preserving oppression with the greater forces for good that will usher in a new era of fairness, opportunity, and upward mobility for Black Americans and the American economy.
Already, CCA has announced a commitment to disclose workforce diversity data, which will help drive accountability through measurement. CCA participants are also exploring how to increase access to capital for Black investment fund managers, similar to the Ford Foundation’s commitment through our Mission Investments program. The Connecticut Treasurer and the Ford Foundation, with the help of McKinsey, have managed a process whereby CCA participants engage in group introspection, brainstorming for solutions, and collective commitments and accountability.
3. Make 2021 the year of the “S.”
Environmental, Social, and Governance (“ESG”) factors can have a material impact on corporate financial performance and capitalist sustainability. So far, most attention to ESG has been the “E.” However, events of 2020 laid bare our economy’s reliance on “S” factors of human capital and social stability. Essential workers sustained us through Covid-19 and dissatisfied people taking to the streets can foment social instability and the resulting significant financial costs.
Major investors, such as State Street Global Advisors and BlackRock, have signaled their increased focus on human capital. The Sustainable Accounting Standards Board, known as SASB and the leading authority on ESG standards for investors and corporations, is doubling down its research on the material impact of “S” on corporations, a focus desired and welcomed by global investors.
4. Make good on pledges to relieve the consequences of Black oppression.
In August 2019, the Business Roundtable renounced shareholder primacy in favor of stakeholder capitalism. Since the George Floyd tragedy, billions in corporate pledges have been announced. McKinsey estimates $66 billion has been pledged, with JPMorgan alone pledging $30 billion in an effort to address the stark racial wealth gap between Black people and everyone else in America. Implementation is the path away from empty words, reporting is the guardrail to keep corporations on track, and accountability facilitates adherence to stated goals.
Investors and policymakers are attuned to corporate behavior in this age of enhanced fiduciary duty through ESG principals. Enlightened boards will also drive accountability; beginning in 2021 Apple’s board of directors tied part of CEO Tim Cook’s compensation to ESG factors. Here’s another idea to incentivize good behavior: Add a substantial compensation boost, e.g., 25%, to management for increases in the number of Black employees and promotions of Black employees. Good business people don’t maintain and promote bad employees, so increased compensation will incentivize closer relationships with Black employees to ensure their success.
According to the Federal Reserve Board, white people are at the top of America’s economic pyramid and Black people are at the bottom with less than 15% of white wealth. Under normal circumstances, it would take two centuries for the average Black family to reach the wealth an average white family has today, and by then the gap may have widened further. Realistically, it is hard to imagine that per capita Black wealth in America will ever reach parity with per capita white wealth. But, business can help lead a New Reconstruction that closes the gap and makes the entire nation better off. The American economy is a team sport. To strangle Black teammates with the ball-and-chain of systemic oppression hurts the whole team.
Editor’s Note (3/5/21): This article was updated to correct an error and clarify when and why Tim Ryan launched the CEO Action for Diversity & Inclusion.