Business and supplier diversity: thinking outside the box
Supplier diversity is an American export. The supplier diversity programs now found across the world are an outgrowth of decades-old U.S. government programs designed to support small businesses owned by women, racial minorities and other specially designated categories. While the objective remains as relevant as ever, the definitions of minority that made sense in the U.S. in the 1960s don't always translate in a global context.
Business diversity keeps ESG objectives in focus even when the conventional supplier diversity categories start to break down. For instance, multinational companies embracing business diversity might broaden their horizons to include not just marginalized groups but also regions that have been historically marginalized, says Nadia Quarles, assistant vice president of business diversity at the University of Chicago.
Corporate leaders should ask themselves how they're engaging ethnic minorities—however that's defined—throughout their global footprint, as Quarles put it during a recent webinar hosted by Korn Ferry. "Where are you investing globally? Are you exploring investment opportunities in infrastructure in Africa, for example? Thinking about your global footprint also falls into [the] environmental and social part of ESG."
Though it may not check the typical supplier diversity boxes, a small African-owned business, for example, that is focused on renewables is relevant across a broad spectrum of ESG. In fact the continent has become a leader in sustainable energy, with eight countries deriving more than 90% of their electricity from renewable sources.
Making a social and economic impact
Regardless of location, small- and medium-sized businesses are a key engine of innovation and economic development, and they face shared barriers to growth including limited access to finance and mentorship opportunities. Often, these barriers are rooted in—and exacerbated by—racism, sexism and systemic bias of all kinds.
To date, corporate efforts to address systemic bias have skewed heavily toward HR functions including hiring, recruitment, professional development and promotions. Diversifying the workforce and leadership ranks remains an urgent ESG priority, with important consequences for individuals, households and communities. Organizations that bring the same concerted effort to their business partnerships—by providing technical assistance and mentorship to diverse entrepreneurs, for instance—can scale their impact much further and faster.
Business diversity creates a ripple effect in communities and regions. Research, such as a recent survey of UK-based startups from 10x10 and Google, has found that minority-owned businesses are more likely to hire locally, build diverse teams, and invest in the surrounding community. For every $1 million Microsoft spends with diverse suppliers, for instance, 75% is retained by the local community and more than 17 jobs are created.
Southern Company, a U.S. gas and electric utility that has launched an initiative to clean up hazardous waste at coal power plants, illustrates the ESG potential of a business diversity mindset, says D'Cruz-Young. In addition to consulting contractors who specialize in this low-tech, capital-intensive work, Southern has also engaged a diverse community of existing vendors and local entrepreneurs to build their capabilities and foster long-term relationships.
"They'll have 10- or 20-year contracts, it's local community jobs—and it links an E requirement to the S," says D'Cruz-Young. "That's business diversity."
Business and supplier diversity and the bottom line
The impact of business diversity goes beyond ESG performance. As the links between DE&I, ESG and supply chains continue to strengthen, business diversity can make substantial contributions to the bottom line through its impact on customer relationships, talent acquisition and retention, product innovation and more.
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