Systemic Racism in Business - The Evidence is Overwhelming and Business Leaders Must Solve It

I haven’t written much on LinkedIn for the past few months. The normal types of things that I write about have seemed small compared to the larger issues with which the country has been struggling.

I feel to contribute meaningfully to a conversation, you have to possess a certain degree of expertise in the subject matter. And I’ve candidly been struggling with how I could effectively contribute to the national conversation about race. I’m a white male from a middle class family who didn’t face barriers from discrimination growing up. So, I’ve largely confined myself to trying to help others find and refine their voice.

But, after a lot of reflection, I feel it is morally important that I be a part of this conversation. I do feel that there is one aspect of this conversation on which my particular expertise - executive business experience, analytical and statistical skills and strategic thinking can be valuable: to discuss the systemic racism that exists in business in both numeric and practical terms and to talk about the tools that business leaders have to begin to address this huge problem.

There appears to still be a significant divide in the country about whether systemic racism even exists. Public opinion polling and commentary journalism reveals a significant portion of people don’t believe that the concept is an American reality in 2020.

This is NOT intended to be a political piece - I’m not advocating for government action here or for an election outcome. It is not that I think that those aspects of the discussion are unimportant - it is simply that I am probably not the best person to lead those discussions and this is not the right forum for those debates. This article is 100% about business and economic issues.

So, my goals in this article are:

1. To give a practical and measurable definition of systemic racism, as it pertains to business
2. Present the objective statistics that would inform whether this problem exists (spoiler alert: it does)
3. Talk about the flaws in business practices that perpetuate the problem
4. Convince you that this is a problem worth solving
5. Propose some simple first steps that businesses and business leaders can take to begin to address this issue

What is Systemic Racism?

Definitions are important - if we don’t know what systemic racism is, how can we agree whether it exists? To define systemic racism, I’d like to review a court case that has governed the legal definition for almost 50 years, one that you are likely to have studied if you ever took a business school class in Human Resources Law, Griggs vs. Duke Power of 1971.

The case involved a power plant owned by Duke in North Carolina. The plant had a policy of requiring a high school diploma as a pre-requisite for all of the higher wage jobs in the facility. At the time, white job applicants were twice as likely to have a high school degree as Black applicants. Black workers sued, claiming the policy amounted to discrimination under the Civil Rights Act of 1964. The case went all the way to the Supreme Court.

In the landmark ruling, Chief Justice Warren Burger ruled that practices which caused an unequal impact on one race versus another were discriminatory, regardless of the intent of the policies. He wrote, in part, “The Act proscribes not only overt discrimination, but also practices that are fair in form, but discriminatory in operation” meaning that even a requirement which would appear to be race-blind, like requiring a high school degree, was de facto discrimination if it adversely impacted one group of people. He went on to write that such requirements could be permitted if they could be clearly and directly tied to the capability to perform a job - for instance, no one would argue that a medical license isn’t a necessary qualification for a practicing doctor or that being admitted to the state bar isn’t a legitimate requirement for hiring legal counsel, but that in the case of Duke, they didn’t have any evidence that a high school graduate would better perform the jobs in question than a non-high school graduate.

This case is important, because I think most people who debate that systemic racism doesn’t exist in 2020 in the business world argue from a standpoint of intent - they don’t believe that the intent of most people making decisions in business is racist. But, by definition here, intent is irrelevant, what is relevant are OUTCOMES. A system that produces significantly unfavorable results for similarly qualified Black (and Hispanic) participants then it does for white participants IS de facto systemically racist, regardless of the individual intents of any participants in the system. The system may appear “fair in form” as Chief Justice Burger said but it is “discriminatory in operation”.

So, are US businesses “discriminatory in operation”?

The Facts About Income

Note: all fo the data contained in the following charts is based on Census Bureau data from 2017, the last year for which complete information was available.

The average income for workers of each major race and ethnicity is shown on the chart below:

The average income for Hispanics is 74 cents on the dollar to what white Americans make, for Black Americans, it is 59 cents on the dollar.

Does educational attainment explain the differential? Some of it, although differentials in educational attainment are still part of the broader “system” and need their own solutions. But income disparities persist at every level of education:

At every educational level, non-white workers earn less money than white workers. For Black Americans, this percentage is pretty constant at around 80% for all levels of educational attainment through a Bachelor’s degree, which represents the vast majority of workers. The differences at higher degree levels diminish some (at the Master’s level the index is closer to 90% and at the most advanced degree level, it is fairly inconsequential).

Lest you think that this is a simply a by-product of major selection (i.e. white graduates opt into more lucrative majors and Black graduates opt into less lucrative majors), it is not. There are too many different majors for me to cover in one article, but to give an easy example - Black graduates with Engineering degrees make an average of 25% less than their white counterparts and while the ratios vary, the numbers are less for Black graduates of every degree type.

So, Black workers make about 20% less because they, on average, have lower educational attainment and an additional 20% less because they are paid less than their white counterparts with comparable educational attainment.

Counterpoints

Some have pointed to the economic success that Asian Americans have had in our economy as proof that systemic racism doesn’t exist in business. And the overall averages for Asian Americans are impressive - the average Asian American worker earns more than workers of any other race. Once you adjust for educational attainment, however, these numbers reverse, with Asian Americans earning equivalent salaries to white Americans at the Bachelor’s degree level and meaningfully less at the high school education and Associate’s degree levels. For a whole host of reasons relating to immigration policy and other cultural and socioeconomic factors, Asian Americans are more likely to go into lucrative fields such as engineering and medicine. Once you adjust for this, you see that the average Asian-American with an engineering degree earns 10% less than his or her white counterpart and the average Asian-American doctor makes 7% less than his or her white counterpart. Even if it were true that systemic racism didn’t impact Asian Americans (which the numbers don’t seem to bear out), that certainly doesn’t mean that systemic racism against African-Americans and Hispanics doesn’t exist.  

Others have cited the success of Nigerian immigrants in the US as evidence of the lack of systemic racism - and it is true, Nigerian-born Americans have among the highest incomes of any ethnic group in the United States, with average incomes 9% higher than the US population as a whole. But again, this is selective reading of the data, Nigerian immigrants work overwhelmingly in two fields in the US - as University Professors and in technical fields in the Oil and Gas industry and this is heavily rooted in immigration policy - we have granted residency and citizenship to people with Doctorates who could teach at colleges and people with advanced engineering degrees who could work in the oilfield, less so people with lesser educational qualifications. Over 60% of Nigerian-American immigrants over the age of 25 have at least a Master’s Degree, and, again, when you compensate for educational attainment, Nigerian-Americans are underpaid as compared to similarly educated white Americans.

This is not to diminish the individual or collective accomplishments of either people who fall into these groups or the groups as a whole - it is simply to say that their success does not make a convincing case as to the absence of systemic racism.

How Systemic Racism is Perpetuated

Let’s say you are a hiring manager and you are trying to do the right thing. You have two openings for two mid-level accounting managers, equal roles in your organization. You run a fair interviewing process and want to extend offers to two candidates, one Black and one white. You want to make sure that you get them both, so you want to offer 10% more than their present salary. You find out the white candidate is currently making $90K per year and the Black candidate is currently making $80K per year, so you offer $99K and $88K respectively. You’ve just perpetuated systemic racism.

Your intentions were good - you picked the two best candidates for the role and were trying to make competitive offers to get both candidates but didn’t want your company to overpay versus the market. But your intentions don’t matter - the Black accounting manager, who was underpaid relative to his or her white counterpart, is now even more comparatively underpaid. It doesn’t matter if you don’t have a “racist bone in your body”, it doesn’t even matter if you yourself are Black, you’ve helped perpetuate an inequity.  

Now, let’s say you are recruiting for entry-level engineering positions. You are allowed a salary range of $55-$65K for each position. You have two openings and ask the recruiter to get applicants from a variety of colleges. The two candidates that you like are from Weber State and from Hampton University. You know that neither of these are Ivy League schools, so you don’t feel like you have to go to the top of the range, but you’ve at least heard of Weber State, so you offer that candidate $60K and the Hampton candidate $55K. Funny thing is, Hampton actually has a higher rated engineering program than Weber State - the reason you probably haven’t heard of it is that it is a Historically Black University and unless you attended an HBCU or are active in the academic world, it is unlikely that you would be familiar with the academic quality of a lot of these institutions. The reason that you probably have heard of Weber State is because of its basketball program. You’ve just created an inequity. You probably didn’t mean to - heck, you might not have even met the candidates in person and might not have even known their races when you were making the offer. But the end result is the same.

Now, let’s say that you are hiring for a supervisor position at a manufacturing plant. As a matter of standard practice, you perform background checks on all candidates. It comes to your attention that your preferred candidate, a 25-year old college graduate with three years of manufacturing management experience, has a conviction from 7 years ago for illegal distribution of marijuana. You decide to pass and move on to your second place candidate, who, while a little less qualified, doesn’t have any criminal record. You’ve created an inequity. Black Americans are 5 to 6 times as likely to be convicted of a drug-related offense (source: FBI Uniform Crime Report) while white Americans are actually 15% more likely to use illegal drugs and equally likely to sell illegal drugs (source: Census Bureau). You thought you were screening out drug users, but you were actually just screening out the people who get caught. The reasons for the massive differential between actions and convictions is too long a story to tell here, but it is statistically glaringly evident. A practical personal experience here might highlight this - I went to a public magnet school for High School which was in a fairly white and fairly affluent part of Northern Virginia. A number of my high school classmates distributed marijuana - not a single one was ever convicted of or even charged with a crime - even the ones who were caught by police or school authorities were typically able to get the charges dropped based on their parents promising appropriate discipline or entering a treatment program. This is simply not the experience that a lot of other people in a lot of other neighborhoods who look different have.

These examples are to say nothing of the kinds of unconscious bias that often dominate hiring and promotional decisions - words like “culture fit”, “professionalism”, “polish”, “good connection”, “relatable” and many others have a legitimate-sounding ring to them and can sometimes have a valid thought behind them, but more often than not are our non-objective ways of advancing people who we are comfortable with for reasons that we don’t understand but which often ultimately consist of them looking and sounding a lot like us. As jobs get higher up the food chain in an organization, the criteria become increasingly subjective, which leads us to the statistic that only 0.8% of Fortune 500 CEO’s are Black (compared to 13% of the workforce and 8% of the college graduates), only 1.8% are Hispanic (compared to 12% of the workforce and 7% of the college graduates) and representation in other key executive officer positions (President, CFO, COO) is less than 1% for both groups.

I write all of this not to pick on you, the reader. The truth is that while I always thought of myself as forward-thinking and fair throughout my professional career, these types of examples are things that I was personally guilty of for nearly my entire time in management. My hope is that you will learn from my mistakes and do better.

Why the Business Community Needs to Solve This

There are lots of economic reasons that companies should be concerned about the racial income gap. A company that pays its Black and Hispanic workers closer to their value will have an advantage in acquiring talent. Practices that promote greater income equality shield companies from the risk of costly litigation. Workers will be more engaged and more productive if they feel that they are being given a fair shake.

But the most important reason that the business community needs to drive the change here is that only the business community will be able to fully solve this and it is the right thing to do. No amount of legislation or regulation will fix systemic racism if management practices don’t change. Be on the right side of history, or eventually the world will make you extinct. I think most companies intuitively know this (although some better than other, certainly), but most don’t know how to take the right actions to start to fix the problem.

Some Simple Ideas

This isn’t a problem that will be solved easily or quickly. Systemic racism is an issue that was created over generations - it is going to take some work. But that’s no reason not to take some simple steps to improve the system.

1. As a matter of policy, stop asking job candidates for their current compensation or their salary requirements

It is the most natural thing in the world to start your negotiation with candidates by figuring out what they make now and what it will therefore take to get them away from their current employer. But all this does is allow the poor compensation practices of some companies to infect other companies and perpetually keep workers who are underpaid underpaid. And rationally, what you should be paying someone to do a job really doesn’t have anything to do with how much they are paid by a different company.

Now, of course you don’t want to waste the time of a candidate who you will never be able to land. Simply telling candidates at the outset “the target salary for this position is $75K - would you like to proceed with interviewing for the role?” Is a great way to handle this. And then, if they are the best candidate for the role, offer them the $75K, don’t cut it to $65K if you learn that they are only making $60K in their current role.

2. Ensure diversity of not just your candidate pool put your selection panel

Unconscious (or conscious) bias in job candidate selection is best mitigated by selection panels that come from diverse backgrounds where the participants are actually empowered to be a part of the decision-making process. Of course, if your candidate pool isn’t even diverse to begin with, you need to work on that, whether it is expanding the colleges that you recruit from for entry-level positions or expanding the recruiting tools that you use to find qualified applicants for other positions. Most companies use employee referrals as their number one source of job candidates and there is nothing intrinsically wrong with that - except that if your current workforce isn’t very diverse, there is a strong chance that your referral pool won’t be either, so you will have to balance that with other recruiting techniques.

3. Restrict background checks to items pertinent to the job

Of course you don’t want to hire a lawyer who has been disbarred or a treasurer who has been convicted of embezzling money. And you shouldn’t. But a minor drug conviction from years ago has nothing to do with someone’s capability to be a manager today - surveys show that most of the people that you are going to hire have used illegal drugs at some point in their lives, just the ones from certain communities are a whole lot more likely to have been caught and convicted. If you want to rule out people who are using drugs, use a drug test, not an old rap sheet.

4. Actually measure meaningful diversity metrics and build real plans to address shortcomings

Most companies have job grades by which they set their salary scale. How do average salaries for Black employees or Hispanic employees at grade X compare to white employees? What percentage of employees of each race or ethnicity get promoted each year? How do distributions of merit increases, bonuses and stock grants compare? How do hiring statistics look? Does retention rate vary by race? How about the top of the house - how diverse is the leadership team?

All of these are typically very easy items to measure, yet very few companies actually do and fewer still do something about it when there is a disparity.

When you find problems to attack them in thoughtful ways - if you find that Hispanic engineers at a certain level are paid, on average, less than white engineers, maybe you should take a look at the salaries one by one and figure out what high performers are being paid less than market rate and make adjustments. If you find out that Black IT technicians are leaving at a much higher rate than white IT technicians, maybe you need to study exit interview data and address the underlying reasons that they give for departing. There isn’t a silver bullet here, but until you measure the data AND care about solving the issues about which the data informs you, it is hard to see how progress can be made.

These kind of initiatives only gain traction if the metrics are measured and taken seriously. It isn’t your HR person’s job or the job of some “office of diversity and inclusion” to make these things happen, just like company profits aren’t just the CFO’s job. HR can help you measure - the leaders of the business need to demonstrate, through their words and actions, that these are important business priorities for which success will be rewarded and failure will have consequences.  

But what if you are not a senior executive? Then take the actions that you can - your company may not mandate diverse selection panels for jobs, but you can certainly make sure that you have them for the positions that you hire. You can push to make job offers on the basis of the role versus the previous salary of the individual. You can require to see a diverse slate of candidates for openings in your group. You can do your own analysis on retention, promotion and pay inequities within your own team. “I’m not an executive, the senior leadership have to set the direction” doesn’t cut it - everyone has a role to play in dismantling systemic racism.

I realize that these first steps won’t solve the problem by themselves. But we have to start somewhere. Pretending that there isn’t a problem or that someone else is going to solve this issue or succumbing to the fallacy that it is too big a problem to start solving benefits no one. Broad proclamations that your culture is diverse and inclusive are meaningless in the absence of actual metrics to which you hold yourself accountable.

I hope that this article has challenged your thinking on this issue just a little bit. I know that this is a bit of a dry and numeric treatment of the subject and that is by design - these types of discussions often become very emotional - if you are a victim of systemic racism, this is a very personal problem and if you are a well-meaning person being told that you are perpetuating systemic racism, it can feel like a very personal attack. I wanted to present some facts with limited emotional embellishment.  

But I want to end on a more personal note. To every person that I hired that I underpaid because they were underpaid in their previous role, I’m sorry. To every qualified candidate that I did not hire because of some vague notion of “cultural fit” or an irrelevant item in a background check, I’m sorry. I was unintentionally part of perpetuating a racist system that was unfair and was in the best interest of neither the companies that I worked for, the job applicants who sought to work for me or the people who I was entrusted to lead. I never intentionally treated anyone unfairly, but at the end of the day, my intentions don’t matter. I could have and should have done better. I hope that all of you do better than I did.

I will leave you with a few quotes that sum up my thoughts well. 

“To bring about change, you must not be afraid to take the first step” - Rosa Parks

“Intentions don’t matter, it’s the end result we’re all judged by” - Sherrilyn Kenyon

“None of us alone can save the nation or the world. But each of us can make a positive difference if we commit ourselves to do so” - Cornel West