I mentioned in the Procurement with Purpose newsletter last week a Forbes article about supplier diversity and the pushback against “DEI” initiatives generally in the US. We are seeing that in the university sector in terms of student admissions for instance, with lawsuits making institutions reconsider how they favour some groups over others.
But it is also being felt in the corporate world. Investors are getting more vocal if they feel “sustainability,” including DEI programmes, are somehow taking preference over the business getting on and delivering increased shareholder value, which seems reasonable. The Forbes article referenced lawsuits against firms that have implemented diversity-based recruitment and supplier diversity programmes, and having done a little more research, there are several where legal activists have taken action in order to try and roll back diversity programmes at firms such as Comcast, McDonalds and Starbucks.
The National Center for Public Policy Research (a US conservative think tank) sued Starbucks last year, arguing its hiring and supplier diversity goals violate civil rights laws. But in August, a federal judge in Washington state dismissed the case . “If the plaintiff doesn’t want to be invested in ‘woke’ corporate America, perhaps it should seek other investment opportunities rather than wasting this court’s time”, he said, rather pointedly.
In another high-profile case, Strive Asset Management wrote to McDonalds last July about a number of ESG issues, including hiring policies and supplier diversity.
“Equally troubling is McDonald’s decision to set aside a portion of its supplier budgets for minority owned businesses. McDonald’s most recent Diversity and Inclusion Report, for instance, indicates that “[i]n 2021, we set a goal to increase U.S. Systemwide spend with diverse-owned suppliers to 25% or $4 billion by the end of 2025” and proudly announced that it had already reached that goal”.
Summarising, Strive claims that “setting race-based goals and criteria for supplier contracts is almost certainly illegal”. The letter also criticised McDonalds efforts to pressure all suppliers into implementing diversity initiatives themselves through their own supply chains. I can’t find any formal response from the firm, so perhaps they are still thinking about it. Or maybe they are just going to ignore it. As in the Starbucks case, it is tempting to say, “if you don’t like it, don’t invest in McDonalds”. But Strive may be positioning itself as the asset manager for those who are keen “anti-woke” proponents, which may be pretty smart thinking actually as that viewpoint seems to be growing.
But I’m not keen myself on targets, I should say, so I’m not sure the McDonalds approach is the best. This is a complex subject, and there is no clear best practice yet, but here is one immediate thought. When I talk to people such as Jason Roberts of Kaleida, a B2B marketplace-based business that promotes minority-owned firms, and works with large corporate buyers to help them develop a more diverse supply base, the point he makes is that these businesses are not in most cases looking for or expecting special treatment. They just want an opportunity to present what they can do to buyers.
So if this pushback continues, that may be the way to go for purposeful procurement. Make sure your supplier diversity efforts are focused not on favouritism, but on opportunity - which means, for instance, education for potential suppliers, opening up communication of contract opportunities, and making sure procurement processes aren’t biased against smaller or younger firms. And do make sure of course that like Starbucks, you are not actually violating any anti-discrimination laws or regulations covering procurement and the award of contracts to suppliers.
To go a little further, it is worth noting the advice to firms from legal experts following the Starbucks case. It stressed the need to be able to show wherever possible that diversity approaches were not harming the company. Boards should make sure that any policies do not have a negative effect on the company’s bottom line, and should be able to somehow show that wherever possible. If the board can actually present evidence that diversity policies, including supplier diversity, have had a positive effect on company profits, revenues, recruiting or reputation, this should help protect against this sort of lawsuit.