The Competitive
Advantage of
Racial Equity
ANGELA GLOVER BLACKWELL, MARK KRAMER, LALITHA VAIDYANATHAN,
LAKSHMI IYER, AND JOSH KIRSCHENBAUM
About FSG
FSG is a mission-driven consulting rm supporting leaders in creating large-scale,
lasting social change. rough strategy, evaluation, and research we help many
types of actors —individually and collectively—make progress against the world’s
toughest problems.
Our teams work across all sectors by partnering with leading foundations, businesses,
nonprots, and governments in every region of the globe. We seek to reimagine social
change by identifying ways to maximize the impact of existing resources, amplify-
ing the work of others to help advance knowledge and practice, and inspiring change
agents around the world to achieve greater impact.
As part of our nonprot mission, FSG also directly supports learning communities,
such as the Collective Impact Forum, the Shared Value Initiative, and the Impact
Hiring Initiative, to provide the tools and relationships that change agents need to be
successful.
Learn more about FSG at www.fsg.org
About PolicyLink
PolicyLink is a national research and action institute advancing racial and economic
equity by Liing Up What Works
®. PolicyLink is guided by the belief that the solu-
tions to the nation’s challenges lie with those closest to these challenges: when the
voice, wisdom, and experience of those traditionally absent from policymaking drive
the process, profound policy transformations can emerge.
Learn more about PolicyLink at www.policylink.org
Join Us
FSG and PolicyLink are working on developing practical guidance for companies on
how to do this work. If you or your corporation are interested in learning more, please
contact Lalitha Vaidyanathan at lalitha.vaidyana[email protected].
CONTENTS
2 Introduction
8 Reconceiving Products and Markets
12 Redefining Productivity in the Value Chain
16 Strengthening the Business Context
18 How to Begin
21 Methodology
23 Acknowledgements
24 Endnotes
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 1
Corporate America is missing out on one of the biggest opportunities of
our time for driving innovation and growth: creating business value by
advancing racial equity.
a
It is unusual to view racial equity as a source of corporate competitive advantage. Yet,
FSG and PolicyLink, in a 6-month research study, found evidence that a growing num-
ber of companies known for their hard-nosed approach to business—such as Gap Inc.,
PayPal, and Cigna—have found new sources of growth and prot by driving equitable
outcomes for employees, customers, and communities of color.
Racial inequity is the result of structural racism that is embedded in our historical, politi-
cal, cultural, social, and economic systems and institutions.
1
It works cumulatively and
produces vastly adverse outcomes for people of color in areas such as health, wealth,
career, education, infrastructure, and civic participation (see “What is racial equity, and
why should business care?,” pages 6-7). Consider for example America’s enormous
racial wealth gap: The median net worth of White households is 13 times that of
Black households and 10 times that of Latino households. This discrepancy in wealth is
attributable not only to differences in educational and career opportunities but also to
discriminatory post-WWII government mortgage policies that intentionally locked gen-
erations of Blacks and Latinos out of the housing market, the primary source of wealth
for America’s White middle class. The persistent impact of this disparity, combined with
other inequities such as underperforming schools, poor access to public transit, preda-
tory lending, and deeply disproportionate impact of our criminal justice system have
ultimately excluded people of color from productive engagement in our society.
At the same time, there is a dramatic demographic shift approaching that many cor-
porate leaders do not consider. An earlier major demographic milestone was reached
in America in 2012: The majority of babies born across the country were Black, Latino,
a Racial equity is dened as just and fair inclusion into a society in which all people, immaterial of their race or ethnicity, can
participate, prosper, and reach their full potential.
INTRODUCTION
2
Asian, multiracial, or another race/ethnicity other than non-Hispanic White. Currently,
states such as California, Texas, Arizona, and Hawaii, as well as many major cities such
as Dallas, Texas, and Durham, North Carolina, are already majority people of color. By
2019, a majority of youths under 18 will be of color, and by 2030 a majority of young
workers will be people of color. A mere 10 years later, we will be a majority people-
of-color nation. This is a dramatic shift for an America that was 80 percent White as
recently as the 1980s.
Together, these forces—rising diversity amidst persistent racial economic exclusion—
form the core challenge that America’s businesses must address to compete in today’s
economy, and tomorrow’s. The potential gains are tremendous: Data in the National
Equity Atlas show that our national GDP could be 14 percent or $2 trillion higher, if
the wage disparity between White employees and employees of color was eliminated.
The buying power of Black and Latino people has consistently risen since 1990, and by
2018 is estimated to be $1.3 trillion and $1.6 trillion respectively.
2
Thirty years ago, our
economy could nd sources of growth even as it marginalized the people of color who
made up a smaller share of our customers, employees, and suppliers. Can it continue to
grow in the same ways when people of color become the majority? We think not.
For companies, a focus on racial equity is critical in order to innovate, to create products
and services that serve a more diverse consumer base, and to cultivate a strong work-
force. Communities of color can
open up new markets by providing
a signicant consumer base for
existing businesses and by inno-
vating new enterprises. Research
shows that more diverse teams are
better able to solve problems and
that companies with more diverse
workforces have higher revenues,
more customers, and greater
market shares. Advancing racial
equity does not mean that every-
one will be treated the same, nor that everyone will achieve the same level of success. It
does, however, require that we create the conditions to fully and fairly include everyone
so that all employees, customers, and suppliers have the opportunity to reach their full
potential. Doing so requires business leaders to re-invent every aspect of their business
models to take into account the different circumstances, preferences, and needs of
people of color, who will soon be the majority in our country.
The potential gains of advancing racial equity are tremendous:
The buying power of Black and Latino people has consistently
risen since 1990, and by 2018 is estimated to be $1.3 trillion
and $1.6 trillion respectively. Also, the U.S. GDP could be 14
percent or $2 trillion higher, if the wage disparity between White
employees and employees of color was eliminated.
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 3
Companies have a critical role to play in meeting this challenge. As Professor Michael
Porter and Mark Kramer wrote in their 2011 Harvard Business Review article “Creating
Shared Value,” “Not all prot is equal. Prots involving a social purpose represent a
higher form of capitalism—one that will enable society to advance more rapidly while
allowing companies to grow even more. The result is a positive cycle of company and
community prosperity, which leads to prots that endure.”
3
It is precisely this cycle of
community prosperity and corporate success that is at the core of shared value strategies
to advance racial equity.
Our research showed that opportunities to create shared value by promoting racial
equity occur at every point along a company’s value chain—from hiring, training, and
advancing employees, to procurement, product design, and marketing, even including
the company’s ownership and governance structure and its lobbying and philanthropy.
As Porter and Kramer dened the concept, companies can create shared value at three
levels. Each of these three levels offers opportunities to improve a company’s economic
performance by advancing racial equity:
Reconceiving products and markets
Better serving existing markets, or accessing new ones by developing
innovative products and services that reduce inequities and meet the needs
of people of color
Redefining productivity in the value chain
Reducing cost, increasing quality, and improving productivity through a
company’s operations by advancing racial equity
Strengthening the business context
Nurturing a reliable base of skilled human capital and external suppliers,
increasing consumer demand, and improving the regulatory framework by
creating opportunities for communities of color
We found a growing number of companies across industries such as nancial services,
healthcare, and retail are making rm strides in this direction, and these examples are
included in the next three sections of this paper. While these companies may not always
have started out with the intention of addressing racial equity per se, focusing instead
on selling to lower-income populations or reducing employee turnover, they created
substantial benets for people of color while simultaneously improving their own bot-
tom line. The examples that follow, therefore, suggest the potential for even greater
economic value creation when companies intentionally focus on advancing racial equity.
1
2
3
4
Summary: How companies have advanced racial equity while creating business value
Reconceiving products and markets
Better serving existing markets, or accessing new ones by developing innovative products and services that reduce
inequities and meet the needs of people of color.
PayPal’s Working Capital (PPWC) loan uses alternative forms of credit assessment and thus eliminates
factors traditionally influenced by race. To date, PPWC has disbursed $3 billion to 115,000 customers. 25
percent of its loans were in credit-starved counties that are predominantly communities of color.
Regions Bank designed the Now Banking suite of products for underbanked and unbanked consumers,
many of whom are people of color, so they could cash checks with minimal fees and no minimum
account balance. One in five Now Banking customers opens a checking account, creating a new pipeline
of long-term customers.
S
hopRite operator Brown’s Super Stores found a profitable market expansion opportunity by establishing
grocery stores in Philadelphia-area food deserts, where predominantly low-income people of color live.
The company offered customized food items and complementary services that were lacking, such as
health clinics. The company’s seven stores generate $250 million in revenues and serves 250,000 people.
PayPal
Regions
Bank
Brown’s
Super Stores
(ShopRite
operator)
Redefining productivity in the value chain
Reducing cost, increasing quality, and improving productivity through a company’s operations by advancing racial equity.
Gap Inc. created a talent pipeline with double the average retention rates by providing a skills training
course and a 10-week internship program through the This Way Ahead program. Ninety-eight percent
of participants are people of color.
Cascade Engineering’s Welfare to Career program has decreased turnover from 65 percent to 5 percent
by providing wrap-around services to employees previously on welfare. Half of these
employees are people of color.
Kaiser Permanente analyzed data and found significant disparities in hypertension rates between
Whites and Blacks—it then designed a suite of culturally responsive care strategies that reduced the
gap from 6.3 percent to 2.8 percent and significantly reduced operating costs.
Gap Inc.
Cascade
Engineering
Kaiser
Permanente
Strengthening the business context
Nurturing a reliable base of skilled human capital and external suppliers, increasing consumer demand, and improving the
regulatory framework by creating opportunities for communities of color
Prudential used its lobbying arm to work with a coalition of organizations to pass a legislation that
helps small businesses enroll eligible workers in retirement plans, thus increasing access to retirement
savings for people of color while creating a new market for Prudential and its industry.
Symantec used its corporate foundation to launch the Symantec Cyber Career Connection, a program
that trains and places youth—predominantly people of color-—in cybersecurity careers. Symantec
plans to scale the program nationally in order to create a more diverse workforce for the entire
cybersecurity industry.
Prudential
Symantec
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 5
Racial equity is dened as just and fair inclusion into a
society in which all people can participate, prosper, and
reach their full potential.
17
Said another way, a racially
equitable society is one in which racial disparities in
health, education, wealth, and other areas do not exist.
In the U.S., racial inequity is largely perpetuated by
structural racism. Structural racism refers to historical
and ongoing political, cultural, social, and economic
policies and practices that systematically disadvantage
people of color.
18
Perhaps the clearest example of structural racism in
America lies in how discrimination by race has been
integral to the design, development, marketing, and
even nancing of American cities and suburbs.
19
Redlining—the practice of denying credit-worthy
applicants housing loans in specic neighborhoods—
was sanctioned and aggressively promoted by federal
mortgage programs, housing and development programs,
and real estate boards. This practice was directly respon-
sible for creating strict neighborhood boundaries that
denied people of color equal access to home ownership
in neighborhoods of opportunity populated by White
families, and has resulted in Whites becoming the primary
home-owning class in America.
20
Homeownership is one
of the most signicant drivers of wealth in the U.S.
The lack of access to homeownership accounts for
most of the vast difference in wealth between races,
and continues to have intergenerational effects for
communities of color.
21
The wealth gap continues to
be a signicant barrier to people of color’s ability to
pay for college or start a business.
22,23
Because the
racial composition of a neighborhood inuences
perceptions of safety, residential desirability, and the
local economy, structural racism has thus resulted in a
vicious cycle that perpetuates low market values and poor
quality schools in neighborhoods of color, and denies
those neighborhoods proximity to desirable jobs that lead
to stable careers.
24
Racial discrimination unfortunately continues to be
perpetuated even today by private sector companies. In
2009, a federal judge found that Wells Fargo gave three
times more subprime loans to Blacks than “similarly situ-
ated white borrowers” in the four-year period from 2004
to 2008.
25
A recent report on mortgage lending and race
found that Black residents in the Twin Cities earning over
WHAT IS RACIAL EQUITY,
The infant mortality rate for infants
of Black mothers is 11 per 1,000 live
births, double that of Whites.
8
Black men and women face 40 percent
and 57 percent higher hypertension
rates than White men and women.
9
Twenty-five percent of Latino children
aged 6–11 are considered obese
compared to 11 percent of White
children.
10
2017 unemployment rates for
Blacks and Latinos was 8 percent and
6 percent respectively, compared to 4
percent for Whites.
11,12
Among full-time workers aged 25–64, 32
percent of Latino workers and 22
percent of Black workers are “work-
ing poor” and earn below 200 percent
of poverty, compared to about 10
percent of White workers.
13
Blacks are 21 percent less likely to
receive a call back for an interview
than Whites, even with the same
credentials.
14,15
Fewer than 15 percent of board seats
in Fortune 500 companies were held by
people of color in 2016.
16
White households have 13 times
the wealth of Black households and 10
times that of Latino households.
4,5
Latino and Black families lost 66
percent and 53 percent of their
wealth, respectively, during the recent
recessions; Whites lost 16 percent.
6
Thirty-one percent of Blacks and 29
percent of Latinos are unbanked or
underbanked, compared to only 19
percent of Whites.
7
Wealth
Health Career
6
At current rates, one in every
three Black males born today can
expect to go to prison at some point
in his life, compared to one in every six
Latino males and one in every seventeen
White males.
35
Blacks who are convicted of murder
are about 50 percent more likely to
be innocent than other convicted
murderers.
36
Approximately 60 percent of those
imprisoned are people of color.
37
In
New Jersey, for every one White person
incarcerated there are 12 Black people
incarcerated.
38
Seventeen states have implemented
voting restrictions since the 2012
presidential election,
39
which has
suppressed voter turnout among Latinos,
Blacks, and mixed-race Americans.
40
Black children are suspended
from preschool at twice the rate
of White children.
26
The racial gap in middle-school
performance remains significant in
impoverished urban areas—in
Washington, D.C., 8 percent of Black
eighth-graders are proficient in math,
compared to 80 percent of White
eighth-graders.
27,28
The 87 percent high-school graduation
rate for Whites in 2014 was 14 percent
higher than the rate for Blacks.
29
Whites today are more than twice
as likely as Latinos to have a college
degree.
30
People of color predominantly live in
poorer neighborhoods—even Black
families earning $100,000 or more are
more likely to live in poorer neighbor-
hoods than White households making
less than $25,000.
31
Since 2000, the number of jobs near
the typical neighborhood worker has
declined by 17 percent for Latinos, 14
percent for Blacks, and 6 percent for
Whites.
32
Blacks and Latinos suffer a pedestrian
death rate that is 60 percent and 43
percent higher than that of Whites.
33
Only 7 percent of White households
don’t own a car, compared to 24
percent Black and 17 percent Latino
households.
34
K-12 Education Infrastructure Justice/Civic
$150,000 were twice as likely to be denied a home loan
than Whites earning below $40,000.
41
Although redlining
is illegal, discriminatory lending practices based on race
continue to prevail.
42,43
Structural racism results in vastly inequitable outcomes for
people of color in wealth, health, career, K–12 education,
infrastructure, and civic engagement, as shown above.
The compounding effect of the above inequities is
particularly alarming. For example, poor access to infra-
structure such as transportation and health-promoting
built environments (e.g., walking paths or playgrounds)
has signicant effects on the health of communities of
color. Contact with the criminal justice system excludes
people of color from voting and the workplace, thereby
eroding civic participation, career, income, and wealth-
building opportunities.
It is important to recognize that other forms of discrimi-
nation based on gender, disability, sexual orientation,
and immigration status can also have a compounding
effect on racial inequity. For example, lesbian, gay, and
bisexual individuals who are people of color are subject
to micro-aggressions associated with both racism and
heterosexism. However, we have chosen to focus primar-
ily on race because we believe that race is one of the
most powerful determinants of equity, and by targeting a
vulnerable group that most needs support, we create the
circumstances for all groups to benet.
44
The focus of this paper is to highlight how corporate
America can nd new sources of innovation and business
growth by more deeply understanding and addressing
these inequities. In particular, our research looked for
areas of racial inequity where companies are best posi-
tioned to create business value—and found that these
areas lie within the areas of health, wealth, and career.
Corporations are less well-positioned to create shared
value by inuencing inequities in infrastructure, K–12 edu-
cation, justice, and civic participation, as these are areas
inuenced mostly by the public sector through policy and
legislation. However, a company could inuence these
areas through their voice, public policy, and philanthropy.
Given the interconnected nature of these issues, leading
companies also uncover promising business opportunities
hidden within them.
AND WHY SHOULD BUSINESS CARE?
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 7
Changing demographics are causing the buying power of people of color to increase
much more quickly than that of White Americans. By 2018, the buying power of Black
and Latino consumers alone is estimated to be $3 trillion, amounting to 19.4 percent
of the U.S. consumer market.
45
Yet people of color encounter numerous barriers to full
participation as consumers in the U.S. economy. Even the most basic human needs,
such as access to healthy foods, are often inaccessible to inner-city populations. Twenty-
nine million Americans, predominantly people of color, live in “food deserts” that have
limited access to fresh fruit and vegetables.
ShopRite operator Brown’s Super Stores, part of the $15.7 billion Wakefern Food
Corporation, has found protable expansion opportunities by lling this gap. The
company’s seven stores generate nearly $250 million in revenues by providing fresh food
to 250,000 people in Philadelphia-area food deserts. The company had to go beyond
the traditional mindset of most grocery stores that avoided low-income communities
because they deemed them to be unprotable either due to high operating costs from
poor infrastructure or assumed that these consumers have low-purchasing power. The
company saw that while grocery stores in richer neighborhoods prioritize customer
experience, in low-income areas, that are predominantly markets of color, grocery stores
are often overly policed with locks on expensive merchandise, which was frustrating
for potential consumers who want to be treated with dignity. The company found that
RECONCEIVING PRODUCTS
AND MARKETS
“Most grocery stores fled low-income communities because they deemed them to be
unprofitable due to high operating costs from poor infrastructure or assumed that these consumers
have low-purchasing power. But I saw a window of opportunity as an entrepreneur…Further, I
also noticed that while grocery stores in richer neighborhoods prioritize customer experience, in
low-income areas, that are predominantly markets of color, grocery stores are often overly policed
with locks on expensive merchandise. Nobody wants to be treated that way.”
– Jeffrey Brown, CEO, Brown’s Super Stores Inc.
Brown’s Super Stores
(Shoprite operator)
$250 million in revenue
by serving food deserts
8
there were lower-income consumers who were price sensitive and at the same time,
wanted quality products. The company also recognized that their usual suburban stores
wouldn’t t the needs of inner-city communities, so they conducted extensive research,
including hosting town hall meetings with residents to design the in-store experience
and cater to local tastes. Finally, when the company realized that its customers needed
access to health care, it opened health clinics in the stores and trained staff to help its
customers enroll in Medicare and Medicaid, resulting in a substantial increase in foot
trafc.
PayPal found another underserved market in the working capital needs of small busi-
nesses. Almost a third of small businesses are owned by people of color, yet these
businesses tend to be smaller and less protable than White-owned rms, with lower
credit scores and less collateral that limits their access to credit, which further restricts
their growth. Even when credit is available, business owners of color pay 30 percent
higher interest rates than their White counterparts.
46
PayPal Working Capital (PPWC) is an alternative lending service that assesses credit risk
on PayPal sales history and processing volume instead of on business or personal credit
scores or the availability of collateral. Approvals are instant, and the borrower pays a
xed fee instead of interest. Repayments are based on a percentage of future PayPal
transactions, so the debt service automatically declines if sales are slow. Since 2013,
PPWC has disbursed more than $3 billion in loans to 115,000 businesses in the U.S., the
U.K., and Australia. Customers have been highly enthusiastic, as reected in consistently
high net promoter scores. And PPWC loans have unlocked dramatic opportunities for
economic growth in underserved communities: 25 percent of PayPal Working Capital
loans were disbursed in credit-starved counties that experienced a loss of 10 or more
bank branches during the Great Recession. Not surprisingly, banking deserts predomi-
nantly affect communities of color. Further, year-over-year sales of PPWC borrowers
grew 22 percent compared to peer businesses, which grew only 2 percent.
47
Another example in the nancial services sector is Regions Bank, a $122 billion U.S.
bank operating primarily in the South and Midwest that wanted to expand its market.
The bank zeroed in on the $141 billion market of unbanked people in the U.S. This
market, consisting disproportionally of people of color, was poorly served by existing
nancial services and almost completely ignored by the bank’s competitors. Regions con-
ducted detailed market research to understand the needs and attitudes of this unserved
population, and discovered that 30 percent of individuals in its service territory—more
than one million households—had resorted to predatory non-bank nancing within the
preceding 90 days for loans that the bank could have protably provided at signicantly
lower costs.
PayPal
Provides $3 billion in loans
to small businesses
Regions Bank
New approach to banking
opens $141b market
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 9
The protability drivers of traditional banks are fundamentally at odds with any
business model that aims to serve people of color from low-income communities.
Traditionally, banks have based their business models on high account balances, low
utilization of in-person services, and low underwriting costs. Regions Bank, however,
grew its market by taking a different approach, designing a new suite of highly afford-
able checking and savings accounts with minimal fees, no minimum balances, incentives
to save, and a exible line of credit secured by a savings account. As these new con-
sumers become comfortable with basic services, Regions helps them navigate to more
complex products, such as home mortgages, business loans, and retirement savings.
48
Regions has seen that one out of ve customers transitions from basic check cashing to
opening up a checking account in just 12 months, and to more advanced products in
two to three years.
49
Regions Bank is not alone in pursuing this market. In fact, serving the unbanked has
become a major growth opportunity: more than $12.7 billion in investment poured into
technology-based nancial services for the unbanked in 2016 alone, of which approxi-
mately half is estimated to be in products specically designed for the underserved.
50,51,52
Incubators like the Financial Solutions Lab—led by JPMorgan and the Center for Finan-
cial Services Innovation—are intentionally investing in ntech startups that address the
needs of people of color.
53
Oportun is one such company. It provides high-quality,
small-dollar loans to Latino consumers with little or no credit history. It has tailored
its distribution network and customer experience to the needs of this segment with
branches in Latino supermarkets and bilingual staff.
54
It has also reported payments
to credit bureaus to help customers build their credit histories.
55
Since 2006, it has
disbursed over $3 billion in loans to one million customers.
56
Finally, DBL Partners, a double bottom line venture capital rm, found a new set of
investment opportunities by focusing on early-stage companies that create products
that also address societal needs. For example, DBL invested in the Muse, an online plat-
form that has served over 50 million people, predominantly those of color, to advance
in their careers. DBL has also invested in successful portfolio companies in clean tech,
Oportun
Disbursed $3 billion
in loans to Latinos
with little credit history
DBL Partners
Invests in companies
which reduce inequities
“If you look at the number of people out there who do not believe that they are bankable or are
unfamiliar with the banking system, there is a market there. They are paying too much for what
they are getting. So the question is, can you provide products that are profitable to the bank, and
meet their needs, so you can take someone out of that predatory environment.”
– Leroy Abrahams, Area President, Regions Bank
10
sustainable products, and health care that has ultimately created 30,000 new jobs, many
lled by people of color.
57
At the same time, DBL is also performing in the top decile of
venture capital rms, providing a 24 percent annual return to its investors.
58
Regions Bank, ShopRite operator Brown’s Super Stores, PPWC, Oportun, and DBL
provide just a few examples of the potential for new products, services, and invest-
ments that meet the overlooked needs of people of color. These companies advance
racial equity by offering access to basic needs such as fresh food, working capital, and
nancial services that most White communities take for granted. In each case, these
companies succeeded by identifying a market opportunity that competitors missed and
by designing their offerings to overcome pervasive barriers that rendered conventional
business models inaccessible to people of color. Enterprising companies will nd many
more such opportunities once corporate leaders recognize the importance and distinc-
tive needs of these rapidly growing markets.
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 11
REDEFINING PRODUCTIVITY
IN THE VALUE CHAIN
People of color have been excluded from full participation in our economy not only as
customers, but as employees as well. While unemployment levels have fallen across the
United States in the years since the Great Recession, the unemployment rate for Blacks
remains at 7.1 percent, double the rate for Whites even when their education levels are
the same.
59
And among those who are employed, people of color are disproportionately
trapped in low-wage jobs with high turnover and few prospects for advancement. In
retail, for example, Black workers make up 11 percent of the labor workforce, but only 6
percent of the managers.
60
Employee turnover represents a substantial cost to large employers, especially in retail,
food service, and hospitality, where annual turnover rates can reach 100 percent or
more. Yet much of this turnover is caused by conventional hiring, training, and HR
policies that fail to take into account the challenges in transportation, child care, and
nancial stability that are prevalent among their entry-level employees, who are often
disproportionately people of color. When employment practices are reconsidered to
address these obstacles, the rate of turnover drops dramatically. Gap Inc., for example,
through its This Way Ahead program has shown that a career skills training course, fol-
lowed by a 10-week paid internship and a mentoring program, can equip unemployed
youth without a high school diploma to become successful salespeople with double
the rates of retention and higher engagement scores than their peers. And ninety-eight
percent of these youths are of color. Retailers in highly competitive industries, such as
convenience stores, grocery, and big box, have increased productivity and efciencies by
investing in their workforce, providing stable hours, competitive wages, and job training.
61
Cascade Engineering, a $400 million Michigan-based manufacturer of plastic systems,
developed a Welfare to Career (W2C) program that not only advances racial equity, but
also addresses the projected skills gap in advanced manufacturing.
62,63
The company
recognized that former welfare recipients often lacked access to reliable transportation,
stable housing, child care, short-term credit, and other support systems essential for
successful job performance that most employers routinely assume to be in place. Rather
Gap Inc.
This Way Ahead program
doubles retention rates
Cascade Engineering
Reduced turnover from
62 percent to 2 percent
12
than leave it up to the employees to overcome these challenges on their own, Cascade
established a nonprot called SOURCE—which includes over a dozen other local compa-
nies as members today—to offer case management and wrap-around support services
to employees in need. Cascade also broadened the set of acceptable reasons for missing
work to include things like caring for a sick child or parent. And when the company
realized that many of its employees live from paycheck to paycheck, sometimes resorting
to payday lenders in between, the company changed from biweekly to weekly payrolls.
Cascade also trained its managers to understand issues of implicit bias and intergenera-
tional poverty, which contribute to many of the barriers faced by employees on welfare.
As a result of these efforts, Cascade was able to decrease turnover from 62 percent to 2
percent over a period of nine years. The turnover costs also decreased from $3.6 million
in 2000 to $493,000 in 2008.
64
Employees in the program, almost half of whom are
people of color, have become nancially self-sufcient, thereby saving the state of Michi-
gan almost $1 million in cash assistance, food stamps, and child care vouchers.
65
Given
projections that over the next decade an estimated 2 million of the 3.5 million manu-
facturing jobs available in this country will go unlled, programs such as Cascade’s W2C
initiative could offer solutions that help address the industry’s needs, reduce government
spending, and advance racial equity in career opportunities.
Healthcare costs are another major expense for most large employers, and a portion of
these costs are attributable to health inequities between White populations and people
of color. When American Express analyzed health data for its 50,000 employees, it
found that medical and pharmaceutical expenses were nearly twice as high for employ-
ees with diabetes, many of whom were people of color. In 2010, the company launched
the Healthy Living Program to reach and engage employees at risk of diabetes. Work-
ing with internal groups such as the Black Employee Network and the Hispanic Origin
and Latin American Network, the company hosted educational panels on diabetes and
cardiovascular disease and events on healthy eating and conducted health screenings.
American Express
Improved health (and
productivity) of employees
“One of the most unique things about this program is that current Gap Inc. employees volunteer
with our non-profit partners and lead training workshops before the young people begin the
interview process for their paid internships. Not only does this provide leadership and professional
development opportunities for Gap Inc. employees to grow as managers, it also gives This Way
Ahead participants a chance to build relationships with Gap Inc. employees before the high-stakes
experience of an interview.”
– Abby Davisson, Director, Global Community Partnerships, Gap Inc.
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 13
Kaiser Permanente
Decreased operating costs
by reducing health disparity
The program successfully reduced blood pressure, body-mass index, and stress levels
amongst at-risk employee groups, reducing healthcare costs and increasing productiv-
ity. It is estimated that, on average, every dollar spent on company wellness programs
like these returns six dollars in lower medical costs and reduced absenteeism.
66
The key
to efforts like Amex’s Healthy Living Program is to be highly targeted in understanding
differences by race and to deliver tailored and culturally appropriate solutions.
Savings from reducing racial inequities in health outcomes for those in the healthcare
business can be even more dramatic. It is estimated that the economy loses an estimated
$309 billion per year from the direct and indirect costs of health disparities due to racial
discrimination in the healthcare system,
67
which in turn leads to distrust and lack of
engagement by people of color.
68
Kaiser Permanente—one of the nation’s largest integrated healthcare delivery sys-
tems—has explicitly committed to eliminating disparities in health and healthcare with
the expectation of better health outcomes for its customers and major cost savings for
the company. The company disaggregates data by race and ethnicity to identify and
reduce disparities. For example, data showed that over 65 percent of patients with
hypertension in Kaiser’s Gardena, California ofces were Black, and that there were sig-
nicant differences in hypertension control rates between White and Black patients. In
response, the company adopted a suite of culturally responsive care strategies, including
physician-led educational programs, a redesign of the care delivery system, and tailored
communication tools. Not only did the hypertension rates for both Blacks and Whites
improve, but the disparity in hypertension control rates for Blacks versus Whites dropped
from 6.3 percent to 2.8 percent and the operating costs for chronic disease care man-
agement also declined.
69
In order to ensure quality care for diverse members, Kaiser has also made signicant
investments in a formal structure to deeply integrate cultural competency in its service
delivery. Kaiser created the Institute for Culturally Competent Care (ICCC), which
integrates cultural competence into their care delivery system by codifying learnings
from their Centers of Excellence in Culturally Competent Care, which are regional
centers that integrate cultural competence into the local healthcare delivery system.
The centers focus on two or three health issues that signicantly affect the local popu-
lation and develop culturally relevant care management programs to positively affect
health outcomes. Patients with congestive heart failure who participated in the ICCC
program had lower rates of hospitalization, better health outcomes, and lowered
Kaiser’s operating costs.
70
14
Cigna
Improved clients’ workforce
by focusing on disparities
Cigna, an insurance provider with $29 billion in revenues, realized that more than 1,000
of its corporate clients had a workforce that was more than 50 percent people of color,
and that these employees had serious differences in their health conditions and costs.
For example, in Tennessee, Black women had a signicantly lower screening rate and
higher mortality rate from breast cancer than White women. Targeted and personalized
messages, together with GIS mapping that identied areas without enough screening
facilities, led to a signicant reduction in the disparities.
If the current racial inequities continue, it will further accelerate cost increases for most
major companies due to unlled jobs, higher costs in hiring, greater turnover, lower
productivity, or higher healthcare costs of employees or customers. Companies need to
examine the racial inequities within their own value chain—faced by employees, suppli-
ers or customers—and then take steps to restructure their own policies and processes to
advance racial equity.
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 15
The success of every company is affected by the competitive context in which it oper-
ates, which includes having educated and skilled workers, a reliable supplier base, strong
and sustained demand from consumers, and supportive policies and regulations. Each of
these dimensions is strongly affected by racial inequity.
Consider, for example, the policy environment for retirement savings plans. Nearly
two-thirds of households of color do not have any retirement savings in a 401(k) or
RA account, which is double the rate for Whites. This is due, in part, to the lack of
workplace payroll savings plans for small businesses and hourly workers, which dispro-
portionately affect people of color. Prudential, which is in the business of managing
retirement plan investments, is using its lobbying arm to work with a coalition of
organizations in more than 30 states to pass legislation that requires companies to enroll
eligible workers in retirement plans and authorizes the creation of multi-employer plans
to ease the administrative burden for small businesses. Studies show that employees are
16 times more likely to save for retirement if they have access to a workplace retirement
savings plan, suggesting that such a policy change would have a dramatic impact on
racial equity as well as provide a major growth opportunity for the entire industry.
Other companies are using philanthropy to promote racial equity in ways that
strengthen their competitive context. The cybersecurity industry, like the rest of the
technology industry, suffers from a critical shortage of skilled human capital with more
than 300,000 positions unlled. Blacks and Latinos comprise only 3 percent and 4
percent respectively of cybersecurity employees; this shows that career opportunities
STRENGTHENING THE
BUSINESS CONTEXT
Prudential
Lobbying for increased
retirement plan access
“We look at all our core corporate functions—human resources, marketing, communication,
and so on—as levers we can pull to advance racial equity.”
– Lata Reddy, Head, CSR, Prudential and Chair, Prudential Foundation
at the 2017 Shared Value Leadership Summit
16
in one of the country’s fastest growing and most lucrative elds are largely closed to
people of color. Symantec, a leading cybersecurity company, used its corporate founda-
tion to launch the Symantec Cyber Career Connection, a program that trains and places
low-income youth with barriers to employment, many of whom are people of color, in
cybersecurity careers through Symantec’s network of customers and partners. Symantec
hopes to scale this program nationally in collaboration with the rest of the industry and
create a more diverse workforce for the entire cybersecurity industry.
Countless policies, practices and circumstances related to education, housing, public
transit, and the criminal justice system directly or indirectly affect people of color (who
are ultimately stakeholders of businesses) negatively. These are just two examples of
the many opportunities that companies have to use their full range of capabilities—
including lobbying and philanthropy—to address racial equity in ways that strengthen
their competitive context. Companies can play a leadership role in advancing racial
equity across these issues and improve their competitive context to gain protable new
markets, more efcient suppliers, and more productive employees. They must also be
mindful of unintended consequences of their existing lobbying efforts that can discour-
age government from advancing racial equity or reinforce existing barriers.
Symantec
Trains low-income youth
of color in cybersecurity
careers
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 17
The America of tomorrow will look fundamentally different from today’s. The economic
success of our nation, and our businesses, will depend on the choices we make about
whether the people who are our future are able to contribute to and participate fully
in our economy. Without oversimplifying this complex transformation of corporate
America, three initial steps can help business leaders begin to grasp the opportunity that
comes from putting racial equity at the center of business innovation and growth.
First, business leaders must develop a much deeper and more accurate
understanding of why racial inequities exist.
People of color have been excluded from our economy through a long history of both
intentional and unintentional bias. Structural racism—the deeply entrenched institution-
alized biases and barriers that are often invisible to the majority White population—is so
well concealed in the history, laws, institutions, practices, and policies that surround us
every day that most corporate leaders have come to accept it as the inevitable norm. As
a result, our society is lled with many false cultural narratives and assumptions about
why people of color are excluded from our economy, such as, low-income consumers of
color lack signicant buying power.
It is true that conventional hiring and employment practices are poorly suited to the
challenges that face vulnerable people of color, and that products sold on credit in
suburban stores do not reach inner-city consumers, but extensive research—as well
as the examples presented here—demonstrate that people of color become valuable
employees and attractive customers when business practices are adjusted to address
their needs, preferences, and the very real barriers they face.
Second, corporate leaders must translate understanding into action.
It is not easy for those who have never been harmed by the false narratives that con-
ceal structural racism to recognize how it has distorted business models and markets.
Business executives therefore must take a fresh look at every aspect of their business
HOW TO BEGIN
18
operations—including product design and
distribution, marketing and advertising
practices, and hiring and personnel policies—
through the lens of an experience of a person
of color. For example, CEO Jeffrey Brown
understood that the experience of low-
income people of color in traditional grocery
stores left them feeling unwelcome due to an
overemphasis on policing and security. As a
result, the success of ShopRite stores in these
communities stemmed from a quality customer experience that was based on dignity.
Similarly, Cascade’s wrap-around support system was born out of a deep understand-
ing of the needs of vulnerable people of color transitioning into employment. American
Express disaggregated its employee data by race to identify new opportunities that
improve employee health and reduce costs. In the same way, all companies that have
segmented their customers and analyzed their employees on numerous dimensions must
explicitly disaggregate their data by race to understand the opportunities inherent in
advancing racial equity. More people of color are needed in senior leadership positions
to bring such perspectives into the highest levels of corporate strategy.
Third, the CEO needs to champion racial equity—as a core business
strategy—in order to inspire their staff and bring the vision to life.
Companies have become lightning rods for social issues, and they can no longer
sidestep controversy by keeping quiet. Today’s CEOs have taken bold public stands
and actions on issues of climate change and LGBTQIA rights. More recently, CEOs are
also speaking out about the injustices of racism. Facebook and Microsoft CEOs, among
others, spoke against the President’s announcement to rescind DACA. Speaking up
requires moral courage. And although there isn’t hard data to prove this yet, speaking
up has the potential to inuence policies that shape the racial culture of the nation,
which could ultimately enable society, and by extension business, to have access to tal-
ents and contributions of people of color who may otherwise be economically excluded.
While this is important, speaking out—both inside the company and in public—is not
sufcient. C-suite executives must set bold, specic business goals that challenge every
department and function within their organizations to re-examine conventional assump-
tions and practices in order to advance racial equity. Investors too must recognize that
racial equity, like sustainability, is increasingly a material issue for every business in
America, one that will drive future shareholder returns.
71
Business executives therefore must take a fresh look at
every aspect of their business operations—including
product design and distribution, marketing and
advertising practices, and hiring and personnel policies—
through the eyes and experience of a person of color.
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 19
Many thoughtful and dedicated people in companies, universities, and nonprot organi-
zations have worked diligently for decades to advance racial equity through employment
practices, public policy, and community engagement, with far greater expertise and
lived experience that we bring to this work. Our goal is to begin a new conversation that
brings together corporate and community leaders to better recognize and understand
their essential shared interest in the economic benets of greater racial equity. Our
nation’s future depends on it.
20
The analysis by FSG and PolicyLink is the result of a review of over 133 articles (grey
literature and peer-reviewed articles), secondary research of over 65 companies, and
interviews with over 50 individuals across 30 organizations including corporations, racial
equity as well as experts in advancing equity in career, health, and wealth.
Interviewees:
Tory Clarke
Bridge Partners
Co-Founder and Partner
Patricia Mae Doykos
Bristol-Myers Squibb Foundation
Director
Jeffrey Brown
Brown’s Super Stores, Inc.
(ShopRite)
President and CEO
Mark D. Smith
California Health Care Foundation
Former CEO and Founding President
Kenyatta Brame
Cascade Engineering
Executive VP
Nancy Castillo
Center for Financial Services
Innovation (CFSI)
Director
Laura Cummings
Center for Financial Services
Innovation (CFSI)
Senior Manager
Thea Garon
Center for Financial Services
Innovation (CFSI)
Senior Manager
Rachel Schneider
Center for Financial Services
Innovation (CFSI)
Senior VP
Patricia Bellinger
Center for Public Leadership,
Harvard University
Adjunct Lecturer and Senior Fellow
Peggy Payne
Cigna
Director, Health Equity
Dedrick Asante-Muhammad
Prosperity Now (formerly CFED)
Senior Fellow, Racial Wealth Divide
Lisa Hagerman
DBL Partners
Director of Programs
Adam Lee
Filene Research Institute
Incubator Director
Corlinda Wooden
Filene Research Institute
Project Manager
Abby Davisson
Gap Inc.
Director, Global Community
Partnerships
Justin Steele
Google.org
Principal
Kara Helender
Helender Consulting
Founder
Ted Archer
JP Morgan Chase
VP, Small Business Program Ofcer
Colleen Briggs
JP Morgan Chase
Beverly Norman-Cooper
Kaiser Permanente
Executive Director, National Supplier
Diversity
METHODOLOGY
Executive Director, Community Innovation,
Corporate Social Responsibility
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 21
Yvette Radford
Kaiser Permanente
Regional VP, External and
Community Affairs
Darryl Smith
Korn Ferry
Associate Client Partner
Brian Marcotte
National Business Group
on Health
President and CEO
Erin Byrne
Novo Nordisk
Associate Director, Public Affairs
Strategy
Diana Blankman
Novo Nordisk
Senior Director, U.S. Corporate Giving
and Social Impact
Barbara Keen
Novo Nordisk
Head, Diversity, Culture, and
Organization Effectiveness
Tyler Spalding
PayPal
Senior Manager, Corporate Affairs
Lata Reddy
Prudential
Head, CSR, Prudential and Chair,
Prudential Foundation
Y-Vonne Hutchinson
ReadySet
Founder
Leroy Abrahams
Regions Bank
Area President
Lajuana Bradford
Regions Bank
Senior VP, Corporate Social
Responsibility
Jon Davies
Regions Bank
Senior Vice President, Community
Affairs and Contributions
Jody Wigley
Regions Bank
Senior VP, Head of Now Banking
Gary Pelletier
Pzer
Senior Director, Corporate
Responsibility
Leslie Forte
Pzer
Global Communications, Pzer
Innovative Health
Lisa Lieberman
Pzer
Director, U.S. Marketing
Pol Vandenbroucke
Pzer
VP, Medical Strategy
Marjorie Paloma
Robert Wood Johnson
Foundation
Senior Director
Cecily Joseph
Symantec
VP, Corporate Responsibility
Caroline Wanga
Target
VP, Diversity & Inclusion and CSR
Todd Williams
Target
Director, Diversity & Inclusion and CSR
Tariq Malik
Target
Diversity Analytics
Ed Martinez
UPS Foundation
President, UPS Foundation and Chief
Diversity and Inclusion Ofcer, UPS
Zack Boyers
US Bank
Chair and CEO, Community
Development Corporation
Jillian Guenther
US Bank
VP, Strategy and Employee Experience
Claire Schell
US Bank
Assistant VP, Diversity, Equity, and
Inclusion
Ben-Saba Hasan
Wal-Mart Stores, Inc.
SVP and Chief Culture, Diversity and
Inclusion Ofcer
Kathleen McLaughlin
Wal-Mart Stores, Inc.
Senior VP and Chief Sustainability
Ofcer, Walmart and President,
Walmart Foundation
Disclaimer: All statements and
conclusions, unless specically
attributed to another source, are
those of the authors and do not
necessarily reect those of any
individual interviewee, advisor,
or funder.
22
Experts on social impact and racial equity
Steve Barton
Northern CA Grantmakers
Director of Regional Vibrancy and
Sustainability
Fred Blackwell
The San Francisco Foundation
CEO
Denise Fairchild
Emerald Cities Collaborative
President and CEO
Jose Corona
Ofce of the Mayor, City of
Oakland
Director of Equity and Strategic
Partnerships
Carmen Rojas
The Workers Lab
CEO
Hardik Savalia
B-Lab
Director of Partnerships
Manuel Pastor
University of Southern California
Professor of Sociology and Director
of the Program for Environmental &
Regional Equity
ACKNOWLEDGEMENTS
We’d also like to thank the following individuals who provided input and guidance through-
out the project:
Private-sector experts
Kenyatta Brame
Cascade Engineering
Executive VP
Ben-Saba Hasan
Wal-Mart Stores, Inc.
SVP and Chief Culture, Diversity
and Inclusion Ofcer
Kara Helander
Helander Consulting
Founder
Cecily Joseph
Symantec
VP, Corporate Responsibility
Graham Macmillan
Ford Foundation
Senior Program Ofcer
Lata Reddy
Prudential Foundation
Head, CSR, Prudential and Chair,
Prudential Foundation
Peggy Payne
Cigna
Director, Health Equity
Rachel Schneider
Center for Financial Services
Innovation (CFSI)
Senior VP
Tyler Spalding
PayPal
Senior Manager, Corporate Affairs
We’d like to thank our funders, the Ford Foundation and the W.K. Kellogg Foundation,
for their generous support.
THE COMPETITIVE ADVANTAGE OF RACIAL EQUITY | 23
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This work is licensed under a Creative Commons Attribution-NoDerivs 4.0 Unported License.
CONTACT
Lalitha Vaidyanathan, [email protected]
AUTHORS
Angela Glover Blackwell, Chief Executive Ofcer, PolicyLink
Mark Kramer, Managing Director, FSG
Lalitha Vaidyanathan, Managing Director, FSG
Lakshmi Iyer, Associate Director, FSG
Josh Kirschenbaum, Chief Operating Ofcer, PolicyLink
ACKNOWLEDGEMENTS
We’d also like to thank our colleagues for their invaluable strategic input, research,
and analysis:
Anita Cozart, Senior Director, PolicyLink
Admas Kanyagia, Director, FSG
Celeste Faaiuaso, former Consultant, FSG
Dashell Laryea, Associate, FSG
Michael McAfee, President, PolicyLink
Kyle Muther, former Senior Consultant, FSG
Chris Schildt, Senior Associate, PolicyLink
Sarah Treuhaft, Senior Director, PolicyLink
THIS REPORT WAS PUBLISHED OCTOBER 2017
