The Diversity Index: The Alarming Truth About Diversity in Corporate America...and What Can Be Done About It

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ISBN: 978-0-8144-1650-1 (eBook)

Library of Congress Cataloging-in-Publication Data

Reed, Susan E.

The diversity index : the alarming truth about diversity in corporate America and what can be done about it / Susan E. Reed.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-8144-1649-5

ISBN-10: 0-8144-1649-7

1. Diversity in the workplace—United States. 2. Executives—United States. I. Title. HF5549.5.M5R44 2012

658.7008—dc23

2011018635

© 2011 Susan E. Reed.

All rights reserved.

This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019

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For the strivers …

Contents

Introduction

CHAPTER 1— The Diversity Buffet

CHAPTER 2— Merck’s Deliberate Strategy: Just Do It

CHAPTER 3— A Plan for Progress

CHAPTER 4— The Reality of Change Must Accompany the Rhetoric of Change

CHAPTER 5— The Cost of Exclusion

CHAPTER 6— Scaling Up: Creating a Minority Supply Chain

CHAPTER 7— No Room at the Top

CHAPTER 8— Affinity Groups: Plans for Progress for Employees

CHAPTER 9— Importing the Important People

CHAPTER 10— A New Plan for Progress

Epilogue

Notes

Acknowledgments

Index

Introduction

THE PRESIDENT OF LOCKHEED AIRCRAFT CORPORATION and Vice President Lyndon Johnson agreed to end Lockheed’s workforce segregation on May 25, 1961. Looking back, this contract, which was announced with great fanfare at the White House, signified far more than the public acknowledgment of systematic racial segregation in employment. It illustrated the leading role that prominent corporations were beginning to embrace by hiring and promoting the widest range of workers in this country. Businesses were accepting responsibility for actively shaping the full scope of the American workforce. If corporations wish to have the best educated, highest motivated and most diverse workforce in the world today, they should resume and expand the process of reaching out to students, teachers, communities, and employees started by this first Plan for Progress.

A diversity index measures the number of species in a natural environment. The more species there are, the healthier the environment is. My research showed that what is true in nature also applies to business. Developing and promoting a diverse workforce can lead to increased resilience in a corporation. Companies with high levels of diversity have been found to produce higher profit margins and greater returns on equity and assets.¹ Collective wisdom, the ideas contributed by diverse groups and individuals, exceeds the sum of its parts.² We are just beginning to understand the full diversity dividend that was started by the Plan for Progress.

Yet, in the late 1990s, a rash of discrimination lawsuits spread across corporate America. Merrill Lynch paid more than $200 million to settle a class action filed by more than 900 of its current and former female brokers. In 2000, Coca-Cola agreed to pay $192.5 million in a racial discrimination case to African American workers who alleged they had been paid and promoted less than similarly situated white workers. In 2008, Walgreen pledged $24 million to resolve a federal lawsuit alleging widespread racial bias against 10,000 black workers.³

If workplaces were so accepting of diversity, why were so many workers suing their bosses? As I covered some of these lawsuits for The New York Times and other publications, I was struck—well, horrified really—by the toll the adversarial process takes on both the plaintiffs and the defendants. In discrimination lawsuits, the claims of the employee are pitted against the assertions of the employer. The allegations are frequently framed in reductive terms: The employee is incapable of performing the tasks, and the company is guilty of discrimination. The legal wrangling often saps years from employees’ careers, undermines their mental and physical well-being, and jeopardizes their future employability. The suits cost the companies substantial amounts of intellectual and emotional energy that could have been spent on growing the business. Although the class action settlements often result in the companies’ adopting new employee pay and promotion practices that promise to improve the workplace for everyone, the advances come at a high price. I wanted to find the companies that had the most diverse leadership and to find out how they did it so other companies could follow suit.

I conducted a study of race and gender of executive officers of the 2005 Fortune 100. An executive officer is defined as a president or vice president who is in charge of a principal business unit, division or function. Executive officers set policy for the corporation, and their names are usually contained in the annual report to shareholders. My researchers and I determined, from photographs and published profiles of the executive officers, their gender, race, and ethnicity according to categories used by the U.S. government. We also gathered data for the same companies for fiscal 1995 and 2009 to show change over 14 years. We then contacted the companies to verify the accuracy of our assessments and made adjustments to the data if the companies offered corrections that were consistent with the names listed in the 10-K, a document filed with the Securities and Exchange Commission (SEC). We operated on a fully transparent basis, notifying the companies of the information and statistics we had gathered and telling them that they would be published. We made every effort to get the facts right.⁴

I discovered that the companies with the highest diversity among their executive officers were using many of the same practices. Like most Americans, I had never before heard of the clunky-sounding Plans for Progress. I began reading Inventing Equal Opportunity (published in 2009) to understand how the companies had come to share the same diversity practices. Author Frank Dobbin described Plans for Progress. His footnote led me to a 1961 New York Times story quoting a spokesman for the National Association for the Advancement of Colored People (NAACP) criticizing the program’s effectiveness.

As a journalist who has written and produced thousands of stories, a large portion while covering an ongoing issue or event, I knew that most news reports are simply snapshots in time and cannot be taken as the final evaluation of a program. When the article was published in 1961, the program had just begun, and it was too early to render a final judgment on its success. The NAACP’s dismissal of the Plans for Progress as nothing but hype was premature. Today, the conclusion would be different.

Discovering Plans for Progress

Preserved in a simple manila folder at the John F. Kennedy Presidential Library and Museum in Boston, I found eight actual Plans for Progress contracts that had been signed by Vice President Johnson and the presidents of the largest defense companies. The contracts spelled out the steps that Boeing, Northrop, Lockheed, and other government contractors agreed to take in order to find, develop, and recruit minority employees. They reached out to students, teachers, and families to inform them of the skills, knowledge, and education they needed in their technologically advanced workforce. Then, like now, the country was not producing enough engineers or scientists of any race or gender to meet demand. If schools did not have the personnel who could teach specialized courses, the companies found the teachers who could, and paid their salaries. The Plans for Progress contracts illustrate how committed these companies were to developing a reliable and productive supply chain of qualified minority employees.

Deep in the library’s archives, I came to know the architect of Plans for Progress, John Feild, and the advocate, Hobart Taylor, Jr. Many histories have referred to these government employees, but never in much detail. Yet what they created has lasted for five decades despite their initial struggles with corporations, politicians, and one another. Feild and Taylor came from different classes, had varied levels of education, used contrasting negotiating styles, and held divergent political beliefs. They were rivals, and their friction was a harbinger of similar struggles that newly integrated offices across the country would soon experience, as Hobart Taylor, Jr., a black man, ultimately became the boss of John Feild, a white man.

Feild and Taylor’s achievement was contingent on their ability to persuade the white male leadership of government contractors in the 1960s to reform their hiring and promotion practices. The businessmen, who were mainly Republican, were called upon to include races that had often been disparaged as not educated enough and not as hardworking as white employees, or simply too different to fit into the same employment categories and job ladders. To succeed with integration, managers had to install conscious, deliberate programs in factories, offices, franchises, and corporate headquarters throughout the country. Finally, integration success depended on white employees and white customers lowering their resistance to working and interacting with people of color.

Newly released government documents containing information on the companies that participated in Plans for Progress illustrate that minorities were brought into nearly every job category by the late 1960s. Theoretically, minorities would have ascended to the rank of executive officer by 1995, more than 30 years after the program began. If the flow had continued, we would expect to see them throughout the corporations today—from top to bottom, from side to side, employed in jobs appropriate to their education and experience.

My research shows that the Plans for Progress companies on average achieved greater success in promoting minorities and women to executive officer positions than companies that had not joined or that were established after the program officially ended in 1969. These findings suggest that the Plans for Progress companies were more attuned to accepting and promoting people of all kinds than the companies that had not practiced the protocol. The study indicates that the protocol was effective and that the longer a company practices integration, the better it becomes at the process. (See Figure I.1.)

In every year except for 1995, the Plans for Progress companies employed more white female executive officers than the non–Plans for Progress companies. Interestingly, Plans for Progress began in 1961, before the Civil Rights Act of 1964 was passed, and was not aimed at women per se, but at minorities. Yet by 2005, the Plans for Progress companies had surpassed the companies that did not practice the protocol; 97 percent of Plans for Progress companies had white female executive officers whereas only 80 percent of non–Plans for Progress companies employed them. This finding indicates that the Plans for Progress protocol was easily applied to include other groups.

Figure I.1 Comparison of Race, Ethnicity, and Gender Levels of Executive Officers of Fortune 100 (%)

By employing a series of repeatable, standardized, and scalable processes, these companies succeeded in integrating their workplaces and ultimately breaking the white male monopoly on the best jobs in America. Fifty years after it began, Plans for Progress can be described as an unquestionable success that resulted in the positive transformation of businesses and society. But the transformation has been far from complete. Only 53 percent of the Plans for Progress companies employed minority male executive officers in 2009. Just 33 percent of the Plans for Progress companies had promoted minority females to executive officers. The non-Plans for Progress companies have done far worse.

What Happened?

The Plans for Progress companies represent just one-third of the companies in my study. The majority of the firms either did not exist in the 1960s or had not signed on to the protocol. In addition, the Plans for Progress companies were not always perfect in their application of the protocol. For example, the aluminum producer Alcoa was a Plans for Progress company, but it had an all-white team of executive officers in every year of the study.

Also, Plans for Progress became known as affirmative action, which developed a bad reputation in the 1970s, often as a result of how it was applied. In a quest to improve racial representation, some corporations concentrated minorities in the lowest jobs, as laborers and service workers, which required the least skill and education. In 1969, IBM and Lockheed Aircraft employed more than 60 percent of minorities in the position of laborer. This was a nonmanagement job that usually required no training but demanded good physical condition to move materials in a warehouse or on a construction site. Overloading minorities into jobs that required the least skill potentially led them to be underemployed, while simultaneously creating excessive competition for these entry-level jobs among unskilled, uneducated whites.

Some Plans for Progress companies also concentrated minorities in white-collar jobs. By 1969, 12 percent of PepsiCo’s white-collar workers were minorities, at a time when just 1 percent of minorities in the overall population were college educated. PepsiCo had more than its fair share of well-educated minorities. Integration was a new concept, and companies accomplished it in both clumsy and opportunistic ways.

The imbalances led to backlash. Allan Bakke, a white male, accused the University of California of reverse discrimination, preferring people of color to whites. He had been rejected twice by UC Davis Medical School while special applicants with lower test scores had been admitted. An important Supreme Court decision on the Bakke case in 1978 ruled that preferring members of a racial or ethnic group for no other reason than that they were group members was itself discrimination. In his decision, Justice Lewis F. Powell wrote that diversity encompasses a far broader array of qualifications and characteristics, of which racial or ethnic origin is but a single, though important, element. In addition to race and gender, diversity included achievements, talent, social and economic background, and where a person grew up. Although the decision pertained to how universities accepted students, employers paid close attention to the Court. They realized they had to hire all kinds of people at all job levels. Diversity was the thing.⁵

Affirmative action became associated in the public’s mind with quotas. But quotas had never been part of the Plans for Progress protocol. John Feild, the author of the Plans for Progress, had never advocated that companies give preference to people of color, nor had he recommended using quotas. In fact, the boilerplate contract of the Plans for Progress prohibited quotas. Feild let the companies decide how many people of color to hire and the jobs into which to hire them.

When I was director, I fought rigidly against the establishment of quotas, said Feild, but I did not feel we should abandon the notion of quantitative goals. We should keep it as a goal; we should be flexible about it; we should attempt to use it as a way of measuring performance.⁶

The misapplication of affirmative action by business resulted in ridicule by the public, the method seen as a process of hiring and promoting unqualified white women and minorities. Many people of color and women subsequently shunned affirmative action because they did not want their competence sullied by association with a tainted program. As it became scorned by both whites and minorities, even the phrase affirmative action fell out of common parlance. In the trade, the method is now known as compliance and representation. (Most government contractors, however, must still file an affirmative action plan with the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). An affirmative action plan expresses how the employer intends to reach out and find women or minorities with the required skills to hire into jobs where they are underutilized. It is an adaptation of the Plans for Progress protocol.)

Diversity became a popular concept after the late 1970s, due to the backlash against affirmative action and a series of court decisions that reaffirmed the need to consider far more than race. Diversity meant companies should hire and promote everybody, but doing it was perplexing. Diversity experts were installed in nearly every Fortune 100 company. Employees were then exposed to diversity training, where they were taught that everyone was the same, part of one great melting pot. Then they learned that everyone was different, like the ingredients of an immense salad bowl. The seeming contradictions required that diversity be conceived as a paradox. Employees were advised to be color and gender blind, but to recognize differences and to celebrate them. As the concept of diversity took hold, the fine points seemed to get lost, and white women advanced in more companies than minorities did.

Reasons for the White Ceiling

In the 50 years since businesses seriously began to apply a set of deliberate, company-wide practices that would produce a more thoroughly mixed workforce, much success has been achieved, but a white ceiling persists. Ninety percent of the Fortune 100 employed white women as executive officers in 2009. Caucasian women should not be penalized for their notable accomplishments, and there is an average of only 1.66 women per executive team. Yet their broad success has contributed to a troubling pattern. One-third of the Fortune 100 companies had all-white male and female executive officers in each of the three years under study, 1995, 2005, and 2009. Despite ongoing diversity initiatives and efforts to break the glass ceiling these companies had gender diversity but not racial diversity in the highest ranks. Unless this pattern is broken, discrimination lawsuits are going to continue to rage through corporate America.

Understanding Affinity Groups

Companies with the most diverse leadership had not only adopted the basic procedures from Plans for Progress, but they added new programs, such as affinity groups, as they sought to develop their workforce and overcome the glass ceiling. Affinity groups are employees such as women, African Americans, Hispanics, Asians, Native Americans, gay, lesbian, bisexual or transgendered people, veterans or the disabled, who meet to discuss issues in the company. I found that the number of groups doubled between 1995 and 2005. My study revealed a positive correlation between the employee groups and high officer diversity; 90 percent of the companies with the most integrated leadership have the groups. In some companies, the groups have become powerful resources as employees networked, learned leadership skills, and developed new products and ideas for the businesses. Many companies, in fact, call them employee resource groups or employee networks. Affinity groups, when backed by the CEO and led by the highest-ranking employees, create networks in which employees can positively influence the company’s integration process. The most successful affinity groups act like a Plans for Progress program for employees.⁷

Interestingly, the white ceiling has resulted, in part, from the success of the women’s affinity groups. Because of their numbers and their dominant race, they frequently wind up leading the affinity group. In some companies they have successfully challenged how women’s performance is measured by the firm. The GE Women’s Network is a fascinating example of how a group can advance after grappling with stereotypes in the workplace. Their success suggests that other affinity groups might benefit from a similar questioning of performance evaluations.

Diversity Requires Executive Support

A company, however, does not need to have affinity groups to have a highly diverse team of executive officers. Affinity groups alone cannot increase integration because they cannot hire, promote, or fire people; they constitute a strategy for developing employees. For example, Merck had the highest level of integration among its executive officers in the Fortune 100 in 1995, 2005, and 2009, but its nascent affinity groups were not the reason. Merck’s chief executives put white women, as well as female and male minorities, on their executive teams because they thought that doing so was important for the business, not because they waited for the affinity groups to offer them a candidate. Merck’s Roy Vagelos promoted individuals he thought could one day lead the company. He also believed in social justice. His successor, Raymond Gilmartin, elevated women and minorities because he trusted them to do the jobs. He also believed in creating a diverse meritocracy. Gilmartin’s successor, Richard Clark, advanced men and women of color because he believed they were necessary for the global growth of the business. These men surrounded themselves with diverse executive officers because they sought the best talent, they believed in social justice, they wanted to create a meritocracy, they thought diversity was good for business, and they wanted to set an example for the rest of the corporation. They did it all because they could.

In contrast, the chief executives who waited for the affinity groups to offer them the strongest candidates were not fully exercising their leadership capacity in the organization. The challenge ahead is for corporations to bring domestic minorities to the highest levels of leadership. The public summaries of companies’ Equal Employment Opportunity data (EEO-1) indicate that the majority of the largest corporations have minorities but that the minorities