In the wake of George Floyd’s murder by a Minneapolis police officer in 2020, many corporations made pledges intended to advance racial justice. For example, Google committed to donating $50 million to historically Black colleges and universities, while JPMorgan Chase allocated $30 billion in housing and business loans, and other supports, to Black and Latino communities. But were those pledges genuine? Were they performative? Or were they genuine, but poorly managed?
According to a recent report by The Washington Post, America’s 50 biggest public companies and their foundations committed at least $49.5 billion to address racial inequality. But more than 90% of that amount was allocated to potentially profitable loans and investments, including mortgages. Just $4.2 billion was pledged as grants, and only $70 million went to organizations devoted to criminal justice reform.
An MIT Sloan Inclusive Innovation Economy talk last month examined the reasons for this discrepancy. a former Berkshire Bank executive vice president and current MIT Sloan lecturer who focuses on inclusion in the innovation economy, led the discussion. She was joined by:
Social entrepreneur Jessica Norwood, who founded Runway, which focuses on building Black community wealth through a lending process Norwood calls “friends-and-family”-style funding. Runway doesn’t rely on traditional bank requirements like credit score, focusing instead on business models and financial projections.
Taj James from Full Spectrum Capital, who focuses on creating nontraditional pathways for wealth-building and community ownership.
Makeeba McCreary, president of the New Commonwealth Racial Equity and Social Justice Fund, which makes grants to organizations that support Black and brown communities through initiatives designed to reduce systemic racism, such as policing and criminal justice reform.
Here’s where corporate America went wrong, the panelists said, and how it could do better.
Be strategic, not reactive
In the aftermath of Floyd’s murder, corporations did the right thing for the wrong reasons.
“There are many problems with pledges, first being that it was a reaction to a horrific event and not actually a response to systemic racism,” Lazu said.
The panelists worried that the pledges didn’t reflect a long-term, thoughtful commitment to combating racism. Companies shouldn’t deploy resources to mitigate reputational risk under the guise of benevolence. Systemic change doesn’t happen through a frenzy of charity. It requires forethought and planning.
Don’t disburse money as a means to reaffirm power
“Companies are not the best entities to deploy money that can lead to sustainable impact. Most corporations’ social partners are large, white-led organizations that have been leading charity work for decades and do not represent the people who this money was supposed to go to,” Lazu said.
Norwood cited a “huge level of chaos and an inability for structures and people who have learned and grown up in those structures to actually do the kind of systemic change work that was required” after Floyd was killed. Traditional power-brokers dictated philanthropy and, thus, continued to hold power.
In the wrong hands, money is a form of control. For example, mortgages extended to Black and brown borrowers are helpful to a degree, but they also come with strings attached, such as interest and red tape that tie borrowers to such lenders in the long term.
On the other hand, The New Commonwealth Racial Equity and Social Justice Fund focuses on trust-based grantmaking. The non-profit grants only to groups that address systemic racism through four pillars: policing and criminal justice reform; health equity; economic empowerment; and youth education, empowerment, and civic engagement that focus on Black and brown communities.
And the fund focuses less on written applications and more on personal relationships through interviews — with the goal of getting organizations on their feet and then getting out, McCreary said.
Make reparations, not reputations, a central tenet of lending
Were some executives simply trying to assuage their guilt by throwing money at the problem? James, of Full Spectrum Capital, seemed to think so. He noted that Floyd’s murder pushed many corporate executives toward a feeling of discomfort — and that, by pledging money, they could return to a feeling of comfort and “push that feeling of discomfort as far away as possible.”
He described a recent meeting where a corporate leader described his pledge: “Basically, they were fulfilling the commitment they made to communities by making their company less racist — slightly less racist than it was before — and deploying products and financial services that the company should have been providing all along. That doesn’t count. You can’t spend all of your pledge making your own company slightly less racist,” he said.
Loans to buy a house or to start a business can only go so far when recipients don’t have assets in the first place, James said. This is due to longtime lack of access to means of wealth-building, such as mortgages.
“Of all the different kinds of resources we could deploy, the most important thing to do is to return assets, to shift assets, reparations, and land back to the communities from which assets have been extracted,” he said.
He pointed to the Good Life Pledge as a way to start. With this philanthropic commitment, a donor pledges to transfer one-third of their assets toward community stewardship in the form of equity grants and recoverable loans, building critical infrastructure in marginalized communities.
Recognize that equitable lending isn’t always a money-making venture
A 2020 report from the Federal Reserve Bank of New York found that 41% of Black businesses closed in the early months of the COVID-19 pandemic. But the true toll is higher. Accounting for smaller firms not captured in the report, and using local-level data, Norwood estimates that 60% of Black businesses closed. Many struggled to get help due to a lack of preexisting banking relationships. In Massachusetts, most Paycheck Protection Program loans went to businesses owned by white men.
Instead, Runway offered universal basic income payments to their clients. They paid $1,000 per month for six months, used at a business’ discretion. All of their businesses remained open.
“If you want to close the racial wealth gap, your capital must be reparative because you are repairing a racial injustice. You can’t get market rate returns when you are doing the repair work. You have to put out reparative capital,” Norwood said.
Banks that provide reparative capital understand that businesses don’t have assets because of systemic racism. Instead of asking for collateral, these banks focus on closing the racial wealth gap by investing in businesses’ success for the long term. This means upending the traditional power balance of powerful white lenders and needy Black borrowers.
“It can’t just be that the infrastructure is held over here and then other people of color don’t have any infrastructure but are always the consumers or customers of the thing, never the owners of the thing. We have to start looking at large-scale equity relationships as well,” Norwood said.
“Part of what we were able to do, in that moment, was to talk to our bank partners, to talk to our investors, to talk to everybody about: ‘We are here in the thick of it, and this is what it means to be in the right relationship. This is how you show up.’”