Businesses owned by women and people of color need concrete change and commitment on the part of banks and investors, not “diversity theater,” experts said at MIT Sloan’s recent The Inclusive Innovation Economy: Ideas + Actions panel.
Lecturer moderated the panel, which featured Barbara Clarke, a technology investor and founder of The Impact Seat, and Quincy Miller, president of Eastern Bank. They discussed steps that banks, investors, and the community can take to open resources, eradicate unconscious bias, and bolster a truly inclusive local economy — particularly in Boston, where the median net worth of a Black family is just $8.
“The financial industry by its nature is not diverse,” Miller said. “I have pretty much always been the only person of color at every job I’ve ever had. The reality is over the last 10 years, that tide has begun to shift very slowly. Although many companies have talked a good game, very few have actually executed in the good game.”
Here are six ways banks and investors can move from bias to action.
If you are only funding companies run by white males, look harder
“The fastest-growing population of entrepreneurs is black women. [Over the past] two to three years, they started growing companies faster than everybody else,” Clarke said. “Whatever you’re doing, when you’re looking at early-stage companies, if you’re not seeing women, if you’re not seeing people of color, there’s something completely wrong with your process, because mathematically it’s difficult to actually fund all-white male teams without bias.”
Lending money isn’t enough: build and be part of an ecosystem
In Eastern Massachusetts, there is a $250 million gap in lending for Black and Latinx businesses. Miller discussed how Eastern Bank committed $10 million to the Foundation for Business Equity to support these organizations. The initiative involves pulling in strategic advisors, longtime executives who embed in fledgling businesses to help entrepreneurs grow. The foundation also works with the Greater Boston Chamber of Commerce Pacesetters Initiative to encourage large employers and chamber members, such as National Grid and Verizon, to spend a higher percentage of their procurement dollars with Black and Latinx enterprises.
Banks should also help those businesses explore new routes to lending, he said.
“Part of the challenge with communities of color, businesses of color, is understanding who that ecosystem is, and that’s really where a bank can play an important role to say, ‘OK, here’s what we need to be able to do to provide you capital,’” Miller said.
If a business owner isn’t eligible for a loan, the bank can still support them by suggesting other organizations and funding sources that can get the entrepreneur started.
“Then we partner with many of those — such as Mass Growth Capital — and as those businesses grow, they’ll come over to us, we’ll refinance that debt down to our traditional bank rate, and continue to foster their growth,” Miller said. “That education and connections is critically important.”
Stop diversity theater
Lazu asked the panel how banks and venture capital firms can demonstrate effective support for a more diverse and inclusive group of entrepreneurs, and Clarke didn’t hold back.
“The simple thing is to just do it. Just write the checks. Stop doing diversity theater, where you hold special sessions for people of color [where] you talk about how you really want to help them. If you don’t write the check, you don’t do anything,” Clarke said.
“There’s lots of government programs that have goals to fund women and minority-led businesses that don’t even reach their goals for supplier diversity. And I think they need to be held to the fire on that,” Clarke said later in the discussion.
Make it easier to access all kinds of capital
Few companies have access to friends and family rounds or personal loan guarantees.
“If you don’t have any assets for yourself, who are you going to guarantee against?” Clarke asked.
This is especially difficult as some business owners of color lack credit history, making it hard to obtain loans. They may also lack long-term banking relationships, as evidenced by the struggle of many small businesses to obtain Paycheck Protection Program loans.
“Black and brown people are more than twice as likely to not have a credit score,” Miller said. “So, by nature, you can’t get a loan at a bank because you don’t have a credit score.”
Banks and government regulators should look for a better way to determine creditworthiness than the binary question “Do you have a credit score?” he said.
Embrace millennials or become obsolete
Millennials will soon make the majority of business decisions, and they are committed to diversity and equality. (A recent survey from Deloitte found millennials are more loyal to their jobs as employers address diversity, inclusion, and other factors.) Banks will soon realize that diversity isn’t just moral, it makes good business sense, Miller predicted.“
Your largest workforce are now millennials,” he said. “The largest wealth transfer in the history of America is about to take place over the next 10 to 15 years, because all of those baby boomers are going to give all their money to the millennials. And whether you’ve gotten on board yet or not, you need to get on board now, or you’re going to be irrelevant a decade from now.”
Be actively anti-racist when lending and spending
There is a wealth of evidence of discrimination in lending in the United States. Recent federal data show that Black business owners are rejected for bank loans at a rate double that of white business owners and are less likely to be fully funded. And a study released in June found white applicants often received more favorable treatment than Black applicants when applying for Paycheck Protection Program loans to combat economic fallout from the pandemic.
“I think we need to just realize that what’s holding us back is our bias and institutional racism,” Clarke said.
Individuals can combat racism in supporting small businesses, too.
“Think about yourself, your network, the connectivity. Word of mouth is still the most profitable marketing you can possibly do,” Miller said. “You can take individual action just in your own purchasing behavior, and not even just yours, but your friends and family and relatives. The reality is, that’s what these businesses need. And when you’re supporting one, you end up supporting the ecosystem. It is about taking an anti-racist approach, and being outwardly supportive of how to drive equity.”