Diverse Supplier Criteria Need to Evolve

It’s my least favorite question on RFP’s. Are you a woman-owned business? The technical answer, despite founding and running WeSpire for the last 10+ years, is no. Mind-blowing, right? Welcome to the well-meaning, but arguably antiquated, world of diverse supplier criteria.

Supplier diversity programs originated in the 60’s, initially with an executive order tied to federal contracting dollars. Large corporations, like IBM, General Motors & AT&T quickly followed their lead and established their own programs. The vast majority of large companies now have programs, although only 42% disclose their spending. But public commitments to diversify spending are accelerating dramatically. Twenty-eight corporates have pledged to spend over a billion dollars each year with diverse suppliers and according to Fortune, “Diversity supply spend is expected to increase by 50% by 2025 and Gartner earlier this month said the volume of inquiries on the topic is up 500%.”

To qualify as a diverse supplier, most corporations require certification, through an organization like the Women’s Business Enterprise National Council (WBENC) or National Minority Supplier Development Council (NMSDC). The criteria for qualification however is generally determined by the U.S. Small Business Administration. That criteria requires that the business be 51% owned by a person matching the “diverse” category, such as women, veterans, LGBTQ, Asian, Black or LatinX. 

In theory, and back in 1960, that might have made sense. But it doesn’t today particularly for three types of businesses. The first is any business that is in the innovation ecosystem – like tech – where corporations spend vast amounts of money. Why Not? Because the minute a diverse founder raises institutional capital, which most tech, biotech, and other innovation companies need to do, that diverse founder will likely drop below 51%. That is why WeSpire doesn’t officially qualify, despite matching the goal of supplier diversity in every other way. We are a small business. We are woman founded and woman operated. I still maintain a significant ownership stake. But after three rounds of capital, it’s nowhere near 51%.

The second ironically is the emerging category of majority employee-owned companies, which distribute a majority of stock to employees. Unless the right number of employees happen to also match that diversity criteria, they wouldn’t qualify despite proof that these businesses are huge drivers of closing the wealth gap and improving equity among diverse employees.

The third is any company that makes it big and wants to access the public markets. While technically the rules say it’s possible to be publicly traded and be certified, maintaining that 51% ownership would be extremely hard and limits the amount of stock that could be sold.

So essentially, you can be certified or you can think big. But you can’t really do both. That certainly sends an odd message to diverse founders.

Members of Congress know things need to change. In 2019, Senators Cantwell and Rubio sponsored legislation that would modify the rules. Cantwell said at the time, “Women- and minority-owned businesses are under-represented in our economy,” Cantwell said. “We need to do everything we can to increase access to capital for women- and minority-owned businesses and not have the Small Business Administration penalize them for receiving private equity investment.” There has been little momentum on the bill since it was introduced.

Given the stalemate, companies could choose to expand their own diverse supplier criteria in advance of the legislation. The certifying organizations could theoretically also redefine their criteria for certification without waiting for the legislation. The world needs diverse founders to think big and be bold. Let’s make sure that’s the message we send them.

Quote of the Week: “You are what you think. So just think big, believe big, act big, work big, give big, forgive big, laugh big, love big and live big.”

Andrew Carnegie

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