Banks Should Diversify Their Supplier Networks

Banks are a major engine of our economy. Besides providing lending and capital, banks purchase tens of billions of dollars each year in goods and services from a variety of suppliers. Diversifying those supplier networks can have a positive impact in the communities they serve and on the economy.

Recently, The Greenlining Institute released a new report,"Escaping the Old Boy Network: The Banking Industry and Supplier Diversity," and convened bankers, small business representatives, federal regulators and other stakeholders to begin a dialogue on this issue. While others have looked at diversity in the industry, Greenlining's study – based on data voluntarily supplied by participating banks – is the first of its kind to examine bank data on a detailed, granular level by categories like ethnicity, gender and geography.

Greenlining's groundbreaking report was the result of strong partnerships with a shared goal of creating opportunities for minority business enterprises. Greenlining invited the top 12 banks in California by deposit market share to participate, and requested feedback on methodology to ensure the report asked the right questions. Eight banks participated and shared their data publicly for this first report – a nearly 70% participation rate. The results of this research were presented and discussed with a variety of stakeholders at a Feb. 24 event in San Francisco.

Once the numbers had been crunched, the results showed there is much work to do. Nationally, contracting with minority-owned firms saw a median spending of 5.96%, compared to California, where median spending was 7.72%.

The voluntarily participation of so many major banks was critical, and while the discussion was at times challenging for everyone involved, we all agree that it was the beginning of a useful and important process. And we came away from the dialogue having found considerable common ground.

We agreed that supplier diversity is a core business initiative. It's not about quotas; it's about identifying opportunities across the banks' supply chains and creating internal systems, transparency and business opportunities. Major corporations are increasingly coming to understand that communities of color are an untapped resource. In states like California, people of color are already the majority, and the nation is primed to become "majority-minority" by 2043. How major businesses like banks do business with communities of color will affect the health of the entire economy as well as being key to their own future growth.

By buying more goods and services from businesses rooted in diverse communities, banks can build bridges with those communities and expand their customer base. And by expanding their networks of potential suppliers, the increased competition can help banks obtain better quality services at lower prices.

In so doing, banks can also bring jobs and investment to communities in need of both. Our nation still faces a disturbing racial wealth gap: According to the U.S. Census, for every dollar of wealth a white family owns, the median Asian family has about 81 cents. The median Latino family has 7 cents and the median black family has less than 6 cents. One way major corporations can help reduce that gap, ultimately benefitting our whole economy, is to do business with firms rooted in communities of color.

Supplier diversity is a component of the strategic sourcing process for the banking industry with tangible benefits for banks, customers and the community. To move forward, we agreed that better data and standardized metrics will help a great deal. Research for Greenlining's report revealed huge differences in what data banks now collect. For example, only three of eight banks currently track supplier data by gender within each ethnic group, and only five of eight track state-level contracting in depth.

The federal Offices of Minority and Women Inclusion, created by the Dodd-Frank financial reform law, can play an important role in establishing uniform measurement standards that will help both the industry and advocates continue this effort. We look forward to seeing how the OMWIs will compile comments on the recent Proposed Interagency Standards and create reporting criteria for all regulated entities. In the interim, we will all work together to create proactive and strong supplier diversity programs that truly impact both the bottom line of banks, diverse businesses, jobs and the economy.

Perhaps most important, we've agreed that this first report and discussion were just the beginning. We are committed to having continuing conversations to determine the next steps we all can take, including how to engage other teams within the banks and continue the important progress we've begun.

Orson Aguilar is executive director of The Greenlining Institute. Richard Chacon is senior vice president and director, supplier diversity and development, for Union Bank NA.