What Does the Remainder of 2024 Hold for Supplier Diversity Programs?

A note from our CEO, Ade Solaru.

2024 presents a unique time in history, given the contrasting political ideologies and priorities of Donald Trump and Kamala Harris, a stock market bubble, and a land war in Europe. Amid growing political and economic challenges plus recent US court rulings on affirmative action, scrutiny of supplier diversity programs will likely intensify. 

Without a crystal ball, our predictions should be taken with a grain of salt.  

The Bad News First

The Supreme Court’s ruling against Harvard University’s affirmative action admission policies has set a precedent that could potentially lead to the rollback of supplier diversity programs aimed at providing economic opportunities to minority groups. This decision has already begun to impact supplier diversity initiatives. For instance, in March 2024, a federal judge in Texas ruled that the Minority Business Development Agency (MBDA) violated the Equal Protection Clause of the Constitution. Furthermore, attorneys general from 13 states have warned CEOs about the “serious legal consequences” associated with race-based employment preferences and diversity policies.

Now, the Good News

HBR’s recent article explains how the U.S. Government has made significant strides in implementing supplier diversity programs, setting a benchmark for both public and private sectors. Through initiatives like the Small Business Administration’s (SBA) 8(a) Business Development program and the establishment of the Minority Business Development Agency (MBDA), the government has actively promoted the inclusion of minority-owned, women-owned, veteran-owned, and other diverse businesses in federal contracting. These programs have not only provided economic opportunities to underrepresented groups but have also driven innovation and competition within the supply chain. The government’s commitment to supplier diversity is further evidenced by the implementation of set-aside contracts and procurement goals that ensure a substantial portion of federal spending is directed toward diverse suppliers.

Whether it be a Trump or Harris administration, unwinding the progress made in supplier diversity will not be easy or straightforward. The infrastructure supporting these programs is deeply embedded within federal procurement processes, and the benefits of supplier diversity are widely recognized across political lines. Moreover, the private sector has increasingly adopted similar practices, influenced by the government’s lead and the proven business case for diversity. As a result, any attempts to roll back these initiatives would face significant resistance from various stakeholders, including businesses, advocacy groups, and the communities that have benefited from these programs. The momentum behind supplier diversity is strong, and its continued evolution seems likely, irrespective of political changes.

Understanding the Double Edge Sword of Public and Corporate Sentiment

Recent court decisions have compelled some corporations to reassess their programs to ensure they align with other impactful initiatives that affect their employees and customers. Adjusting these programs requires a delicate balance between satisfying external and internal groups that may oppose them and supporting the beneficiaries and communities they impact. Unfortunately, if companies are pressured to modify their programs to achieve legal or political neutrality, they risk reducing their effectiveness and community impact, potentially turning them into mere symbolic gestures without real authority or influence.

Reputationally, neutering these programs also impacts how corporations are perceived in minority or historically under-represented communities, possibly branding them as “unfriendly” or unwilling to do business with certain groups. This perception can affect sales if these communities feel unsupported and choose not to patronize these corporations, viewing them as non-viable partners. 

It’s the Economy

Economic conditions can have a profound impact on supplier diversity programs, influencing both their implementation and effectiveness. Here are several ways in which different economic scenarios might affect these initiatives:

• Growth: During periods of economic growth, companies are more likely to invest in supplier diversity programs as part of their broader corporate social responsibility (CSR) strategies. With more resources available, businesses can allocate funds to identify, develop, and support diverse suppliers. A thriving economy encourages companies to seek innovative solutions and expand their market reach. Diverse suppliers, known for their unique perspectives and agility, can play a crucial role in driving innovation and helping companies tap into new customer segments.
• Downturn:  In times of economic downturn, companies often prioritize cost-cutting measures to maintain profitability. Supplier diversity programs, which may be viewed as non-essential, could face budget cuts or reduced support. This can hinder the progress and sustainability of these initiatives.
• Uncertainty: Economic uncertainty can lead to risk-averse behavior among companies, making them less likely to engage with new or smaller diverse suppliers. Instead, they may prefer to rely on established suppliers with proven track records, potentially sidelining diverse businesses.

Oh Yeah. Inflation.

Inflation can increase the costs of goods and services, putting pressure on companies to find cost-effective solutions. While this might encourage some businesses to explore diverse suppliers who offer competitive pricing, others might consolidate their supplier base to manage costs more effectively.

Disruptions are Normal

Supply chain disruptions, such as those experienced during the COVID-19 pandemic, highlight the importance of having a diverse and resilient supplier base. Companies may recognize the value of supplier diversity in mitigating risks and ensuring continuity, leading to renewed focus and investment in these programs.

Government stimulus packages aimed at economic recovery often include provisions to support small and diverse businesses. These measures can provide financial assistance, grants, and incentives that bolster supplier diversity programs, encouraging companies to maintain or expand their initiatives.

In addition, economic conditions can prompt regulatory changes that impact supplier diversity. For example, during economic recovery phases, governments might introduce policies that mandate or incentivize the inclusion of diverse suppliers in public and private sector contracts.

Some Unknowns Will Remain

Shifts in consumer demand can influence supplier diversity programs. As consumers increasingly prioritize ethical and inclusive business practices, companies may be motivated to enhance their supplier diversity efforts to align with market expectations and build brand loyalty.

Fortunately, in a competitive market, supplier diversity can serve as a differentiator. Companies that effectively leverage diverse suppliers may gain a competitive edge by offering innovative products and services, improving operational efficiency, and appealing to a broader customer base.

Parting Thoughts

A combination of compromise and selective prioritization would likely shape either administration’s impact on supplier diversity programs. While there might not be a significant increase in federal mandates or funding, the administration could support supplier diversity through targeted initiatives, economic growth policies, and public-private partnerships. 

Companies that recognize the long-term value of supplier diversity and integrate it into their core business strategies are better positioned to navigate economic fluctuations and drive sustainable success. By understanding and adapting to economic conditions, businesses can ensure the resilience and effectiveness of their supplier diversity initiatives.

In preparation for the potential complexities of either administration, companies should focus on the economic impact of their supplier diversity programs and emphasize their contribution to corporate growth and social equity.

Companies and state governments would play crucial roles in driving supplier diversity, with corporate leadership and CSR commitments continuing to be key factors in the success of these programs.

Recommendations for Supplier Diversity & CSR

• Report Economic Impact: Track your procurement spend with diverse suppliers and use economic impact reporting tools to demonstrate the broader economic effects of your supplier diversity program, including job creation and community development.
• Track Supplier Performance: Evaluate the performance of your diverse suppliers, tracking metrics such as quality, delivery, and innovation.
• Leverage CSR: Continue to prioritize supplier diversity as part of broader CSR and ethical business practices.
• Engage in Advocacy: Advocate for supportive policies and engage with industry associations to promote supplier diversity.
• Focus on Innovation: Use supplier diversity as a strategic advantage to drive innovation and market expansion.