Out of corporate America’s diversity failures, a new industry is emerging

Moving beyond binders.
Moving beyond binders.
Image: AP Photo/Jae C. Hong
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The birth of the modern diversity-recruitment industry can be dated to Oct. 11, 2013.

That’s the day Tracy Chou, an engineer at Pinterest, published a post on Medium laying bare her company’s poor record at hiring women engineers. Within a week, employees at dozens of tech companies followed. The next year, tech giants like Google, Facebook, and Apple formally issued reports showing they, too, had dismal results in hiring women, along with black and Hispanic workers. By 2016, 250 companies across a wide swath of industries were sharing their data.

By going public with these numbers—and with their commitment to improve their hiring record—the companies challenged themselves. And when they failed to meet their own goals, they opened a window for a new set of businesses that saw an enormous, and lucrative, opportunity.

Fortune 500 companies spend a collective $16 billion annually on hiring, or roughly $32 million per company, according to Ryan Williams. He’s a co-founder of Jopwell,  a startup that matches minority candidates with employers, via an online database. About $2.5 million a year is spent on recruiting minority candidates, a figure that will at least double, and could increase four-fold, in the next several years as employers scramble to catch up to a country where demographics are changing rapidly. By the 2040s, people of color will account for the majority of Americans, Williams notes. “We’re at the tip of the iceberg here, in terms of what companies are going to be (spending),” he says.

The potential size of the diversity-recruitment market is a reflection of the urgency felt by employers, and how much the conversation around diversity hiring has changed in recent years.

For decades, diversity recruitment was viewed by corporations as a worthwhile pursuit, but not essential, something companies did out of a sense of social obligation if at all. Efforts were mostly on a small scale, and the pipeline of prospective hires often was managed by nonprofits, like Sponsors for Educational Opportunity, that provided candidates with coaching and mentoring.

That began to change as corporate America woke up to the growing buying power of US minorities. Hispanic consumers just in the US, for example, are projected to spend $1.7 trillion in 2020, almost eight times more than in 1990. Gradually, executives realized that marketing to black and Hispanic customers is more effective when black and Hispanic people are involved from the outset, and it helps companies avoid blunders like naming their coffee chain “Beaner’s,” a slur for Latinos, a mistake that cost more than $1 million to fix (it’s now called Biggby Coffee).

But the biggest shift from thinking of diversity as a public good to a business imperative came in the last decade, once it became clear how diversity improved group decision-making. Research showed that teams with more women outperformed male-only teams, and groups of students with diverse racial backgrounds did better than homogeneous teams with higher test scores.

Corporate America’s monochromatic executive teams weren’t just an embarrassment for progressive CEOs; they were a business liability. McKinsey reported that ethnically diverse companies outperform their peers by 35%. And in a Korn Ferry survey of 400 executives, 96% said diversity and inclusion could improve their bottom lines.

Nothing motivates business like a threat to its profit margins. At many companies, diversity and inclusion has now moved from an obscure corner of the HR department to become a corporate priority, opening the floodgates of spending on consultants and vendors eager to solve the problem.

In theory, the diversity-recruitment industry is one that should spell its own demise. Once women and minorities are represented in significant numbers, there shouldn’t be a need for extra efforts to recruit them. But in a world where just 1% of Google’s engineers are black, and only 18% of Microsoft’s leaders are women, there’s no reason to believe Jopwell and its competitors won’t be in business for years to come.