Greenlining’s Supplier Diversity Report Card on Contracting with Diverse Businesses; Large Gaps Remain

by 09/23/2020

UNEVEN PROGRESS IN CHALLENGING TIMES

America’s racial wealth gap was created by deliberate policy choices based on race, and solutions that don’t consider race and ethnicity simply won’t work. As our country tackles problems that disproportionately affect communities of color, from income and wealth inequality to climate change, we must face the origins of these challenges head-on. Historically, when public utilities contracted with outside suppliers, they did so using an “old-boy” network, which denied economic opportunity to businesses owned by people of color and by other historically marginalized groups.

Always on the cutting edge, California and many of the companies that operate here have long recognized that diversity is integral to good business, and that a diverse workforce and diverse procurement investment can help companies venture into new markets and increase shareholder value. Nowhere is this culture more apparent than in the groundbreaking supplier diversity efforts taken on by utility companies under the guiding principles of the California Public Utilities Commission’s General Order 156. The CPUC’s model for promoting supplier diversity in the industries it regulates has withstood the test of time and, when the policy is made a priority by the sitting commissioners, it has generated unprecedented results.

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Greenlining’s Supplier Diversity Report Card grades California’s energy, communications and water companies based on the supplier diversity reports the companies file with the California Public Utilities Commission. Our rankings are based on performance and improvement: Grades are primarily determined by the companies’ percentage spending, with adjustments made for significant increases or decreases compared to the previous year.

We make recommendations based on what we see in the numbers and what we hear from the companies themselves about their programs and practices. We advocate for supplier diversity because it creates economic gains on all sides: It promotes economic development in diverse communities, and by increasing competition and diversity in the supply chain, generates a better return on investment for companies that meaningfully engage in it.

SUMMARY OF FINDINGS

California’s energy, telecommunications and water companies remain at the forefront of supplier diversity achievements, with a “class average” well above their peers nationwide. However, companies could still do more to increase their contracting with diverse suppliers. In 2019, figures reported by the companies to the California Public Utilities Commission show that:

  • Only eight of the 22 companies included in our report improved their percentage of procurement dollars spent with Minority Business Enterprises in 2018. A broad gap remains between high performers and low performers—eight companies’ combined $593 million increase in dollar spending with MBEs offset the combined $372 million decrease by the other 14 companies.
  • With the exception of AT&T California, AT&T Wireless and California American Water, the companies’ spending with Black- Owned Business Enterprises continued to be a challenge. The companies’ combined spending with Black-owned suppliers fell almost 10 percent, while the companies’ combined dollar spending with Black women-owned suppliers dropped almost 37 percent.
  • While the companies’ spending on Asian American/Pacific Islander suppliers remained steady, just half of the companies showed improvement in this category.
  • Less than half of the companies increased their spending with Latino suppliers. Overall dollar spending in this category declined by over $32 million and remains unacceptably low.
  • The companies’ spending with Native American suppliers continued to see improvement, with 50 percent of companies reporting increased spending.
  • The companies’ spending with women-owned suppliers stayed relatively flat in 2019, dropping by almost $13 million. Promisingly, dollar spending with minority women-owned suppliers increased by almost $201 million.
  • The companies’ spending on LGBTQ-owned suppliers remained flat and still has a long way to go.
  • The companies’ spending with disabled veteran-owned suppliers continued to slip.

This year, only two companies (Verizon/MCI and Verizon Wireless) exceeded 30 percent procurement with minority-owned businesses. While their results were inconsistent, the companies spent a combined $9.4 billion with businesses owned by people of color, a $220 million increase over 2018. For the past several years, the water companies have engaged in a joint effort to create data-driven best practices that are showing measurable results. The water companies’ grades reflect this increased commitment.

REPORT RECOMMENDATIONS

1. Companies must focus on all categories. The companies’ overall performance in 2019 was for the most part adequate, but some categories still need improvement. Companies need to focus specifically on increasing their spending with Latino/Latina- and Black-owned suppliers, particularly Black women-owned suppliers.
2. Companies must address the marketplace availability of suppliers. The companies often report challenges with diverse spending in specific categories of work—for example, line construction and maintenance. This is especially challenging when a category of work with a lack of diverse suppliers constitutes a major portion of a company’s spending. For example, wireless companies often complain that there are no diverse suppliers of telephone handsets, and that they spend more on telephone handsets than any other company. Some companies have implemented successful short- and long-term solutions for this challenge. In the short term, they compensate for low diverse
spending in one category by increasing diverse spending in other categories. To address the problem in the long-term, they need to work with community-based organizations and national certifying organizations to identify diverse suppliers, technical assistance and capacity building for subcontractors, and speaking to investors about investing in diverse companies. All of the companies should be engaging in these best practices.
The contracting needs of specific companies can vary wildly, particularly from sector to sector. For example, a large part of electric utilities’ contracting involves electric line construction and maintenance work. There are, apparently, only two Black-owned contractors in the United States that do this work. While both of them are located in California, only one of them is certified as an MBE. This, of course, makes it difficult for electric utilities to contract with Black-owned suppliers for line construction work. In these instances, it is important for companies to identify, and help build the capacity of, companies that could potentially do the work.
3. Companies must include supplier diversity requirements when issuing Requests for Proposal (RFPs). Some companies reported including supplier diversity requirements in their RFP process (an RFP is, essentially, an invitation to bid on a specific contract). For example, Southern California Edison set a goal that at least 50 percent of bids on outside contracts come from diverse companies (according to the company, it not only achieved, but exceeded that goal, with an impressive 60 percent
of bids coming from diverse companies). Other companies reported imposing supplier diversity requirements on their direct contractors, requiring those direct contractors to identify and work with diverse subcontractors. Unfortunately, some companies do not appear to have implemented these best practices. We encourage them to do so.
4. Companies must plan ahead for supplier diversity spending. Some companies reported large drops in a category as a result of losing a contract with only one supplier, either as a result of a special project ending, a supplier’s closing down, or a supplier’s being acquired by a non-diverse company. Companies must plan early to identify diverse suppliers well in advance of these situations.
5. Supplier diversity programs must evolve to respond to the COVID-19 pandemic. The COVID-19 pandemic has severely disrupted companies’ plans—every single company we spoke with described the changes they would have to make in response to the pandemic. We commend the companies for taking steps to ensure that
their employees are healthy and safe and that their customers are not disconnected, and we encourage the companies to take action to provide the same security to their suppliers. Some companies reported planning to reduce or slow their spending in 2020 in response to the pandemic, and some reported having already done so.
Other companies reported plans to increase their spending, especially on contracts for strengthening and resiliency measures for their infrastructure in anticipation of wildfire season. Companies that reduce their spending in 2020 must ensure that diverse businesses do not bear the brunt of those spending reductions. Similarly, companies that increase their spending in 2020 must be vigilant about identifying and working with diverse suppliers.

The COVID-19 pandemic created a surge of demand for personal protective equipment for the companies’ employees, many of whom are essential workers. Many of the companies identified the need for PPE as a supplier diversity opportunity and sought out diverse suppliers that could pivot to making, storing and distributing PPE. The companies’ response to the need for PPE is a shining example of supplier diversity done right, and we thank them for recognizing the importance of contracting with diverse businesses, especially in times of crisis.

Many of the companies also reported increased efforts to ensure that their contractors can weather the pandemic, including streamlining the invoicing process, accelerating payment, and in some instances, even making advance payments for work.

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