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Race and business ownership and leadership in America

National

Latino

Axios Latino

When a bank turned down George Johnson for a business loan, he got creative. He returned and told the bank he needed $250 to take his wife on a vacation — and was approved. Then he invested the cash in his business, which became the first Black enterprise to trade on the American Stock Exchange. 

Why it matters: The highways to success in the U.S. market economy — in entrepreneurship, corporate leadership and wealth creation — are often punctuated with roadblocks and winding detours for people of color. 

 George E. Johnson in his office holding a few of the products made by Johnson Products Co., Inc.

 George E. Johnson in his office holding a few of the products made by Johnson Products Co., Inc. Photo: Bettmann/Getty Contributor

The story of how Johnson created his namesake company exemplifies the barriers Black Americans face in building a business decades after slavery and Jim Crow laws.

Born in a three-room sharecropper's shack in Mississippi, Johnson dropped out of high school and worked as a door-to-door cosmetics salesman.

Johnson and his wife Joan used their "vacation loan" and another $250 loan from a friend to create a hair relaxer for men in the 1950s, then promoted their products in Black-0wned magazines and newspapers.

Eventually, the personal care products company vastly expanded after advertising on "Soul Train," the American music-dance television program created by Don Cornelius, another Black risk-taker.

But the Johnson company's rise relied on the couple outsmarting a banker and finding other Black-owned businesses to promote their products, highlighting the discrimination in banking and the systemic barriers they had to navigate to access capital and markets.

Despite a jarring racial wealth gap, there are many examples of successful Black, Latino, Asian and Native Americans in business. Lesser known are the systemic roadblocks that these communities and businesses face.

McDonald's became one of the greatest generators of Black wealth in America, historian Marcia Chatelain wrote in "Franchise: The Golden Arches in Black America."

The chain sought Black franchise owners after 1968, provided jobs in impoverished areas, and sponsored Black Little League teams and gospel choir events.

But the proliferation of fast-food restaurants in communities of color gave rise to obesity and diabetes and added to health care costs.

A group of Black franchise owners last year accused McDonald’s of racial discrimination for steering them to underperforming stores. Last Tuesday, a federal judge dismissed a lawsuit brought by the owners.

In cities across the U.S., local Black business communities have been demolished in the name of “urban renewal.”  

In the Jackson Ward neighborhood of Richmond, Virginia, the turn of the 20th century gave rise to "the birthplace of Black capitalism." But laws creating the Jim Crow South and construction of Interstate-95 through the area destroyed those thriving enterprises.

On Chicago's Maxwell Street, a flourishing Mexican American business community and hub for the area's diverse immigrant culture was mostly demolished over decades to make way for the expansion of the University of Illinois at Chicago. 

In New Orleans and Kansas City, a cohort of mostly white bureaucrats saw nonwhite areas, with cheaper land and less solidified political opposition, as fit for demolition, following a national playbook that ran "urban renewal" construction.

The bottom line: The U.S. provides economic opportunities for all Americans through entrepreneurship, professional achievement and investments. But for nonwhite Americans, systemic barriers remain an obstacle to creating wealth.

People of color make up 40% of the nation's total population, yet the typical white family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family, according to the Federal Reserve.

1. The separate and unequal paths in business

The highways to success for people of color are often punctuated with roadblocks and detours.

Illustration of a path ricocheting between traffic barriers. 

Deep Dive: Hard Truths - Business Ownership and Leadership

Latin America and Latinos

When a bank turned down George Johnson for a business loan, he got creative. He returned and told the bank he needed $250 to take his wife on a vacation — and was approved. Then he invested the cash in his business, which became <a class="gtmContentClick" data-vars-link-text="the first Black enterprise" data-vars-click-url="https://www.wsj.com/articles/joan-b-johnson-helped-build-hair-care-empire-then-sold-it-11568385001" data-vars-content-id="fb5b50ce-c884-4bd7-9d13-668334ed11de" data-vars-headline="The separate and unequal paths in business" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.wsj.com/articles/joan-b-johnson-helped-build-hair-care-empire-then-sold-it-11568385001" target="_blank">the first Black enterprise</a> to trade on the American Stock Exchange. Why it matters: The highways to success in the U.S. market economy — in entrepreneurship, corporate leadership and wealth creation — are often punctuated with roadblocks and winding detours for people of color.

2024 will be an election year like no other, as President Biden seeks re-election amid economic uncertainty, two wars and questions about his age. His likely foe, former President Trump, faces felony charges and vows revenge on his political enemies. Meanwhile, Americans generally are dissatisfied with those choices and are divided over immigration, race, education and more.

Politics & Policy

Top stories & latest news on the Federal Reserve, real-time data, plus the biggest shifts happening in the U.S. and global economy.

Economy

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Pro Rata

Axios Pro Rata

Number of U.S. businesses owned by selected racial/ethnic groups, 2018

 Data: U.S. Census Bureau, Annual Business Survey. (Hispanic respondents also identify with a racial group, so they are double counted.) Chart: Connor Rothschild/Axios

Only 18.3% of American businesses are minority-owned, according to the U.S. Census Bureau, despite minorities comprising 40.3% of the population. 

Why it matters: Business ownership can create wealth, and wealth begets wealth in America.

The inequality might be even more severe than the numbers suggest, given that they were compiled before the pandemic. Businesses owned by Black, Latino and Asian Americans were decimated in 2020.

The National Bureau of Economic Research estimates that the number of Black business owners decreased by 41% between February and April of 2020, while Latino business owners fell by 32% and Asian business owners declined by 26%. White business ownership was off by 17%.

One reason for the higher closure rate is that minority-owned small businesses tend to have smaller cash buffers than do white-owned small businesses, according to the JPMorgan Chase Institute. They often are much more likely to be sole proprietorships and to have been around a shorter period of time, according to the Small Business Administration. 

And the New York Fed notes that many Black-owned businesses are concentrated in cities hit hard by the virus.

Historical factors that have contributed to the relative lack of minority-owned business include discriminatory bank lending practices, less inherited wealth, a homogeneous venture capital industry and distrust of white-controlled institutions.

The bottom line: America cannot seriously begin to close the income inequality gap until it begins to close the business equity gap.

2. The inequality of business equity

America can't begin to address income inequality until it begins to close the business equity gap.

Only 18.3% of American businesses are minority-owned, according to the <a class="gtmContentClick" data-vars-link-text="U.S. Census Bureau" data-vars-click-url="https://www.census.gov/newsroom/press-releases/2021/annual-business-survey.html" data-vars-content-id="ac5cd902-34f0-4363-b933-553304e0aeb7" data-vars-headline="The inequality of business equity" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.census.gov/newsroom/press-releases/2021/annual-business-survey.html" target="_blank">U.S. Census Bureau</a>, despite minorities comprising 40.3% of the population. Why it matters: Business ownership can create wealth, and wealth begets wealth in America.

Finish Line

Axios Finish Line

There's a broken pipeline to the C-suite for executives of color in Corporate America.

The big picture: If companies continue at their current glacial pace, it'll take nearly a century for Black and Latino professionals to get to proportional representation at the manager level.

"Workforces are so diverse, but organizations are still homogenous at the top," says Anuradha Hebbar, the former head of diversity at Verizon. "Fixing that really needs to be about sweeping cultural change."

Latinos account for about 18% of the U.S. labor force and own 1 in 7 small businesses but hold just 4% of executive roles and less than 3% of Fortune 1000 company board seats. That’s the widest gap between representation in the labor force and executive positions of any racial or ethnic group.

Black Americans make up around 13% of the workforce. They're proportionately represented in entry-level professional jobs (12%), but underrepresented at the manager level (7%). And they occupy just 4% of senior manager, VP and SVP roles.

Asian Americans make up 6% of the labor force and hold a whopping 27% of professional jobs but don't always rise through the ranks: They hold about 13% of executive roles. 

What's happening: There are a slew of structural inequities keeping people of color out of leadership roles.

Networks: Studies have shown people often hire, mentor and eventually promote those who look like them. That means older white men continue to be power brokers at companies of every type and size.

When trying to raise capital for a startup, "it was such a grueling process to even get meetings with people," says Andrew Sampson, founder and CEO of the app Rainway, who is Black. "It was the lack of having a network."

Geography: 60% of Black workers live in the South, which has far fewer hot job centers than other parts of the country, per a McKinsey analysis. Put another way, only 1 in 10 Black workers live in cities with high projected growth, like Seattle or Provo, Utah.

Turnover: Attrition rates for Black and Latino professionals at companies are disproportionately high, often because they don't feel respected or valued at work. It's a vicious cycle as a history of leaving jobs can make it more difficult to get the next job.

The bottom line: As corporate leaders have increasingly louder voices in society, influencing public policy and sentiment, it's even more critical that the diverse makeup of the country is reflected in the C-suite. But America is far from that parity.

3. The broken pipeline

A century will pass before Black and Latino professionals rise proportionately to the managerial level.

Illustrated collage of a woman sitting at an office desk next to a person looking through a filing cabinent 

Photo illustration: Sarah Grillo/Axios. Photo: FPG/Archive Photos/Getty Images

There&#x27;s a broken pipeline to the C-suite for executives of color in Corporate America.The big picture: If companies continue at their current glacial pace, it&#x27;ll take nearly a century for Black and Latino professionals to get to proportional representation at the manager level.

Climbing the corporate ladder is one of two paths to financial success — but getting to the top in America is nearly impossible for people of color. 

Why it matters: Having to navigate blind spots at all levels of the corporate chain creates a system of barriers that can be hard for organizations to acknowledge, much less address. 

How it works: People don’t become CEOs by twist of fate. There’s intentionality in succession planning.

The underrepresentation in the C-suite endures despite a growing pile of evidence that diversity is good for the bottom line. 

Demographics of Fortune 500 CEOs

Adapted from a report by Richard L. Zweigenhaft; Chart: Connor Rothschild/Axios

“The lack of Black representation has to do with a system of unconscious biases inherent in some individuals and organizations. There are systems masquerading as meritocratic, that when you dig deeper, are not,” says Bradlee Benn, who co-leads executive search firm Russell Reynolds Associates' diversity and inclusion practice.

People of color on a path to leadership often confront a system that looks like this: 

Affinity bias: The inclination to choose people who are similar to ourselves is prevalent, notes Russell Reynolds' recent report on Black leaders.

It can be harder for employees of color to make networking connections with senior leaders in their firms — almost always white — who will sponsor them. 

“Human nature is to hire people who look and act like you. People by nature look for commonality,” Lyndon Taylor, managing director at executive search consultant Heidrick & Struggles, tells Axios.

Hiring, compensation and promotion processes that are perceived as objective aren't actually objective if they're not uniformly adhered to, adds Benn.

The P&L pipeline: Roles that feed into the C-suite are typically those overseeing the largest client accounts or major financial profit-and-loss (P&L) responsibilities. 

But employees of color — and women — are underrepresented in those roles and instead often wind up heading teams like human resources or marketing. 

A higher standard: People of color are often underestimated. 

Nearly 60% of Black P&L leaders interviewed in a Korn Ferry study described having to work twice as hard — and accomplish twice as much — to be seen on the same level as their colleagues. 

Board barriers: Historically white and male boards of directors haven’t been known for pushing for diversity in the C-suite. 

“The importance of having diverse representation on the board links directly to succession planning,” says Taylor.

Fortune 500 total board seats by race/ethnicity

And yet, the financial benefits of leadership diversity can be significant. 

McKinsey found that ethnically diverse executive teams are 36% more likely to see top financial performance.

Boston Consulting Group determined that companies with above-average leadership diversity generated innovation-related revenue 19 percentage points higher than companies with below-average diversity. 

What to watch: The COVID pandemic has led to lost jobs, career changes and mass resignations — creating an opportunity for some companies to rebuild.  

"This is the time where organizations scaling up their workforces can be very intentional about recruiting diverse and underrepresented talent," says JT Saunders, chief diversity officer at Korn Ferry.

4. Why the C-suite is out of reach for people of color

Underrepresentation in the C-suite endures despite a growing evidence that diversity is good business.

Climbing the corporate ladder is one of two paths to financial success — but getting to the top in America is nearly impossible for people of color. Why it matters: Having to navigate blind spots at all levels of the corporate chain creates a system of barriers that can be hard for organizations to acknowledge, much less address.

Macro

Axios Macro

More than ever, businesses are being pressured — by employees, consumers and shareholders — to fix systemic problems they have helped build.

Why it matters: The top ranks of America's businesses have a huge void of people who look like the Black, Latino, Asian and Native American consumers from whom they collectively rake in billions of dollars each year. 

The big picture: Since the Civil Rights era, companies have been called on to make decision-makers less white and more representative of the nation. The textbook strategies companies tout — diversity training, for one — have largely failed. 

"There's been a lot of lip service. It's the optics of doing something," says Jennifer Brown, a diversity and inclusion consultant who's worked with at least 1,000 companies.

"Even the persuasiveness of the business case for diversity has not been enough to compel companies to view it as beyond a nice to have," says Brown.

Diversity training started to crop up to “protect [companies] against and settle civil rights suits,” Billy Vaughn, who’s studied the history of diversity training, wrote in 2007. 

It's ballooned into a billion-dollar industry. The sessions are a quick fix (they're rarely longer than an hour) for a problem they alone won't ever solve.

"Expectations for what diversity training is going to do is too high," says Stephanie Creary, a management professor at the University of Pennsylvania. "It might teach people about unconscious bias, but it's not going to all of a sudden make people be less biased in their behavior."

Employee resource groups are often "the engine of [a company's] diversity strategy. It's the groundswell ... but it's the most blatant example of a side hustle," Creary says. 

Black employees at Xerox created the nation’s first ERG in 1970, per Diversity Inc. Now there are other groups for people of color and other underrepresented groups at work. 

Yes, but: Their efforts are a) on top of day-to-day responsibilities (though a small number of companies are starting to pay these leaders), and b) rarely taken into account when it comes to promotion considerations. Plus, their budgets can be limited.

What's next: In the past year, corporations threw their financial might behind external efforts — donations to civil rights organizations, funding for initiatives to tackle the racial wealth gap and spending with Black-owned businesses.  

5. Corporate America's leadership lens turns inward

"Expectations for what diversity training is going to do is too high."

More than ever, businesses are being pressured — by employees, consumers and shareholders — to fix systemic problems they have helped build.Why it matters: The top ranks of America&#x27;s businesses have a huge void of people who look like the Black, Latino, Asian and Native American consumers from whom they collectively rake in billions of dollars each year.