A Fresh Idea: Why Not Just Be Fair to Everybody?

 

            One of my car buddies is a guy named Colin who was born and grew up in South Africa.  A strapping big square-jawed blonde guy of Dutch/German extraction, he gained US citizenship twenty-some years ago.  He started his own medical equipment distribution business, wherein he developed sales relationships with numerous small manufacturers of multiple lines of surgical and medical supplies.  He then would form buying relationships with the purchasing arms of hospitals, medical groups, surgical centers, outpatient clinics, and the like.  They would send him orders, he would ship from the manufacturers’ warehouses, and he would invoice the customer and pay the suppliers monthly.   

Being new to Atlanta and somewhat naïve, he sought to add Grady Memorial Hospital to his customer base.  Grady, an excellent hospital, renowned for its trauma center, is located in urban Atlanta and is administered by Fulton County.  As such, the residents of Fulton County provide funding in their real estate taxes.  Another good friend of mine was a physician on staff in Grady’s emergency room for a number of years.  When people asked him where he worked, his stock answer was “Grady Knife and Gun Club,” a reference to the late-night stream of gunshot and stabbing victims regularly passing through his ER.  They do a booming business, a large part of which is charity care and treatment of Atlanta’s indigent and uninsured of limited means. 

So Colin, my South African friend, laced up his selling shoes, called the purchasing office, and asked to make an appointment.  The clerk said that he would need to complete an application for review prior to any further steps.  She mailed him the forms, which he completed by hand.  Being a county hospital, Grady has a fairly rigorous set of guidelines which give preference to minority suppliers. In the application form, there was a minority status section asking whether the company’s ownership was any of the following origins, listing the standard selection menu of Eskimo, Native American, Asian, Hispanic, African American, Pacific Islander, etc.  He checked African American, which is precisely what he was.  Within days, orders starting showing up in his Post Office Box.  He had maintained this large, profitable customer for several years when he had the occasion to attend an on-site meeting with one of their purchasing executives, who assumed him to be a company salesman.  At some point in the meeting, Colin mentioned that he was the owner.  He received notice several days later by mail that his company had been de-selected, and the orders simply stopped. 

This all happened in the nineties, prior to the incorporation of Web-based application and qualification technology.  Grady Hospital’s web site now boasts an application template that says it all.  As with any template, with which we are all familiar from on-line shopping, there are certain blocks designated with red asterisks that require an entry to proceed.  These are critical areas such as the owner’s name, address, title, race, and gender.  There is a special section headed “This section only to be completed by women or minority owned firms.”  

Maybe I’m jumping to conclusions, but my guess is that if Grady can find a required provider of goods or services in this section, they won’t bother looking further—kind of a modern-day form of “Help Wanted – Irish Need Not Apply.”  

If forced to look beyond non-woman or minority owned companies, the race and gender of all other owners, partners, and shares of ownership percentage is the next most critical information required in the application.  

A striking feature of Grady’s application form is their glaring lack of interest in references, experience of the applicant company’s management, annual revenues, or any other element that might enable one to evaluate the stability, capability, or past performance of the prospective supplier.  Is it a wonder, with this approach to decision making, that Grady Memorial Hospital is in a state of financial crisis, in desperate need of more than two-hundred million dollars to remain solvent?  I am not suggesting that choosing suppliers based on excellence would have saved Grady.  I am suggesting that when an executive team demonstrates patent stupidity in one element of its management practices, its entire decision making process becomes suspect, starting with hiring practices, executive compensation, advancement and promotion, financial management—you name it.

Another good friend, who asked to remain anonymous, owns a company that does interior construction on retail outlets.  He was notified by his client that they were feeling pressure to increase their supplier percent participation of female and minority owned businesses.  Insofar as his bid had won the contract, he was asked to engage a particular minority owned firm, unknown to him, as sub-contractor. The retail chain added 15% to my friend’s bid, which he passed along to the sub.  The presence of the additional resource didn’t reduce his workload, considering the additional supervision and administration required in managing an unknown entity.  It had no impact on the outcome, but it cost the retailer’s stockholders a fifteen percent premium on a quarter-million dollar project.  If I’d been one of them, knowledge of this lunacy would have driven me to buy an airplane ticket and ask some pointed questions of the board at the annual meeting.  Was this a one-time exception or in broad practice across the chain?  Do they know and approve of this practice?  How do the rules of governance and fiduciary responsibility for my investment allow this to happen?  Predictably, they would have had no definitive answers, but the point would have been made for the benefit of all present, and you probably would have read about the melee that ensued.  

A close friend and business associate managed sales for a supplier to large manufacturers.  As with most high visibility, publicly owned companies, minority participation in their procurement program is generally forced upon large, stable suppliers as a condition for doing business. This enables the company to achieve a targeted level of what is commonly termed “diversity spend.” Most large companies pay a Diversity Officer to monitor hiring quotas and ensure that a portion of their supplier dollar is spent with companies classified as Woman or Minority-Owned Companies.  There is even an acronym applied to the practice: WMOC.  My friend had included a minority partner in a multi-year procurement contract.  The minority firm’s role was to send invoices for the goods, collect payments, take its cut, and disburse payment to my friend’s company, the large production supplier.  The minority partner never handled or took title to the goods. If there was a delivery, performance, or quality problem, the supplier, not the minority partner, got the 911 call.  The minority partner’s sole responsibility was to cash big checks and write smaller checks.  The business could have operated out of a post office box and a bank account, but this type of arrangement provides large companies, particularly those where consumers are the end user, the ability to quantify their support of minority-owned businesses. While it may appear to be hypocritical on the surface, it also appears to be hypocritical to its core and essence.  But I’m on the outside looking in, and I may be mistaken. 

In this particular case, my friend was left holding the bag at the end of the contract period for payment due on several large orders.  As he put it, “This guy is driving around in a new Mercedes and I’m out about eighty thousand dollars.”

At the time for contract renewal, John flew to his customer’s Midwest headquarters to attend a negotiation meeting with their procurement people.  He was prepared to offer another minority participation partner who had built an established and respected business.  When he offered the credentials of the minority participant, his customer’s procurement chief reviewed them and said, “Apparently you don’t understand.  We need you to include a minority partner.” 

John pointed out that the business owner was of Chinese extraction and, as an Asian American, qualified for minority status in accordance with federal guidelines. 

“No, it has to be a minority-owned company.  Chinese doesn’t count,” the customer replied. 

My friend, never one to mince words, replied, “Oh, you mean Black?  Well nobody ever told me that.  If this company doesn’t meet your requirements, I’ll take anybody you want, providing you indemnify me for any losses incurred for theft or non-performance by your partner.  The last one you sent me still owes me eighty grand.” 

“This meeting is over,” was the buyer’s reply, as he and his people rose from the table and left the room.   

This blatant hypocrisy in language, thought, and behavior makes me wonder why an otherwise respectable company, known for sound management, innovation, and excellence, closes one eye to principle and knowingly squanders shareholder value by adding premiums to the pricing of their suppliers so they can line the pockets of an unproven redundancy whose only value is the color of his skin.  I suspect it is because the Eskimos, Native Americans, Asian Americans, Pacific Islanders, and Hispanic interests haven’t yet developed legitimized shakedown artistry to the point where they represent a viable threat of boycott.  Again, this is only a suspicion.  While I’m confident that there are minority owned businesses in partner roles that perform legitimate services and add value through their participation, I’m just as confident that this and the other examples I cited are not unique aberrations.  There are probably more cases than just these.  I simply don’t know about them.

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