How DEI backlash is hurting Black-owned businesses

As negative perceptions around diversity, equity, and inclusion surge, Black businesses are seeing the heightened support post-George Floyd wane, specifically investment opportunities and access to capital.

This trend is particularly noticeable to Black midsize business owners, according to a qualitative survey from Wells Fargo analyzing the opportunities and challenges Black middle market business leaders face. The companies in the Wells Fargo survey had annual revenues ranging from $20 million to $500 million.

Moses Harris, Black/African American segment leader for Wells Fargo commercial banking, emphasizes the potential of Black-owned middle market companies. Despite their current rarity, these companies are among the fastest-growing in an overlooked but incredibly powerful part of the economy. Their 17.7% year-over-year revenue growth from 2022 to 2023 significantly outpaced the total middle market’s 12.4%.

Supplier diversity programs, designed to actively seek out suppliers and service providers certified as minority business enterprises, have been a key driver of their success. That's become less true as DEI backlash—both willingly and unwillingly—stunts large companies' efforts to grow diversity in their supplier base.

Another contributor to the private sector's diverse business pullback is the realization that investing in minority-owned companies is a long-term play. “We see it with some of these really large initiatives that say, ‘We want to grow Black women businesses to X amount of revenue.' Some industries just aren't VC-oriented. Some industries grow at a 2% to 3% range, which is normal.” Harris says, noting that most of his commercial banking clients grow between 2% to 5% annually.

“Hypergrowth isn't sustainable, and it's actually tough to control and manage," Harris says. "We've put a lot of undue pressure on Black businesses to scale rapidly like that overnight, and that's why we're seeing some of the support waning because it's really fatiguing." He adds: “And if we're being honest, most people's livelihood doesn't depend on whether Black businesses are successful or not."

Another interesting finding from Wells Fargo's surveyed respondents is that programs that contribute to the initial success of Black-owned firms can end up limiting their future growth or create a ceiling, especially as Black-led companies exceed size or revenue thresholds. The need to maintain majority-Black ownership to qualify for certain DEI certifications and programs can also hamper growth for organizations wanting to access capital to scale their business. That restricts Black-owned businesses' ability to get big enough to be competitive with larger majority-owned firms.

Supporting Black-owned middle market companies will require stronger public-private partnerships, backing from procurement officers, and financial institutions to think about credit differently and set up various avenues and pools of capital to assist diverse businesses. It will also require a collective understanding that this isn’t just a Black issue, Harris says. He recalls attending a recent event in which Black participants were asked what racism had stolen from them.

“But we don't really ask white people, 'What has racism stolen from you?’ And I think unequivocally, as American citizens, we can say that this cost us all $16 trillion due to the lack of inclusion for diverse businesses,” Harris says, citing a 2020 Citigroup analysis. "It's better schools, better roads, better transportation. It’s all the things we can do with all that extra capital. That's why this matters.”

Ruth Umoh
@ruthumohnews
ruth.umoh@fortune.com

This story was originally featured on Fortune.com