Diversity and Inclusion programs are one of the top priorities for executive teams today. Businesses are trying to find ways to move the needle on diversity spend – partnering with suppliers in defined segments of the community for their own benefit, as well as for the returns realized by the company itself.
The natural place to start with a supplier diversity program is in understanding the current number of diverse suppliers contracted within each spend category and how much business is done with them. In order to do this, most companies start by looking at their certified diverse suppliers, companies that have gone through a third-party process and can be identified in systems using existing data sources.
Certified diverse suppliers and diverse suppliers are not quite the same things. There are many suppliers who meet the conditions for diversity status who haven’t gone through the certification process. Should they be allowed to self-certify and count towards the company’s targets? The answer to that question depends on your industry, your reasons for wanting to invest in supplier diversity, and the perspective of your leadership team.
In this 2-part blog series, I will consider both sides of the third-party diversity certification question. Since there is no one right answer to this question that applies to all companies in all circumstances, it is a subjective issue that should be discussed by decision-makers before deciding upon and communicating any corporate policies.
What is the Value of a Third-party Diversity Certification?
Given the advantages of working with (and being) a diverse-owned supplier, a number of formal certification programs are available. Earning a certification requires the company to gather documentation that supports their claim that the business is owned managed as declared. Most third-party certifications require that the business not only be 51% owned by someone in the diversity category, but also controlled, operated, and managed in accordance with the declaration. All of this ends up being validated by a third party.
- Minority-owned suppliers - National Minority Supplier Development Council: (NMSDC)
- Women-owned suppliers – Women’s Business Enterprise National Council (WBENC)
- Small businesses - Small Business Administration (SBA)
- Veteran-owned suppliers - National Veteran Business Development Council (NVBDC)
These independent organizations ensure that the companies claiming membership in the category they represent deserve them and that they stay in compliance with ownership, workforce, and board-level expectations. Certifications must be renewed on a regular basis, making it easier to keep this information up to date so diversity investments and support go to the companies for which they are earmarked.
A critical factor in the value of independent validation is that the certifying bodies have no incentive to approve suppliers that don’t meet their standards. This, in turn, plays a crucial role in protecting the integrity of corporate diversity programs. By steering clear of conflicts of interest, they can protect the companies that contract with these suppliers from taking credit for diversity numbers they have not achieved.
Are There Downsides to Requiring Third-Party Diversity Certification?
Despite the numerous benefits of third-party diversity certifications, there are drawbacks as well. First and foremost, the process is time-consuming and can be quite expensive. For diverse-owned suppliers that also happen to be small businesses, the time and resources required to secure such a certification are not always available. This blocks many suppliers from participating in the process, keeping certified diverse spend and actual diverse spend from aligning.
When companies, especially large enterprises, insist that their small/diverse suppliers obtain certifications, they may be doing themselves a double disservice:
- Demonstrating a lack of understanding of what is required to get through the process and creating negative feelings from the suppliers where their original intent was to create goodwill.
- Indirectly limiting their diverse supplier relationships to those organizations large enough to have the personnel and resources needed to complete the process, thereby abiding by the letter but not necessarily the spirit of the diversity and inclusion movement.
There are many advantages to be gained by building a diverse supply base, including increased supply chain resiliency, enhanced innovative potential, and consumer goodwill/brand loyalty. These benefits drive companies to emphasize and nurture their known existing diverse supplier relationships, as well as to proactively invite new diverse suppliers to participate in upcoming sourcing opportunities. Insisting upon third-party certifications reduces risk to the company, but it may limit the good that can be done in the actual diverse supplier community.
In part 2 of this series, I will look at the other side of this issue by making the case for diversity self-certification.