Although many companies track and report on their supplier diversity spend, the definition of ‘diversity’ varies from company to company. Some require third-party certifications that attest to the ownership structure required to quality for such a program, while other companies allow suppliers to self-certify, essentially testifying to their own diversity status without oversight from a third party.
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.
While only counting certified diverse suppliers limits company credit to a subset of their actual diverse supplier spend, it brings with it the lowest level of risk and brand exposure. On the other hand, while there is some risk to allowing suppliers to self-identify as diverse, it opens the door to including suppliers that are too small or resource-constrained to go through a formal third-party certification process. In theory, these are the very companies that diversity supplier programs are designed to support.
In this 2-part blog series, I will consider both sides of the third-party diversity certification question. In part 1, I addressed third-party certifications, and in this post, I will explore the pros and cons of self-certification.
When is Self-Certification Appropriate?
Many suppliers simply cannot afford to secure a diversity certification, especially if the ROI is not clear to them in the short term. This often leaves small, woman-owned, minority-owned, and veteran-owned businesses out of official tallies, without the support of the diversity program coordinators.
When companies accept self-certification, they usually require the supplier to complete a standardized form to make their declaration. By allowing self-certified diversity suppliers to participate in corporate programs, companies are able to help more suppliers and also report diversity spend numbers that are closer to their actual figures.
Can Self-Certifications Hurt Diverse Suppliers?
Earning a diversity certification represents an opportunity to differentiate and offset any disadvantage traditionally associated with the category to which the supplier belongs. Third-party certifications offer authenticity and rigor, protecting the investments of the supplier and the support of the buy-side corporation. This authenticity is earned through transparency, audits, and the effort required to gather a great deal of supporting documentation.
When suppliers are allowed to self-certify, they may end up claiming a status that they believe they have earned, but have not. For instance, the requirements associated with ownership v. day-to-day management may create confusion. A business where women own 51% but which is operationally run by men may not actually qualify as woman-owned. Although this does not represent malicious intent, it does take business away from other companies that have made the investment of time and resources to earn a certification. It also exposes the buying corporation to risk if it is revealed that they have taken credit for non-diverse spend – again, without intending to inflate their numbers. Making exceptions for ‘one-off’ cases may seem like the accommodation of necessary exceptions, but it can create cracks in the foundation of a formal supplier diversity program.
Diversity certifications exist to identify and compensate suppliers who have faced identity-based disadvantages. Without independent oversight and validation, there is a chance that an entire program can disintegrate, undermined from within. Suppliers that earn certifications should be rewarded in a way that is commensurate with their investment – raising the question: if everyone doesn’t have to be certified in order to realize those advantages, why should anyone?
At the same time, earning a certification is not realistic for many diverse-owned companies. If a company is more concerned with protecting their reputation than assisting actual (v. certified) diverse suppliers, perhaps they should re-examine the motivations for their diversity supplier program and level of trust for their current suppliers.
The reality is that there are advantages and disadvantages associated with third-party certifications and self-certifications. Each company has to make the decision for itself where the greatest benefits and risks lie. Should the emphasis be on including more suppliers? In that case, self-certification may be appropriate. Does the company need to meet regulatory standards for their diverse supplier reporting? In this case, it may be worth having more conservative numbers to minimize the risk of non-diverse suppliers slipping through.
To learn more about supplier diversity certification, help answer questions, or get advice on starting your program, schedule time to meet with us.