Analysis: Racial bias could be hurting Silicon Valley's bottom line

Apple shareholders will decide next week whether to force the tech giant to diversify its leadership -- possibly by tying executives' compensation to racial diversity goals -- in the industry's latest effort to grapple with a severe underrepresentation...

Analysis: Racial bias could be hurting Silicon Valley's bottom line

Apple shareholders will decide next week whether to force the tech giant to diversify its leadership -- possibly by tying executives' compensation to racial diversity goals -- in the industry's latest effort to grapple with a severe underrepresentation of blacks and Latinos in its ranks.

The long-shot shareholder proposal, aimed at moving people of color into Apple's C-suite, comes amid accusations of racial bias at various tech firms from customers, researchers and federal investigators.

There was Google's image recognition software that initially identified photos of black people as gorillas in 2015. Then last year, Airbnb, Uber and Lyft confronted a barrage of complaints after studies found evidence of discrimination against black customers trying to book lodging and hail rides.

Now, Oracle, a computer software giant, and Palantir, a data mining startup that has worked with the FBI and CIA, face losing their government contracts after lawsuits filed by the Labor Department accused the Silicon Valley companies of discriminatory hiring practices.

Companies that fail to diversify, from management on down, risk hurting their bottom lines, say some shareholders, investors and other advocates of diversity.

"This is not a social issue. This is a business issue. They are leaving money on the table," said Tony Maldonado, an Apple shareholder pushing the proposal along with Boston-based Zevin Asset Management, which markets itself as a socially responsible investment firm.

More than 170,000 tech enthusiasts from around the world gathered in Las Vegas this week for CES to see the latest in awe-inspiring innovations.

More than 170,000 tech enthusiasts from around the world gathered in Las Vegas this week for CES to see the latest in awe-inspiring innovations.

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In addition to linking compensation with diversity goals, Maldonado also wants the company to regularly disclose a comprehensive set of metrics such as attrition, promotion, and wages, broken out by race and ethnicity.

Apple's board has urged shareholders to reject the proposal during their annual meeting next Tuesday at its Cupertino, California, headquarters, saying the company is already engaged in ongoing holistic efforts to diversify. The proposal, the board said, is "not necessary or appropriate" because of the progress that's been made, according to a filing with the U.S. Securities and Exchange Commission.

In the SEC statement opposing Maldonado's proposal, Apple said that it has launched a $40 million partnership with the Thurgood Marshall College Fund to create opportunities for student from historically black colleges and universities to pursue careers in the tech industry. The company hired 33 students from these schools as summer interns last year. Apple also said it already discloses some statistics about the progress of its diversity initiatives.

But Maldonado said change is not happening fast enough. A self-described conservative Hispanic who voted for Donald Trump, Maldonado said he's mystified as to why a company that proclaims to be progressive would not feel more urgency to diversify its upper ranks.

Maldonado, the executive creative director of IGRP Insignia Entertainment in London, said he became an active proponent of tech diversity beginning 2015, following a discussion with his teenage son about college and career prospects.

"He said, 'Ooh, look, how male and how white,'" said the 49-year-old father, recounting his son's quip upon seeing Apple's leadership team while scrolling through the company's website. "Apple is a very successful company, but they are being hindered by having a myopic view. When only five out of 107 executives are people of color, there's a problem there."

At Apple, 27 percent of the company's latest U.S. hires were from underrepresented racial and ethnic groups, but only 7 percent of the leadership is Latino and 3 percent is black, according to Apple's website. Blacks and Hispanics each make up 8 percent of the company's tech workers.

An Apple spokesman who said he was not authorized to be quoted told The Post that the company prefers to promote within its ranks, so change at the senior level will take time.

Maldonado acknowledged that his proposal is unlikely to pass. It failed last year, with support from just 5.1 percent of shareholders. But that was enough to meet the 3 percent threshold for him resubmit it again. This year the proposal must reach a 6 percent threshold, or else he will be barred from resubmitting it for three years.

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A report released this month by Open MIC, a New York nonprofit working with investors to increase diversity in the tech industry, showed that blacks and Latinos each make up just 5.3 percent of professionals in the U.S. tech industry. Meanwhile, whites make up 68 percent, and Asians make up 19.5 percent. The report analyzed 2014 data collected by the U.S. Equal Employment Opportunity Commission.

Whites and Asians are over-represented in the tech sector compared to their representation in the private sector, whereas blacks and Hispanics are almost half as likely to work in high tech as they are in elsewhere in private industry.

While Asians are represented at a higher rate in the tech workforce than the private sector overall, whites are 1.5 times more likely than Asians to rise to an executive rank, the report said. At the executive level, 83.3 percent are white, 10.6 percent are Asian American, 3.1 percent are Hispanic, and 2 percent are African American.

"There are certain social justice concerns here but the real argument is that diversity makes for better business," said Michael Connor, executive director of Open MIC. "If the workforce doesn't reflect the customer base, you're in trouble."

Issues of racial diversity often take a back seat to gender diversity in tech, the report said. For example, Uber is now mired in allegations of sexual harassment and a toxic work culture that recently came to light. But increasing opportunities for people of color in a fast-growing, high-paying industry is a critical step toward reducing social inequality, Connor said.

Uber CEO Travis Kalanick is slated to meet with Rev. Jesse Jackson in coming days on its diversity efforts. Jackson has been pushing the company to diversify its workforce as it expands into Oakland. Uber has not released the racial and ethnic demographics of its workers.

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It's not for lack of a pipeline, an excuse companies often use when they fail to diversify. Blacks and Latinos earn nearly 18 percent of computer science degrees, yet hold barely 5 percent of tech jobs, according to the report. Women of color face an even tougher road.

"People are now realizing that tech is not a meritocracy, but this is where tech has been for the past 50 years," said Ellen Pao, an investment executive and chief diversity and inclusion officer at the Kapor Center for Social Impact.

Pao, former Reddit CEO, made headlines in 2015 for her unsuccessful gender bias lawsuit against her former employer, the venture capitalist firm Kleiner Perkins. She resigned from Reddit later that year following vicious on-line attacks against her efforts to tighten restrictions on harassment, changes her critics viewed as censorship.

Pao attributes the current demographics of tech -- a bastion of white men -- to the industry's start more than 50 years ago in the San Francisco Bay Area by nearly all white men who hired their friends.

"That's where management and entrepreneurs and investors came from, and it's just created this pattern of white men investing in companies built by white men," Pao said.

Pao, who co-founded Project Include, an Oakland-based diversity consulting non-profit, said the research shows that diversity at the board level helps improve companies' financial performance. McKinsey & Company has reported that companies in the top quartile in terms of racial and ethnic diversity are 35 percent more likely to have financial returns above the national median in their industry. The consulting firm said the correlation may be because more diverse companies are better able to recruit top talent and improve their customer service, employee satisfaction and decision making, leading to increasing returns.

Every incremental percentage point in African American and Hispanic representation is linked with a 3-percentage-point increase in revenues, according to an Intel and Dalberg Global Development Advisors report highlighted by Open MIC. That means that the tech sector could generate an additional $300 to $370 billion each year if companies' workforce racial diversity reflected that of the talent pool, the report said.

"The change is coming and the earlier they incorporate diversity and inclusion, the better for their company and the bigger problems they will avoid," Pao said.

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The U.S. Department of Labor sued Oracle last month for discriminatory employment practices, alleging that the company has a systematic practice of paying white men more than women, black and Asian colleagues with the same job title. The suit also alleged that Oracle favored the recruitment and hiring of Asian workers for product development and other technical roles.

Oracle stands to lose hundreds of millions in federal government contracts if it does not change its hiring and compensation practices, because federal contractors are prohibited from engaging in employment discrimination. Oracle, whose CEO is a woman and past president is African American, told The Post it has no comment about the lawsuit.

The Department Of Labor in 2016 accused Palantir of discriminating against Asians in its hiring process by routinely eliminating them in resume screening and phone interviews for engineering positions, despite the Asian candidates being as qualified as white candidates. The company has denied the allegations.

Many tech companies have begun to prioritize diversity. Microsoft announced last year that it would begin tying executive bonuses to workforce diversity goals, following similar efforts at Intel, IBM and LinkedIn, according to the Open MIC report. Pandora publicly disclosed its goal of increasing its minority workforce in the U.S. from 35 percent to 45 percent by 2020, and to achieve gender, racial and ethnic parity in promotions by the same year.

Pinterest also publicly set diversity goals and boosted its hiring rates of underrepresented minorities by 8 percentage points for technical roles in 2015. And Facebook, taking a page from the National Football League playbook to diversify head coaches, has begun requiring that at least one candidate from an underrepresented group be considered for every job opening.

Our editors found this article on using Google and regenerated it for our readers.

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