The writer is the founder and CEO of Lafayette Square
The murder of George Floyd and the protests that followed have given new urgency to the American debate on racial injustice. We have made progress – racial equity is now a goal in capitals and council chambers, and we have seen some examples of police reform.
But, as a black man who has spent decades on Wall Street, I can say from experience that we will not achieve tangible progress without economic justice. And that will only happen when people of color and women have the opportunity to start and grow successful businesses, build wealth, and create opportunity in marginalized communities.
Corporate America has pledged to spend $50 billion to achieve racial equity. But while impressive, the capital is less important than how it will be deployed. Before the money can be put to work, we need to address the fact that people of color and women are grossly underrepresented among business owners. They are also a very small segment of the investment industry.
Only about 2.2% of U.S. companies large enough to have paid employees are black-owned, 5.8% Latino-owned and 19.9% women-owned. There are only 20,000 minority- and women-owned mid-market businesses (with revenues of $10 billion to $1 billion), a surprisingly low number given that there are 44 million black people, 61 million Latinos and 169 million women in the United States. Only 11% of minority-owned small businesses had employees other than the owner.
Big banks approve about 60% of loans sought by white small business owners, but the rate drops to just 29% for black owners. Companies owned by women and people of color manage a meager 0.9% of the industry’s more than $70 billion in assets.
To achieve economic justice, more women and people of color need to become entrepreneurs and build businesses that can positively impact communities. This means providing affordable housing and services, supporting the success of other small and medium-sized businesses, and enabling people of color and talented women to build successful investment businesses that drive financial inclusion.
There is a growing talent pool of women and people of color within America’s big business who have the skills to become successful entrepreneurs. Female and minority executives are now more sought after and enjoy better job security, earning opportunities and influence within their companies. Paradoxically, such “golden handcuffs” can discourage entrepreneurship. Having finally climbed the corporate ladder, they may be reluctant to leave secure employment with the company. I spent over a decade on Wall Street before going out on my own.
I call on women and people of color to take the leap and build businesses at scale. Policy makers can and should provide solutions at the institutional level to help mitigate entrepreneurial risks, in particular access to capital needed for growth, technical assistance in setting up and running businesses, and business models. profit-making success stories that these entrepreneurs can emulate. Our society must also help women and minority entrepreneurs support each other when making decisions about hiring employees, building supply chains, and locating their businesses.
More than 10% of new board members appointed in 2020 were black, compared to a historic rate of around 4%. This increased influence on boards can be used to hold companies accountable to their investments and supply chains.
By the next anniversary of the murder of George Floyd, I hope we can see real progress in the number of people of color and women building businesses, supporting fellow risk-takers, and creating economic opportunity. This can only happen if they use entrepreneurship to empower themselves, each other and the community.