CNBC Transcript: Ariel Investments Co-CEO and President Mellody Hobson Speaks with CNBC’s Sharon Epperson at the Inclusion in Action: CNBC Opportunity Forum
The following is the unofficial transcript of a CNBC interview with Ariel Investments Co-CEO and President Mellody Hobson at the Inclusion in Action: CNBC Opportunity Forum, which took place today, Thursday, March 18th. Video from the interview will be available at cnbc.com/inclusion.
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All references must be sourced to CNBC’s Inclusion in Action forum.
Mellody Hobson: Creating An Inclusive Economy
SHARON EPPERSON: Mellody Hobson, thanks so much for joining us for Inclusion in Action. Let's get right to it. You know, in corporate America, the focus on diversity and inclusion is often on growth and equity and hiring practices and, increasingly, in board development. Is that strategy enough to really create an inclusive economy? What more needs to be done?
MELLODY HOBSON: It's a great start but it's not enough. And what we would say is that more needs to be done as it relates to also just the business of the company and specifically what we call business diversity. Some people call that supplier diversity. At our black corporate directors conference, which brings together the fortune 500 Black and Latinx directors, we talk about the three P's – people, purchasing and philanthropy. The people issue, of course, is the board, the senior leadership and the people throughout the organization. The purchasing is where we think companies haven't spent as much time thinking about the business diversity out across all areas of spend, particularly the highest areas of spend – professional services, financial services and technology – putting some attention there to see how inclusive are our practices in terms of the vendors that we use. We think that it's another area where you can start to move the needle on equality in corporate America.
SHARON EPPERSON: And how do we ensure that this is a stable, sustainable way to increase diversity, equity and inclusion?
MELLODY HOBSON: For all three P's, we think you have to measure. It's very, very important to, as I like to say, math has no opinion. Have the math. And the only way you can do that is commit to having an annual review of these issues to see where you're gaining ground, where you're losing ground. The other thing that we talk about when you do measure, let's just say you're looking at people, you measure by ethnicity. No multicultural umbrella where you put everyone together – all of the ethnic minorities and women – and say this is our diverse cohort, because it masks underrepresentation. So measuring and then having the wherewithal to even publish those numbers, I think, holds everyone accountable. And then last but not least, you get what you incent. You incent the behavior that you want, particularly at the senior leadership level, and to do so I say you hold the individuals accountable, and you pay for that performance.
SHARON EPPERSON: When you were talking about the P for people, you were focusing on the workers, the leaders, the consumers. I'm wondering about how important it is for businesses to include the people that are not directly in their businesses right now. When we talk about recent employment data we are looking at job recovery, overall, but not for Blacks and Latinos, unemployment rates are still significantly higher than for whites. How do we include the people who have lost jobs or have dropped out of the workforce altogether when we're talking about creating an inclusive economy?
MELLODY HOBSON: From our perspective, we think about the recovery. How are these businesses going to recover? And one way that they will recover they will likely add people especially if the economy is as strong as we think it might be. Some people are calling this the roaring 20s. That we will come out of this much stronger than anticipated and in many ways, the stock market is forecasting that. You're exactly right about the unemployment issue. African Americans were harder hit in this period than white Americans. The unemployment rate for Black Americans right now is just shy of 10% through February, versus white Americans around 5.6% So when thinking about the recovery and thinking about the hiring that companies will do, having a focus on inclusionary hiring practices, I believe, will make a huge, huge difference.
SHARON EPPERSON: When we're talking about making sure that we're having inclusionary practices, how important is it for corporate America to support and promote the inclusive economy, ideally for smaller businesses as well? How do we make sure that businesses that right now many of whom are struggling, become part of this inclusive economy, and are supported and promoted?
MELLODY HOBSON: That's why I go back to purchasing. If you were using a diverse list of vendors, and that includes small businesses, that includes minority business enterprises, that creates an opportunity for everyone to again participate in the growth and success of the overall enterprise. So we're just trying to think about all these wonderful American businesses are out there. The more inclusive they are, the better it is for them. More diverse communities and more financially successful communities are good for business. That's just a fact. And so thinking about it at every level, and specifically around the purchasing, I think can really bring the small businesses in.
SHARON EPPERSON: Your company, Ariel Investments, has just launched its first private investment firm, Ariel Alternatives. Can you tell us a little bit about that project and that firm? What are your initial initiatives is going to be?
MELLODY HOBSON: So we're specifically trying to scale sustainable minority business enterprises and do it in a way that has never been done before by bringing two essential components together – capital and customers. We find that there's a lot of conversation when it comes to minority business enterprises about access to capital, and we think that's important. We think access to customers is just as important and sometimes even more so. My co-CEO John Rogers, who founded Ariel, always talks about the fact that if you have customers, you can get capital. And I think that that's sometimes been lost in translation. So we're trying to scale these minority business enterprises by matching capital and customers, and ultimately, having these businesses become tier-one suppliers back to that second P for purchasing, tier-one suppliers for Fortune 500 companies. And we're targeting businesses and middle market businesses with revenues between $100 million and a billion dollars as potential acquisition targets for us. Now the real issue that is out there – minority business enterprises overall, 95% of them have less than $5 million in revenue. And so all of these corporations that want to do business with, MBEs, they’ve had trouble doing so because they can't get the scale that they need. So that's where we're trying to go and say if we had businesses of scale, how could that change the outcome? How could that ultimately create more jobs? Because we think over a decade, we could create 100,000 Black and Latinx jobs. As our businesses grow, can we relocate them in underserved communities and help stimulate those economies? Making sure we have C-suite executives in those organizations that are people of color. A diverse board. Exceptionally diverse workforce. Creating a scenario where everyone is an owner of the business, so that you're narrowing the wealth gap from the rank and file, all the way up to the top of the organization. So just rethinking the whole idea of diversity and inclusion with bigger companies.
SHARON EPPERSON: One of the initiatives, Project Black, one of your first initiatives, is that focusing only on Black and Latinx entrepreneurs and companies or are you broadening that out? How is that working?
MELLODY HOBSON: So Project Black is exactly what I was just talking about, that is the initiative. And we are saying the business that we purchased doesn't have to necessarily be Black or Latinx at the time of purchase. But by that de facto our ownership, the leadership we will install, the board, the attention to diverse workforce and the accountability that we will have there – de facto, the business will be my word minoritized through our ownership, and ultimately again, have people have to change their mental model of minority business because these would be businesses of scale.
SHARON EPPERSON: Now we've got a lot of questions, Mellody, from the audience. Everyone is very excited that you've joined us for Inclusion in Action and we want to take some of those questions right now. The first one is from Brigitte Daniel who is the CEO of Wilco. She asked, “are there plans to expand the Project Black minority business investment program to smaller businesses with revenue of $1 million to $50 million? And if not, why not?” She says, “these are where the bulk of scalable minority businesses reside,” as you just mentioned.
MELLODY HOBSON: That will not be a part of our initial remit. And the reason that we're not doing that because we think a lot of people are doing that right now. There's attention there. We're going to where the white space is in this in this opportunity, and we're rethinking private equity in that regard. Now we may buy a platform, and then have add-ons that are smaller businesses that are existing minority or minority owned businesses. So it doesn't preclude us to doing so, but our initial remit will be around the scale of all sustainable businesses. And again, give the opportunity to add on to them and do bolt-on acquisitions, from there.
SHARON EPPERSON: Excellent. Another question we have for those launching a new business comes from David Miroslav Grund, who's the founder of a company called Reflexions. And he's asking you, “how do I make inclusion and equal opportunity a clear competitive advantage in my communication (in my pitch) in order to attract the best matching investors for my company?”
MELLODY HOBSON: I am so glad I got that question because I think people don't really understand how diversity can be a competitive advantage. We've seen that firsthand at Ariel. And I tell people this all the time that by virtue of the diverse nature of our firm, which we actually believe is probably the most diverse investment management firm out there when you look at our board, our senior leadership and our ownership of our company. That means that those young people that are graduating from business school or college, when they see us, they see an opportunity to be leaders of the organization. And I think that we get more than our fair share of really great resume because they see the opportunity that is created at a firm like ours. So our diversity becomes a competitive advantage in terms of our talent acquisition. And we make that known to our potential customers because we really do believe a diverse group of people that come together, ultimately have a higher probability of doing better work, producing better results, solving really hard problems.
SHARON EPPERSON: And do you think that makes it more attractive? A company that's just launching, it's more attractive to angel investors to initial investors if you are also talking about your competitive advantage as well as whatever your purpose and mission for the company is? Or is that part of a mission? Does that need to be part of the mission?
MELLODY HOBSON: For us it is part of the mission, but we are not afraid to also spell it out to those who are talking to us so they can see why our offering becomes so compelling. As a firm, you want to you want to highlight all of the opportunities you have to distinguish yourself from your competition and diversity for us, is one of those things.
SHARON EPPERSON: Well, the other question we have from an attendee, CeCe President. She wants to know, in your industry, in investment management, “if there was one policy or other type of systemic change that you could implement that you believe would have the most impact on diversity being the fabric of corporate culture in America, what would that one change be?”
MELLODY HOBSON: Wow, one change. Just one thing. I mean that's – silver bullet is probably incentives. I think that if corporate America really said, “you're not going to get your full bonus if you don't have a diverse team working for you,” I think we'd see some changes, really, really fast. That's why I'm excited that we're starting to see compensation tied to these outcomes. That companies themselves have said these are strategic imperatives, that's what you read when you read annual reports, they talk about diversity being a strategic imperative. Why say if it is a strategic imperative, that there should be incentives tied to it.
SHARON EPPERSON: I want to get to some other questions now about, you know, where we are in terms of the C-suite, in terms of people of color in the C-suite. You have been co-CEO of Ariel Investments since 2010. And you know firsthand how lonely it can be to be a Black CEO or a Black co-CEO, even at a firm like yours. We have recently – after four years of having no Black women CEOs in the Fortune 500, we now have two coming on this year. Roz Brewer at Walgreens and also, Thasunda Duckett TIAA. And I'm wondering what you think their position now as the top leaders of their company means overall for corporate America.
MELLODY HOBSON: Well, it’s a good first step. I'm really excited for both of them. Both are exemplary. I mean, I literally posted that if excellence were people, it would be Thasunda and Roz. I've worked with both of them directly as a board member of JP Morgan and as a board member of Starbucks, I know them really, really well. And they are best in class. Now, I'm glad to see corporate America recognize that talent because I've said many, many times before, talent and genius do not discriminate. And yet, for whatever reason, when you look at the highest ranks of corporate America, one would think the only talent really lies in white men, just based upon their overrepresentation versus their representation in the overall society. So I am delighted, but two is not enough. Two out of 500 is not enough. And if you look at Blacks in general, I think the number is five or six out of 500. This is just not, you know, as I said before, math has no opinion. The math tells us everything. We have a long, long, long way to go.
SHARON EPPERSON: Yeah, we certainly do. And we're seeing some changes, small changes in the C-suite on boards as well, and again, this is something that you know very well. You have been on the board in the past of Estee Lauder and you have been the chair of the board of Dreamworks Animation, you're currently a director, as you mentioned of JPMorgan, and you are chair of the board as of this month for Starbucks. So, in this role at this company in particular, what do you see as your biggest challenge in advancing diversity, equity and inclusion?
MELLODY HOBSON: As it relates to Starbucks or as it relates to –
SHARON EPPERSON: As it relates to Starbucks and your board role overall.
MELLODY HOBSON: My challenge is not what you would expect it to be because I'm working with willing participants. I'm working with people at the same goal, the same vision, the same desires. Jamie Dimon and Kevin Johnson are committed to these issues, by virtue of me being in the room, by virtue of me having leadership at Starbucks, you can see that. And so, I'm very pleased to have these partners that are focused on these outcomes. JPMorgan has made a giant commitment to the Black community with this $30 billion commitment that was announced last year and with so many other things that they've been doing and so, what I am really happy about is the commitments that have been made, and there's also been a commitment to measure progress and stay accountable. That is huge. And at Starbucks, same thing. Both organizations tying compensation to outcomes around diversity, really focusing and drilling down on the hard stuff, not just headlines and surface statements. That creates a real opportunity as opposed to a challenge for me.
SHARON EPPERSON: So you're in a place where there's already a commitment. I know many people are watching saying, I'm in a company where I don't feel there is that commitment. How can, internally, employees, leaders, managers, try to influence, to make sure that there is a commitment at the board level to diversity, equity and inclusion?
MELLODY HOBSON: I would think about what – you know, as that famous saying goes, what trees do you plan? What are you doing in your seat? You know, everyone looks for diversity changes and progress to come from on high, and I always try to explain to people, it takes all of us. This is a team sport. I always give the example that Rosa Parks she just decided not to stand up. You know, everyone tells me you have to have a lot of power and influence to affect these outcomes. No. You can hold people accountable in the cube next to you, in the office next to you, asking questions, being unafraid to offer a point of view. You don't have to be militant, you don't have to be angry. But at the same time, you can make your voice count and have your voice be known.
SHARON EPPERSON: Absolutely true. Absolutely true. Make your voice known. That is truly Inclusion in Action. Mellody Hobson, thank you so much for your time today, We're very happy that you're here with us and we look forward to talking to you again real soon.