Increasing the diversity within a company’s supplier and professional services network seems like a quick and easy way to boost diversity numbers, share the corporate spend wealth, leverage the power of vibrant new perspectives, and join forces with other companies with similar ideas about inclusion and social impact. And, it’s popular! According to a 2021 survey of 100 large global companies from The Hackett Group, they expect diversity supply spend to increase by 50% by 2025. “While supplier diversity has been a hot topic since mid-2020, our volume of inquiries on the topic exploded by 500% last year,” reported Gartner earlier this month.
But, says former GolinHarris Chief Creative and Community Officer Caroline Dettman, it’s “easy to say, harder to do.”
Dettman, along with former Golin global marketing executive director Erin Gallagher, and former Pepsico Chief Global D&I officer, Pamela Culpepper, is the co-founder of Have Her Back, a still newish consultancy that helps big companies chart a path to equitable inclusion.
But it turns out, they were facing one of their own.
The big looming contract known as Master Service Agreement or MSA, is a foundational document typically used by professional services firms—like marketing, consulting, and financial services companies—to work effectively with clients over a long term. It sets some basic terms of engagement and eliminates the need to negotiate over individual phases of a project, multiple projects or a larger scope of work.
But they are also used by very large companies to engage with suppliers of all kinds. And that’s where bias and big legalese can cause unintended problems.
“The MSA is meant to obviously mitigate risk when companies are bringing in other companies to work for them. But the reality is that they’ve been designed for larger companies,” says Gallagher. So, for approved and vetted smaller firms that would fit a diverse supplier profile, this can mean leviathan-sized hurdles buried in the fine print: things like outsized insurance and cybersecurity requirements, or onerous payment terms. “We were facing it, other businesses we knew were dealing with it, and we wanted to understand the scope of the problem,” Gallagher explains.
The HHB team commissioned research which informs their new report, The State of Supplier Diversity: Opportunities – and Headwinds – to Achieving Women & Diverse Supplier Goals. Of the 400 supplier-network-ready and qualified small businesses they surveyed, some 64% reported feeling that MSAs didn’t reflect the realities of their business, and half reported walking away from opportunities with larger companies due to contract terms, conditions, or complexity.
It has been an issue for Jennifer Risi, the founder of the Sway Effect, a network of diversity-minded communication agencies.
“We see things in RFPs [request for proposals] and MSAs all the time that aren’t fair,” says the former head of communications for Ogilvy. “I left a big agency to have more simplified agreements. I’m still being given 50-page documents and have to edit them line by line.” A common fix is money: smaller companies can’t always afford to invest in developing projects without a more accommodating compensation schedule. “As a woman-owned business, flexible payment terms let me build my business and grow my team,” she says. “The good news is that brands who get it will work with us.”
But if a big company isn’t responsive, the damage works both ways.
The burden on the small business who is forced to walk away from a long-sought relationship is clear. “But we know there’s a financial cost to a big company when an existing supplier relationship chooses to leave,” says Gallagher. “The massive service agreements that companies are using to bring on [diverse suppliers] is causing real inequities that put everyone in the relationship at risk.”
This includes the opportunity cost of unmet diversity goals.
HHB has created an equity council of experts to study the MSA issue and identify ways to modernize and simplify the contracts while addressing normal business concerns. “As more and more large companies want to diversify suppliers to show commitment to small and minority owned business vendors… it’s important that they learn to easily participate in this process,” says Dettman.
So, that leads me back to you. What do you know about your company’s supplier diversity efforts? Met anyone who has amended an MSA? Let us know, so we can share best practices.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
This edition of raceAhead was edited by Wandy Felicita Ortiz.
On Point
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On Background
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Mood board
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