Silicon Valley Bank, the bank of choice for the venture capital and private equity crowd, is now the second-largest bank failure in U.S. history. Some $175 billion in deposits evaporated on Friday in what felt like the blink of an eye.
It was an old-fashioned bank run for the modern age—an ugly combination of rising interest rates, some bad investment bets, and an inability to meet a sudden surge in withdrawals. “[M]eaning that as the tech sector freaked out about the solvency of its favorite bank, it didn’t have the cash on hand to pay them,” writes my colleague Tristan Bove.
So, how did the bank’s DEI efforts become the scapegoat?
By Sunday, Wall Street Journal columnist Andy Kessler had filed an otherwise straightforward explainer that ends with an unconscionable reflection of what went wrong.
“Was there regulatory failure? Perhaps. SVB was regulated like a bank but looked more like a money-market fund. Then there’s this: In its proxy statement, SVB notes that besides 91% of their board being independent and 45% women, they also have ‘1 Black,’ ‘1 LGBTQ+’ and ‘2 Veterans.’ I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands.” (Emphasis mine.)
Let’s be clear, SVP’s executive leadership team and board of directors are still disproportionately white and male, a far cry from a truly diverse representation of the U.S. demographic, not to talk of globally. But we should be very clear about where this is all going: As the ESG backlash grows, many a failure will be attributed to diversity efforts.
“I mean, this bank, they’re so concerned with DEI and politics and all kinds of stuff,” Florida Gov. Ron DeSantis told Fox News yesterday. “That really diverted from them focusing on their core mission.”
James Comer, the Republican representative of Kentucky and chair of the House Oversight Committee, expressed a similar sentiment. “We see now coming out they were one of the most woke banks in their quest for the ESG-type policy and investing,” he said on Fox News. “This could be a trend, and there are consequences for bad Democrat policy.”
What this nonsense really distracts us from are necessary conversations about meaningful banking regulation. Or how historically low interest rates allowed a deeply flawed venture capital system to create portfolios of unprofitable unicorns. And more to the point, how venture investors themselves, a decidedly non-diverse bunch, rushed in a herd to remove their cash from the suddenly embattled bank.
As continued attacks on curriculum, language, and inclusion initiatives put decades of diversity work at risk, things are only going to get worse.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
This edition of raceAhead was edited by Ruth Umoh.
On Point
The real winners of the Everything Everywhere Oscar sweep
Sure, there was joy in watching this group of performers finally get the flowers they so richly deserved. But the Washington Post's Jada Yuan argues persuasively that the deep weirdness of the movie itself—the unlikeliest Oscar bait in history—is the creative, collaborative breakthrough the world has been waiting for. “You watch it, and it’s just so clearly dope,” says Moonlight director Barry Jenkins. Now, he says, “Talk about the people in power who have restricted diversity and kept people like myself or Ke [Huy Quan] or Stephanie [Hsu] from breaking through.”
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Should a law professor accused of racist statements be fired?
This is the free speech conundrum facing the University of Pennsylvania as it grapples with the case of Amy Wax, a tenured law professor who says things publicly like, “on average, Blacks have lower cognitive ability than whites,” and that the U.S. is “better off with fewer Asians” because they tend to vote for Democrats. Her many supporters admire her candor. Is she racist or a victim of the “woke” mob? After staving off student complaints, the university is making a move.
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The University of South Florida pauses search for diversity officer
With Gov. DeSantis halting funding for diversity programs at Florida state-funded schools, USF president Rhea Law was forced to suspend the search. It’s a blow: DEI had been one of the five pillars of USF’s strategic plan, approved in January 2022 by the state Board of Governors.
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Bonus Florida update: banning books
Gov. DeSantis has taken to the airwaves to reassure outraged parents, teachers, and thinking people that his book restrictions target only pornography or discriminatory material. That's not true. The trouble comes when local officials, absent real guidelines, remove books en masse. One Florida county released a list of dozens of books removed from school shelves. Among them is Jodi Picoult’s novel about a young Holocaust survivor, and she’s not happy.
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So many Americans are still so poor
The poverty rate has hovered around 12%, give or take, for decades. Pulitzer Prize-winning sociologist Matthew Desmond has new insights about why there's been so little progress. Some of it is the "leaky bucket" of the welfare system. But mostly, it’s a design shortcoming. “[W]e have not confronted the unrelenting exploitation of the poor in the labor, housing, and financial markets.”
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On Background
How to negotiate as an inclusion-minded stakeholder
Frances McDormand’s now-famous mini-lesson on diversity when she accepted her 2018 Oscar (“I have two words for you: inclusion rider”) has become a foundational example of how to negotiate to uplift less powerful players. And it can often be done without making a financial sacrifice. Click through to learn when and how to negotiate for equity.
Harvard
Parting Words
“SVB didn’t insure over 89% of their deposits and instead hedged on failing funds that offered 'sustainable finance and carbon neutral operations to support a healthier planet.' In other words the fools running the bank were woke and almost became broke, but the Democrats and the Fed swooped in to make sure their woke donors at SVB didn’t go under.”
—Rep. Marjorie Taylor Greene (R-Ga.)
