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Monday, July 19, 1999

FOOL ON THE HILL
An Investment Opinion
by Yi-Hsin Chang

UnFortunately Defined Diversity

It's been just about a year since I first critiqued Fortune magazine's inaugural list of the "50 Best Companies for Asians, Blacks, and Hispanics." My commentary last July breathed new life into the Fool's otherwise dormant Rogue message board. Well, Fortune is at it again, and I simply can't pass up the opportunity to point out the idiocy of such a survey.

First, I must say that Fortune is moving in the right direction here: This year's July 19 cover story fills 13 pages compared with 18 pages last year. At this rate, perhaps we'll be lucky enough to see the silly survey shrink out of existence. I wouldn't hold my breath, though.

For those readers "fortunate" enough to miss Fortune's now annual exercise, the magazine has compiled a list of America's "best companies for minorities" by trying to assess corporate diversity efforts. It sent out a survey asking companies whether they do "sensitivity training" and minority recruiting, and for the racial make-up of their board of directors, management team, total work force, and new hires.

Fortune sent out surveys to the country's 1,000 largest public companies and the 200 biggest privately held ones. This year, the magazine got back 137 responses -- slightly more than last year's 128. Still, this is a mere 11.4% response rate (versus last year's 10.7%) -- not at all comprehensive or scientific. Considering Fortune didn't hear back from about 89% of the 1,200 companies surveyed, how reliable is this data?

Plus, the list is strictly based on information given voluntarily by the participating companies, so no independent reporting was done. Somehow I have to think that the companies would try to sugar coat whatever data they might provide to depict themselves in the best light -- it's not lying per se; it's just good PR.

Ironically, in the August 2 issue of Fortune, the editors offer the following correction: "Wal-Mart was incorrectly included on Fortune's list of the 50 Best Companies for Asians, Blacks, and Hispanics (July 19). The company submitted data that included white women as minorities in three categories, placing Wal-Mart No. 10 in our rankings. Based on corrected data, Wal-Mart does not qualify for the list...." I'm not surprised at Wal-Mart's confusion -- the biggest beneficiaries of affirmative-action programs have been white women.

Despite these shortcomings in methodology, Fortune boldly draws broad strokes in its main article. "Companies that pursue diversity outperform the S&P 500. Coincidence?" the magazine asks in bold, blue letters. Basically, Fortune all-too-casually concludes that so-called "minority-friendly" firms tend to be "superior performers."

Talk about making generalizations. I would argue that we could do other surveys on equally random characteristics and come to the same conclusion. For example, we could probably show that companies that use AT&T long-distance services and responded to our particular survey outperform the S&P 500. Does that mean that there's a correlation between using AT&T and a company's share price performance? I think not.

Fortune made a point of stating that technology companies have yet to address diversity issues. In an article titled "Valley of Denial," the magazine declares that "Silicon Valley is no happy valley for most minorities." But many of these companies that don't pursue diversity, in fact, do outperform the S&P 500. Using Fortune's form of "logic," this would mean that there's a correlation between indifference to diversity issues and outperformance. This is equally inane.

My biggest problem with Fortune's survey is that the magazine's editors and writers are essentially oversimplifying a very complex issue. This is really a qualitative issue that is very, very difficult to quantify. Diversity is more than counting heads and asking some pinheaded questions that don't really get at the real issues. True diversity is about diversity of ideas, which doesn't necessarily have anything to do with race or gender.

Once again, Fortune manages to offend within the text of its articles. Geoffrey Colvin writes: "So if I'm a tough, skeptical CEO in this value-obsessed age, why can't I just run my company in a fair, ethical way, focus on performance, and let other things take care of themselves?" The suggestion here is that acting in a "fair" and "ethical" fashion means that the CEO would hire only whites. What an utterly prejudiced and narrow-minded assumption.

I believe that if a company were to focus on performance, focus on diversity of ideas and thinking, it would end up with a work force far more stellar and diverse than the current common practice of nepotism and favoritism.

A Merrill Lynch ad in the July 19 Fortune actually sums up things rather nicely. Merrill reminds us that "the color of your skin is less important than the color of your imagination. And that yours is only one of six billion ways of carrying yourself through the world... that the only race that really matters is the human race."

What do you think? Share your thoughts on the Fool on the Hill message board.

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