NBA Star Risks Billions for Failing to Diversify Executive Ranks
(Bloomberg) -- Vinnie Johnson went from a clutch player for the championship Detroit Pistons to owner of one of the biggest Black-owned auto suppliers in the U.S. Now, the entrepreneur says he’s at risk of losing up to $2.5 billion in contracts because his company’s executive ranks are too White.
The Michigan Minority Supplier Development Council stripped Johnson’s company, Piston Group LLC, of its “minority” status, a designation that gave him a foot in the door of global automakers, which award lucrative supply-chain contracts to companies that are owned by and hire people of color.
The MMSDC, as the nonprofit is known, decertified the Piston Group in February after a protracted fight over the racial makeup of its management team. The Piston Group hadn’t replaced its outgoing chief financial officer, who is Asian, with a person of color, leaving its 11-person executive team devoid of any minorities, except Johnson, who is the chief executive and chairman, and its government affairs director, who is Black. The council argues Johnson is not involved in the day-to-day operations of the company, either, another requirement for certification.
Johnson disagrees and in a lawsuit filed last month counters that the council has been arbitrary and opaque in its dealings with him. The MMSDC has used “unfettered discretion and secrecy to wrongfully punish Piston Group and the Piston Companies due to a misunderstanding of Mr. Johnson’s role or personal differences with him,’’ he argued in the suit. Johnson declined to comment.
On Monday, a judge approved the Piston Group’s request for an injunction and temporary reinstatement of its minority certification while the case continues. The ruling found MMSDC had not provided enough evidence to support its claims beyond “unspecified customer complaints,” Judge David Groner of Michigan's Third Judicial Circuit wrote in his decision Monday. He also added that the evidence favors Johnson’s version of events.
“We are delighted by the court’s decision today,” the Piston Group said in a statement Monday. “We will continue efforts to vindicate Mr. Johnson.”
The MMSDC didn’t immediately have a comment on the ruling, but has previously said the lawsuit has no merit and that it requires all companies to meet the same basic criteria: at least 51% ownership by a minority, active minority management in day-to-day operations, and operational independence.
The simmering conflict has erupted into a debate over the nature, purpose and scope of minority set-aside programs, which were created to chip away at America’s racial wealth gap. Johnson advocates argue he’s being penalized for success, and the certification standards need to be adjusted for a company the size of his. Critics say he’s undermining decades of work to create economic opportunity for racial minorities, and that he hasn’t provided a path to the top for them within his own company, either. If he doesn’t want to play by the rules, he should compete without his minority status, they say.
“If companies do not want to follow those rules, then a decertification is relevant and appropriate,” said William Bradford, dean emeritus at the University of Washington’s Foster School of Business, who has researched minority-owned firms. At the same time, he warned against tightly prescribed criteria for growing companies, arguing their impact should be measured by broader things like the diversity of their labor force and suppliers, and even the generational wealth created for an entrepreneur’s family. “We lose the real key outcomes we want when we try to focus on, say, ‘You have to remain a Black business.’”
The MMSDC argues meeting the requirements is crucial for the system to work. “Our policies are not designed to create wealth for one, but to create wealth for many through employment and entrepreneurship,” the organization said after the lawsuit was filed. “This is how generational wealth is realized in communities of color.”
At a time when corporations are under pressure to show progress and transparency on racial equality — even President Joe Biden has made procurement a key tool in his racial equity agenda — the Piston Group’s decertification could complicate minority spending for powerhouse automakers like General Motors Co., Ford Motor Co. and Jeep owner Stellantis NV. In 2019, GM, Ford and Stellantis spent an average of $7.5 billion each with diverse suppliers, which include businesses owned by women, veterans, disabled people, LGBTQ persons and, for Ford, small enterprises. GM spent 28% of of its minority spend with Black-owned firms that year; Ford and Stellantis didn’t disclose that detail.
GM created the industry’s first formal supplier-diversity program in 1968, a year after riots erupted between Detroit’s Black residents and its police force. Since then, the programs have evolved to include spending targets, mentoring, and joint ventures between global suppliers and smaller firms. Some automakers have even spun out pieces of their own company for minority ownership.
Automakers rightly take credit for pioneering the programs, which have directed hundreds of billions of dollars toward minority-owned businesses and minted a generation of successful entrepreneurs of color. But they have limitations. While the number of eligible groups has expanded to include women, veterans and LGBTQ people, the size of the procurement pie hasn’t, several Black auto executives said. When a minority-owned company forms a joint venture with a global auto supplier, it can help the business scale dramatically, but there’s a ceiling to that growth — taking outside capital means sharing financial control and forfeiting minority certification. If a minority owner wants to sell the company, they can only sell to another minority, or risk losing preferential status with automakers.
“I don’t want to bite the hand that feeds me, but I do think there are systemic problems or limitations on the way we do things,” said Ron Hall Jr., chief executive officer of Bridgewater Interiors, a seating manufacturer started by his father to supply GM in 1998. “There’s a growing challenge, just born of time, and succession planning at companies, and rolling them from one generation to another.”
Unlike many minority entrepreneurs, Johnson began his automotive career with a substantial amount of financial and social capital. Nicknamed “The Microwave” for his ability to come off the bench hot and score points, Johnson helped the Pistons clinch a repeat NBA championship in 1990 with a game-winning shot at the buzzer.
After retiring from the NBA, he leveraged his celebrity status and earnings to break into the auto industry. In 1995, he founded a corrugated-pallet manufacturer in an economically ailing area eligible for tax subsidies, known as a Detroit Empowerment Zone. That same year, the MMSDC certified him as a minority-owned supplier, which made him a more attractive partner for local automakers. Meanwhile, Johnson forged relationships with top auto executives, golfing with former Ford CEO Alan Mulally, and acquiring a unit of troubled airbag maker Takata Corp. in a deal executives from Ford and Fiat Chrysler Automobiles NV helped broker.
Today, the company employs more than 11,000 people in Michigan, Ohio, Illinois, Kentucky and Missouri, and Mexico.
As Johnson grew his empire using his minority supplier status, he periodically had issues complying with the designation’s requirements because of the lack of minorities involved in day-to-day management, the MMSDC said in a legal filing. In business meetings and at trade shows, customers and competitors have long noted how White the top ranks were — an anomaly among minority-owned suppliers, according to five people employed by former customers and competitors, who asked not to be named publicly.
The company counters that it’s been “proactive” in hiring and promoting minorities and has a plan for increasing diversity in leadership.
The MMSDC has been nudging Johnson to diversify his executive ranks, it said in court filings. Tensions boiled over in February, when the nonprofit, whose governing board includes executives from Stellantis, Ford, GM and Toyota Motor Co. stripped the Piston Group of its certification, jeopardizing as much as $2.5 billion worth of business, the company claims in its lawsuit. Ford and Stellantis make up 75% of the Piston Group’s sales, the lawsuit claims.
A Ford spokesperson said the company doesn’t comment on litigation not related to Ford. Stellantis declined to comment on the Piston Group, but pointed to the $90 billion it has spent with diverse suppliers. GM said it supports the MMSDC, but will continue to do business with the Piston Group regardless of its certification status. Those contracts won’t count towards its minority spending figures.
“Third-party certification is not a requirement for doing business with GM, but it does generate advocacy support and access to specific programs and resources,’’ David Barnas, a GM spokesperson, said in an email. “We will continue to measure the Piston Group of companies based on their behaviors and business results to ensure alignment with our corporate values and priorities.’’
The Piston Group’s lawsuit describes an escalating personal dispute between Johnson and Michelle Sourie Robinson, president of the MMSDC. It accuses Robinson of moving the goal posts on certification to punish Johnson, demanding that he replace one of his top lieutenants, who is White, with a minority, and keeping the company in the dark about the metrics used to decertify it. The MMSDC denies it demanded the removal of executives.
“If the MMSDC is permitted to conduct its business in an arbitrary and malicious manner, without regard to standards, and in a way that targets companies and individuals based on personal vendettas, the validity of all diversity initiatives and programs are at risk,” Johnson’s lawsuit states.
Louis Green, a former president of both the MMSDC and the National Minority Supplier Development Council in New York, said the certification process is intentionally opaque in order to prevent fraud.
“There are people who make a front company, put a woman or minority at the front to get the contract,” said Green. “I would liken it to IRS auditors who have a handbook of things they need to look for when somebody may be trying to fool the government about taxes. They don’t make that public.”
John Taylor, a professor of supply-chain management at Wayne State University in Detroit, said the Piston Group is big enough to compete without minority designation as long as it remains competitive on cost and quality. Small suppliers will still follow the MMSDC’s rules, because they need the support, he said.
A court hearing for Johnson’s case is scheduled for Sept. 2. Regardless of who wins, it’s the auto giants at the top of the supply chain, with their billions of dollars in procurement contracts, who will decide whether the criteria for minority-owned businesses matter, said Green, the former NMSDC president.
“Are customers going to honor their commitment to use certified businesses? Or will they say, ‘Hey, we can still work with other certified businesses, and keep Vinnie around?” he said. “That sends a very powerful message to others.”
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