McKinsey Institute’s Shelley Stewart: Black Americans and Economic Mobility
Imagine a world in which Black business owners achieved economic parity, receiving the same funding as other founders. That, alone, would create 615,000 new Black-led workplaces, according to a new report from the McKinsey Institute for Black Economic Mobility.
That report examines the racial gaps that exist across the U.S. economy. Shelley Stewart III leads McKinsey’s research on Black economic mobility in the United States and is also a partner with McKinsey’s Private Equity & Principal Investors Practice. Stewart speaks with host Porter Braswell about some of the barriers Black Americans face in the U.S. economy, as workers, business owners, and consumers. They also explore how addressing representational imbalances could create greater economic equity.
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SHELLEY STEWART: We know that there have been well-documented challenges with bias in certain segments of the financial services universe. You’re really getting to the core of lending practices and understanding the equity or lack thereof in the way those dollars are flowing. And so we have to recognize that and be a bit creative and thoughtful about what are some of the other ways that we might assess credit worthiness to give folks an opportunity to be successful or else you’re stuck in this vicious cycle.
PORTER BRASWELL: From HBR Presents, this is Race at Work. The show that explores how race impacts our careers and lives. I’m Porter Braswell. I left a Wall Street career to start a company called Jopwell, because I wanted to help corporate America build a more diverse work force. Each week, we talk to a different leader about their experience with race and how it impacts our daily lives.
This year, Juneteenth was consecrated into a national holiday by president Joe Biden in anticipation for this historic holiday, the McKinsey Institute for Black Economic Mobility released a report called the Economic State of Black America: What it is and What it Could be. It looked at the racial gaps that currently exist across the U S economy like wage disparities and access to economic resources.
It also provides some ways in which we can work to close those gaps and how to propel the economic lives of Black Americans. In this episode, we talk to Shelly Stewart III, who leads McKinsey’s Institute for Black Economic Mobility. He’s also a partner with McKinsey & Company. We discuss some of the reports findings, and the roles Black Americans play as workers, business owners, consumers, and more.
We started our conversation talking about Shelley’s role within the institute.
SHELLEY STEWART: So, I’m a partner with McKinsey and I do a couple of things. One, I kind of grew up in McKinsey doing growth work. Helping companies identify opportunities for growth, help them think about topics like deploying salespeople and how they should price products and part of my interest there is — I believe that growth means job creation, which means stronger economy and hopefully a more inclusive economy. The second thing which I’m very proud of as well is I am the head of our McKinsey Institute for Black Economic Mobility, that is focused on doing research on issues of economic mobility for Black folks around the globe, with the initial focus on Black folks in America.
And while the Institute is relatively new in its kind of formal formation, we’ve really been doing this work for a number of years and the recent moment that this country has gone through with racial reckoning and COVID-19, and those impacts created an opportunity for us to institutionalize that knowledge and that commitment.
PORTER BRASWELL: Mm. So at a high level, what was the inspiration behind the report — the economic state of Black America — and why did your team or McKinsey more broadly decide to put this out into the world?
SHELLEY STEWART: Yeah, so we are building on some foundational work that we had done in the past, looking at the wealth gap and looking at various challenges that Black Americans face, whether it’s the looming threat of automation or the lack of interactions with mainstream financial services system. And really we’ve taken a sharp look at the economic impact in the past of all of this despairing, all these gaps. And so this report was meant to be a holistic look at the Black experience.
And so that’s why we chose this lens that is the roles we play in society. So Black folks are [00:04:00] workers and residents and consumers and entrepreneurs like you and savers and investors, and really understand where the disparity materializes in each of those roles. And so we wanted to use this opportunity to take a comprehensive look that would help shape the agenda for the Institute going forward. It gives us a bit of a roadmap on where we should be focusing our research energies, focusing our discussions with our clients, and really helps us think about what we can do collectively to make a big difference.
PORTER BRASWELL: Hmm, those areas that you touched upon, there are five of them. Workers, business owners / entrepreneurs, consumers, savers, and investors. And then lastly residents. What were some of the most impactful findings from the report, in your opinion, as you kind of go through that list of the five different areas that you focused on.
SHELLEY STEWART: Yeah. There’s a number of them and we had lots of debate about do we put out this report in sections because it’s so much to digest, and so I think I won’t capture all of them here, but at top line level, I was just surprised at the magnitude of disparity that shows up in every role. For example, in the worker role, we found a $220 billion wage gap, and that’s both a function of under-representation in a number of occupations, and then within occupations lower pay. That’s a pretty staggering gap but what was maybe most surprising is that 60% of that was concentrated in just 20 occupations. Oh, wow. So less than 5% of occupations account for 60% of that gap. And so it gives you a pretty, well-defined starting point in terms of where you might go to try to address it. So that’s, that’s one. One other place that I call out is the wealth flows every year. There’s lots of discussion about the wealth gap and how we might close that. We found that every year, relative to the share of population, there’s a $300 billion wealth flow gap that is not going to Black Americans that you’d expect to go if it was fair share of the population.
And 60% of that is inheritance. And then the rest of it has more to do with the wage gap — you can’t really save and invest if you don’t have sufficient wages to cover your cost, and then there’s a couple of other things in there, but it becomes very difficult to, to bridge gaps when the flows every year are so substantial in terms of the level of disparity.
And the last one I’ll highlight is in the business owner and entrepreneurial role, we found a $1.6 trillion revenue gap for Black owned businesses, relative to what it should be — again, if it were fair share of the population. Only 2% of employer firms in the U S are Black owned. So that’s firms that have more than one employee in addition to the proprietor of that business.
And that’s against 13% share of the population. So if we were at something closer to fair share, you’d have 600,000 plus more Black owned businesses, which of course is not just about the wealth it creates for those business owners, it has implications for job creation and really the way communities experience business growth or lack thereof, when you have folks that are Black entrepreneurs opening businesses in those communities.
PORTER BRASWELL: So there’s so much to unpack there. Let’s actually double-click on the businesses and the entrepreneur. Why is that the case? Why is there a lack of funding going to Black owned businesses?
Why are Black businesses less than two employees? In your research did you guys go through that?
SHELLEY STEWART: Yeah, a couple of things that kind of coalesce and they feed each other so they’re not mutually exclusive. The first gets back to this wealth gap, right? Median wealth for Black families is around 20,000 or 25,000.
And that’s compared to 150,000 plus for white families. So where’s the first place that you go when you want to start a business? Well, you look at your assets or you look at the assets of your family and your friends, and that kind of friends and family thing just doesn’t exist for Black business owners in the same way, so that’s, I think that’s one.
What feeds that is again, this wage and income gap. So if you’re not earning sufficient wages to cover your costs and to save and build wealth, well then if you didn’t get any inheritance and you’re not able to save, then again, you have just the limited stock of money to draw from both individually, but also in the broader community. So that’s one piece of it.
The second piece of it is, we know that there have been well-documented challenges with bias in certain segments of the financial services universe. You’re really getting to the core of lending practices and understanding the equity or lack thereof, and the way those dollars are flowing.
Now, some of them are flowing at lower rates because of some of the stuff I already said, which is, well, you don’t have a lot of personal assets, then it becomes harder to get loans and sort of feeds itself, and so we have to recognize that and be a bit creative and thoughtful about what are some of the other ways that we might assess credit worthiness to give folks an opportunity to be successful or else you’re stuck in this vicious cycle. All that culminates in entrepreneurs often selecting industries that are not capital intensive because they can’t get the capital. Again, it’s self-reinforcing so you end up in industries where you’re a sole proprietor, you’re in-home healthcare worker, which is great, but you don’t really have any ability to scale that business because that requires capital and as you know, you often have to have capital to invest in ahead of growth. And that’s just very challenging.
PORTER BRASWELL: I’m curious, was there any kind of qualitative things that went into your approach? Like for instance, growing up in my household, we never talked about money. What does it mean to be wealthy? What does it mean to be rich? What does that look like? You know, growing up in like a middle-class family, like I did, we still didn’t even have that dialogue. It was one of those things where it’s like, if you asked your parents, how much did you make the answer was it’s none of your business. So thinking about wealth and thinking about creation and thinking about saving, even in middle-class households, that still is not taught.
So I’m curious, was there any, again, like of that qualitative side of things that came out in some of your research?
SHELLEY STEWART: I think in the broader population, I don’t know the answer, but I know anecdotally exactly what you’re talking about. There is a general need to talk earlier about money in both the household and also in schools.
I actually think the whole idea of financial literacy — by the way, it’s not a panacea, it’s not an end all be all, but I do think that that needs to start significantly earlier in both the school and the home. But I do want to say that in the majority of Black households, because incomes are so low, and because most of the income is so burdened by necessities like rent and healthcare and food, there’s not actually much to talk about in terms of saving and investing. Like the income issue is the core issue, in my opinion, that needs to be addressed to unlock the ability to do some of these other things, and we have not made significant progress on that.
PORTER BRASWELL: Yeah. Also in the report, you talk about consumer deserts. What is that and what are the implications of that?
SHELLEY STEWART: So consumer deserts are places where a specific good or service is essentially not available. Either not available or not available at a price that is affordable by the residents living in that census tract. So for example, we found that more than 8 million Black Americans live in food deserts, that don’t have easy access to fresh food, and instead they have disproportionate representation of things like convenience stores.
We found that 10% of the Black population lives in what I’d call overlapping desert. So, lack of fresh food, lack of affordable health care infrastructure, lack of affordable housing and lack of affordable transportation.
And that’s versus less than 4 or 5% for white Americans. And so this whole point around access has real implications for the quality of life — and by the way, it’s a missed commercial opportunity for companies in these various sectors.
PORTER BRASWELL: So in your opinion, how do we change that? Like, is it the government’s job to change that dynamic? Is it the private sector’s job to change that dynamic? How do we see that reverse?
SHELLEY STEWART: I think it’s both. The government can help design incentives that promote and help to guide behavior of the private sector. And so I think recognizing that is important. The private sector starts with just awareness and understanding of some of these gaps or opportunities and it takes fundamental rethinking.
Let me give you an example. Oftentimes when a retail store is trying to assess where they should build or open new locations, they are using a model and an algorithm that essentially looks for what has worked well in their existing footprint. And so it identifies locations based on a set of characteristics that exclude new opportunities that are essentially under-resourced today, because they’re not in the data set.
And we’ve actually looked at some of this and we looked in Washington DC, and we looked at a few census tracts with our own proprietary model, and we found that there was real opportunity. Like the economics still work in some of these places. And so I do think it just takes a little bit of rethinking the approach and understanding what bias might exist in your decision-making process, that might be reinforcing a set of outcomes without you even really explicitly understanding and knowing that.
PORTER BRASWELL: Yeah. What do you think the opportunity is for employers to engage in unpacking some of the findings that you had in your report within the workplace? Like if companies are willing to engage in some of the findings that you had and talk about in the workplace, what can happen as a result of that?
SHELLEY STEWART: Yeah, I think the worker role in particular, there’s a few things that I would say. The first is, just the basic point around not just hiring at the front end, but really understanding progression through the funnel at your company and understanding what the break points are for different groups. Cause in my experience, they may be different.
There may be a break in the funnel to get to manager for Black Americans and there may be a break somewhere else for women, generally. The biggest bucket in the wage gap — if you look at that top 20 set of occupations — is managers getting frontline people into management seats is the biggest gap we identify, with respect to that $220 billion wage gap opportunity. I think the second thing is going through and understanding where bias might show up in your various people processes. We’re still early days, I think, as a discipline on really understanding all the different ways bias materializes, but take that fresh look and try to understand where it might be showing up and be open to changing things.
Because I think that there is bit of a false frame that I’ve been hearing, which is, is it about equity or is it about meritocracy? And I reject that framing outright. We have to recognize that meritocracy has certain subjective elements to it in often in the workplace. For example, sometimes it’s about who gets the opportunities to be successful.
And so if for whatever reason, unintentionally, the process in place today is excluding a subset of people, then of course when you get to the end of the movie, you say, well, the meritocracy sorted it out. We all want to work in a meritocracy. If you survey employees across the board. I mean, in general, at least the ones that I’ve seen, we’ve done organizational health assessments cause people like the idea of meritocracy. But I think there has to be some acknowledgement that there are subjective elements and so you can’t just rest on the outcomes and say, well, it was a meritocracy and this is the outcome we got to. I reject that frame.
PORTER BRASWELL: Yeah. I think it would be one to be hard pressed, to not acknowledge that there are internal politics that exist within any corporation.
And there are the unspoken rules in terms of, what does it mean to be successful or how do you communicate effectively? And a lot of that thing’s not written in the handbook. And so it’s really hard to navigate spaces, especially if you’re the first person in your family to engage in a space like that. It’s not a level playing field at all.
What happens within the walls of McKinsey when you release a report like this and it’s proven that Black people in all different classes are disproportionately not receiving the same amount of opportunities? Like what then happens internally when McKinsey puts out a report like that, do things start to change or do you re-examine what’s going on within your own walls?
SHELLEY STEWART: Yeah, that’s a great question. And this report and the Institute itself is a part of our broader journey on this topic. Your instincts are right on, which is — we believe the Institute is not only speaking to folks outside of McKinsey, but we also see ourself as a subject matter expert that should be feeding our internal efforts at McKinsey, as we shape our people processes, as we think about our philanthropy strategy, as we think about the topics that we should be serving clients on.
And so there’s no doubt that these reports often kick off a chain of outstanding discussions that edge us along in the right direction. We’re still as early as most in our journey. It’s an education process for many of our colleagues.
When we publish this report, we do a partner briefing. We record that and we share it out. We do little sessions with different groups of colleagues, because it’s not just about, again, speaking to folks outside of McKinsey, but also trying to transform and make sure our firm is at the center of the change that we think is important.
And we’ve got a lot to learn.
PORTER BRASWELL: Yeah. What’s been the response thus far from your Black colleagues, your Black employees within McKinsey to see a report like this. And again, for the listeners and for the audience, definitely read it. It’s one of the most comprehensive reports I’ve come across and it really lays the groundwork for making an objective argument.
It’s not based on like feeling. There are inqualities that exist, so what do we do to fix it? So I’m curious what’s been the response from the Black employees within McKinsey about this?
SHELLEY STEWART: Yeah, my colleagues, my Black colleagues at McKinsey — by the way, some of the most inspirational people that I’ve ever had the pleasure of meeting and working beside — they are incredibly engaged and so excited about the research and amplifying it through their own personal channels and trying to embed the work in discussions that we have with our clients. It really is a helpful employee engagement tool because people genuinely see this as part of the purpose and see McKinsey as an institution because of how diverse our client set is, that can actually help to accelerate this dialogue. And so our colleagues, our Black colleagues in particular have been incredibly excited. And by the way, it’s worth noting the efforts that predate us formalizing this Institute — it actually started with a group of colleagues who were coming together to do this kind of work largely on nights and weekends, because they were passionate about the topic and also recognize the very unique position that we’re in.
PORTER BRASWELL: That’s awesome. What about externally? You know, there are a lot of shocking results and findings in the report. So what about externally and the response thus far?
SHELLEY STEWART: I think the response thus far has been pretty positive. Part of taking the broad view of the Black experience was that we were hoping that there’d be something for everyone. Yeah. So if you’re focused on workplace and the worker role, we’ve got insights and thoughts for you. If you’re someone who’s trying to understand the implications of our education system and the funding there and our health infrastructure, there’s something for you in the resident role. If you’re a financial institution or some other capital allocator, there’s something in the saver, investor role. And so broadly, I think people have been very engaged and people tend to gravitate towards the thing that resonates most with what they’re interested in, which I think was the hope. Yeah. And I think that people share my surprise not in the direction of some of the numbers or disparity, but in the magnitude. That just makes even more urgent the call to action that we need to get started now. So I think broadly the reception has been positive.
PORTER BRASWELL: What’s next for the Institute? What are some of the things you all are looking forward to releasing in the future?
SHELLEY STEWART: Yeah, so again, this piece is foundational and we’ve surfaced things. And this framework of the roles, at least in the near term, is going to anchor how we think about the next set of opportunities and research. So a couple of things that were teed up right now that we’re very focused on — one is really getting underneath the opportunity to better serve Black consumers. I just want to be clear, Black consumers spend $835 billion a year. Now they should be spending something closer to a trillion if incomes were normalized — it’s a big number. And we find in our survey data that Black consumers are significantly less satisfied with the products and services that are available in a number of the big consumption categories. That means there’s a big commercial opportunity, but it also means there’s an opportunity to improve people’s day-to-day experiences.
And so I think that that is something that I’m very excited about. We found all total about $300 billion of opportunity, 250 billion of money being spent today where the consumers are not happy with the product offer or service offering. And then another 50 billion where folks said, I’d even pay 5 to 10% more if I could get something that was tailored more to my needs. So we’re going to spend a lot of time going deep on who is the Black consumer, what are their needs? Where are their needs being met? Where are they not being met? And what’s the implication more broadly for society of getting that right? That’s one big area.
The second big area that comes out of this latest piece, but cuts across the roles is around investible themes. We are seeing the interest from traditional financial institutions from impact funds, really shift to say. Okay. We’ve been doing a lot on the E part of ESG. We kind of done a little bit on the S. We would like to deploy some capital that’s going to be good investments, but also do good for in this case, Black Americans — where should we be making those investments? And so we’re going to be working towards a pretty comprehensive piece that looks at — what are the investible themes that you should be focused on to help accelerate economic mobility that sits across these roles, and what does that landscape look like today and what kind of impact can that unblock for these communities? So those are a couple of the things that we’ve teed up as priorities.
PORTER BRASWELL: So it’s my entrepreneurial hat that I can’t ever take off. But hearing about all those amazing opportunities, I desperately hope that those are Black businesses that are going to be built to then serve Black communities and we keep the wealth within the network, within the systems to try to create equality or level the playing field to some degree.
So, one question that we like to ask all of our guests, how do you recommend people engage in the topic of race at work?
SHELLEY STEWART: Yeah, it’s a, it’s a really good question and not an easy one.
I can only give my own personal view of how I approach it. So first is assume good intent. I think you have to start from a place of assuming good intent. And I think usually that is the case. And so it’s not good intent every third time, that’s probably okay. Two, with real humility, recognizing that this is one of the most complex issues of our time and maybe of any time, particularly in this country and realizing that you don’t have all the answers and that no one does. And so having open dialogue about it from a place of humility, which means a lot of listening and also sharing personal experiences. The third thing I would say is diversity is we sometimes now think about it in this very monolithic way.
And we’ve got lots of different forms of diversity included. I think that that is a fantastic thing and that’s exactly where we need to be moving. But I think we also have to give name to and speak about the different experiences that some groups experience, who are diverse. And we have to be able to say in particular, that Black Americans, sometimes, often in my experience don’t fully participate in broader diversity efforts, unless there is an explicit lens to supporting Black folks in the workplace. And I think it’s okay to recognize that. Both things can be true. It can be important to move holistically around this topic of diversity and having different populations support one another and allyship, but we can’t also lose sight that certain colleagues in certain groups experience the workplace very different than others, and that shows up in the data and the outcomes.
PORTER BRASWELL: Yeah, I really appreciate that sentiment because I think one of the reasons why I feel more optimistic being in this space, in this diversity, equity, inclusion space, this budding industry – is that it seems like there has been a shift where corporations, now accept that the Black experience is different.
And I feel like up until 2020, there was a reluctance to accept that fact, but in my conversations and in my dialogues and speaking to corporate executives, there is this receptiveness to acknowledge it, and now come up with solutions, to try to knock down some of these barriers that have always existed.
And I think that your report adds to that. It adds to the ability for somebody to look at something objectively and say, this is where we are. This is what it is. So let’s not argue about if there’s differences or inequalities or whatever. There is, and so what do we do? And I really appreciate your team and you for leading that, to create that groundwork so that we can at least build off of that. And for having this dialogue with us on this show.
SHELLEY STEWART: Thank you very much for having me and this show is fantastic and we’ve got to keep amplifying these messages because it’s not just about outcomes for Black Americans. This is about America and building a more inclusive, a more resilient, a more robust, a more cohesive economy and society. And we can do that. We can make the choices that will help us get moving in that direction. It’s not easy and it will take some courage, but we can do it.
PORTER BRASWELL: Awesome. Awesome. Well, thank you, Shelley.
That’s Shelley Stewart III, partner with McKinsey & Company and a leader in their firm’s marketing and sales and private equity and principal investors practices. You can read the full report, the Economic State of Black America: What it is and What it Could be, on the McKinsey & Company website.
This episode was produced by Liz Sanchez. Special thanks to Anne Saini and Nick Hendra.