Goizueta Effect - Racial Bias is Everywhere

Racial Bias is Everywhere

10/29/20 • 32 min

Dr. Erika Hall, assistant professor of Organization and Management at Emory University's Goizueta Business School, focuses her research on the influence of race, gender, and class-based biases on interactions within the workplace and more broadly within society.

Racial Bias in the Workplace

Bias is an instance of prejudice and racial bias is an instance of prejudice based on a person’s race or perceived race. In the workplace, racial bias manifests in a number of ways such as lower wages, higher job loss, being passed over for a promotion, and so on. It is important to understand the difference between bias in the workplace versus an anomalous outcome versus a true deficiency in performance that led to an outcome. With a sample size of one, that determination may be difficult but Hall has looked at hundreds and sometimes thousands of people and companies in her research studies which enables her to identify trends in discrimination.

Organizations can use control groups to evaluate whether or not an instance is due to racial bias. This means looking at a situation and determining if there was another person that had the same type of qualifications, who had the same résumé, would that person suffer the same outcomes as the Black person is right now.

Hall says hiring biases are quite common. There are negative stereotypes associated with Black candidates regarding future performance. Many résumé studies show that bias is in play with hiring managers if the name on top of that résumé is perceived to be black versus white. In these studies, a fictitious résumé is created with all the qualifications necessary for a position. Two copies of the résumé ─ one version with a stereotypically Black or Asian or Latino name on it and the other a name that is stereotypically white ─ are submitted to actual companies for real positions. Even though it is an identical résumé except for the name at the top, the callback rate for candidates with names that are stereotypically Black or minority, in general, tends to be lower than for candidates with “White” names.

Code-Switching

Hall notes that it is not uncommon for people of color to change their name or go by their middle name in order to not be discriminated against when applying for a job. A study published in Administrative Science Quarterly suggested that both Black and Asian employees tend to change their names in a way that will make it whiter, a behavior known as résumé whitening.

Making your name seem more “white” is related to code-switching or when a person adjusts their style of speech, appearance, behavior, or expression based on the setting they are in (home vs office, for example) or those who are around them. Hall says everyone has to code-switch to some degree between their personal and professional lives, but it seems to be more distinct and more disparate for Black Americans.

Racial Bias Misconceptions

The biggest misconception about racial bias in the workplace, says Hall, is that you have to be a racist to be biased. A racist is someone who is prejudiced against people on the basis of their racial or ethnic group.

If you don't hire someone who is Black because you are fearful that your customers would respond better to someone that is white, you have introduced racial bias into the hiring process, even though you personally may not hold any negative feelings toward Black people.

Another example of racial bias can be found in the real estate industry. While companies that value homes for sale are bound by law not to discriminate, there are reports that it happens often. Homes in predominantly Black neighborhoods or homes that have evidence of Black owners (such as family photos) are appraised at lower rates than homes with white owners. Hall references an article in which a professional appraiser said that appraisers try to mirror the market. Buyers are less willing to purchase a home that was previously owned by a Black person and their valuation of the home reflects that. The appraisers may not be racist but they are contributing to discrimination and in doing so are disadvantaging Black home sellers.

Black vs African American

The terms Black and African American often are used interchangeably within the United States but there is a literal difference. Black refers to the entire diaspora of people with ...

Racial Bias in the Workplace

Code-Switching

Racial Bias Misconceptions

Black vs African American

The terms Black and African American often are used interchangeably within the United States but there is a literal difference. Black refers to the entire diaspora of people with ...

Previous Episode

Poor Ethics, Bad Business

Business Ethics Matter in the Organization of Society

Dr. Gonzalo Maturana, Assistant Professor of Finance, at Goizueta Business School, Emory University, suggests that society must be organized around an economic system that places competition as the fundamental pillar for economic growth. And, that we can easily lose the benefits of capitalism when rules are violated.

An organized society formulated around an economic system that places competition as the competition for economic growth awards merit. The idea is that if one works hard there is an award. This fosters innovation and entrepreneurship, resulting in benefits to society, the entrepreneur hires workers, lower prices and covers a necessity. Central to the idea of merit is fairness. The strength of our economic system is predicated around this idea that the system is fair. There are a set of rules and polices that we have to help us move closer to fairness, but if not followed the system falls apart and a small group of people benefit at the expense of the majority. As a result, we could lose the benefits of capitalism when rules are violated.

So now the question is what happens if the public perceives that the system is not fair. A University of Chicago professor argues that without public support, or worse with public resentment, it's very difficult for the economic and financial system to operate.

Housing Crisis and Mortgage Back Securities

The 2008 mortgage crisis revealed the negative impact of not following ethics and behaving fairly. Recession mortgage backed securities helped facilitate additional mortgage credit that was not available. This fueled the demand for houses and contributed to the housing bubble. The market grew rapidly around 85 billion in 2000 to 1 trillion in 2006. Catching these during an economic boom is very difficult in part because no one is paying attention and the problem is exacerbated during an economic downturn.

Mortgaged back securities are non-agency securities. The mortgages are put together and securities are created out of them which is then sold to investors. This allows banks to transfer credit risks allowing borrowers to default on their mortgages. Homeowners may want larger loans and a lower rate and the loan officer collects important information to determine how risky the borrower is.

There are several conflicts of interest when creating such securities. The loan officer is often compensated on loan volume, so there is some incentive to lowering the standards. Originators may also have an incentive to inaccurately report information to the underwriters. Misrepresentation may be difficult to catch due to the complexity of mortgage back securities, the structure of the payments and how you measure risk. Most problems flow directly or indirectly to the incentive of the underwriting bank.

Residential mortgage backed securities are extremely complex in terms of the structure of the payments and how you measure risk. Also, credit rating agencies were supposed to certify the quality of the securities, but again they were paid by the underwriters with whom they have repeated business. Dr. Maturana has research that shows that there was a ripple effect that operated house prices and incentivized someone’s decision to expand a credit. When the recession market collapsed and disappeared by these lenders went out of business quickly.

Ramifications for Unethical Behavior

Dr. Maturana says employees involved in the creation of residential mortgage backed securities that were later found to be misrepresented did not face significant career penalties. These employees remained employed at the same bank, moved to another large bank, or were promoted. This is concerning because the employees that were analyzed, worked at banks that settled with the Department of Justice and admitted wrongdoing during the structuring of these residential mortgage backed securities.

Findings show that the system of settlements may not be good. These results and the lack of individual prosecutions send a message to current and future finance professionals that there's little if any place for punishment for abusive practices. This level of repercussion can reinforce cultural norms that allow or encourage employees to ignore the warning signs of fraud and abuse. Dr. Maturana says good business ethics need to be part of the culture and that the guidelines need to come from upper management who should lead by example. If a boss cares about business ethics and good behavior then that's something that's constantly discussed in the work setting. Also, for incentivizing good behavior he suggests having a strong enough deterrent. Increasing accountability and rethinking statute of limitations for example are a way to generate incentives.

How Academia Plays a Role in Business Ethics
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Next Episode

Reimagining Business as a Catalyst for Social Change

Wes Longhofer, Executive Academic Director at The Roberto C. Goizueta Business & Society Institute, joined The Goizueta Effect Podcast to discuss business and the critical role it plays in driving societal change.

His work has been funded by the National Science Foundation and featured in the Washington Post, American Sociological Review, and American Journal of Sociology. Most recently, Longhofer co-authored Super Polluters: Tackling the World’s Largest Sites of Climate-Disrupting Emissions.

The Role of Business in Driving Societal Change

Business and capitalism are tremendous engines of prosperity and innovation. Organizations provide much-needed jobs and countless goods and services that undoubtedly make our lives better.

We're also living in an incredibly challenging time. Climate is in crisis. There's mounting inequality. Political polarization seems to be at a peak. Not to mention an ongoing pandemic that's shown us the power of business to urgently create a vaccine, but also raises important questions about the equitable distribution of it.

Recognizing the role of business in driving positive social change begins with acknowledging that there is no business without society. Too often, we think of markets as existing outside of people and the society that comprises them, but no market can exist without a society that sets the rules of the road, without a government that sets up things like property rights, or without an environment that provides natural resources that, if exploited, will threaten the ability of the market to function.

If we start by recognizing that business exists in society and that markets are designed for and in the interest of people, then, we can begin to think about how to reimagine business. This view will help us as we work to redesign markets to serve both more of society and the natural world. It's about recognizing business not just as economic actors, but as civic and environmental actors as well.

Stakeholder Capitalism

Stakeholder capitalism is messy. Primary stakeholders of a firm include employees, customers, investors, the firm itself, and the community in which the firm is located. That only scratches the surface. There's also government, the media, social movements, competitors, and the earth itself. So how do you make sense of this and which stakeholders matter the most? The classic professorial answer...it depends.

The History of Corporate Responsibility

Throughout history, there is a constant push and pull between business and society - from the expansion of the railroads, to the growth of U.S. steel, to the creation of the automobile.

In the post-World War Two period, there was this idea that companies would provide jobs, not just for a few years, but for an entire career. They would provide opportunities for mobility over the life course. They would give you pensions. They would employ not just you, but a lot of your friends. A handful of large corporations really shaped and defined not just business in America, but civic life as well.

As the years progressed, the U.S. began to see momentous social movements and transformative public policy that raised awareness of things like civil rights and environmental degradation. Investors began to look at the old way of companies and decided they were not very profitable. In the late 1970s and 1980s, investors decided it might be better to break up those companies. They identified managers as a problem because companies were trying to do too much. Organizational scholars called this the garbage can theory of decision-making - you throw a bunch of strategies at the wall with ill-defined goals. Some said, "Well, maybe managers should just focus on maximizing profit rather than getting involved in all these other distractions."

Very quickly, the idea of the company started to change. Employees started to spend less time at any one company, ownership became more centralized, companies began to invest more in financial markets and less on their own assets and R&D, and managers were compensated for maximizing profit. Companies began to view societal issues, like pollution, as externalities.

Purpose-Driven Organizations Today

Today, a number of organizations are embracing purpose as part of their culture and their brand.

Patagonia's the obvious one that comes to mind. They have a deep commitment to sustainability in their supply chain. They work with industry pa...