Silicon Valley’s Achilles’ heel threatens to topple its supremacy in innovation

Key Points
  • The lack of workforce diversity and unconscious bias is a systemic problem in Silicon Valley.
  • Tech companies are grappling with culture wars at shareholder meetings and lawsuits over this issue.
  • To win the talent war, this is a necessity: 47% of millennials want to work at diverse companies, according to a recent study.
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Silicon Valley may be the world's leading hotbed of innovation and genius, but it struggles with diversity and unconscious bias. Culture wars at shareholders' meetings and recent lawsuits against tech titans such as Google and YouTube over its lack of diverse hiring practices highlight the festering problem. Left untreated, this may be the Achilles' heel that topples the technology industry's supremacy as an entrepreneurial center of excellence. That's because having a diverse workforce is a competitive advantage that drives productivity and profits as companies sell their products and services to a broad population.

Lack of diversity in Silicon Valley is an old story. Nineteen years ago civil rights leader Jesse Jackson first launched a campaign to encourage the region's tech companies to hire black and Latino workers. At the time, he was accused of "terrorism" by Scott McNealy, the co-founder of early Silicon Valley giant Sun Microsystems.

Tech leaders may have changed their tune in the intervening decades — all the top CEOs today loudly proclaim a commitment to "diversity and inclusion" — but in other ways not much has changed in almost two decades. A study released in May by the National Urban League sparked criticism of the tech industry. It revealed that at companies like Uber, Twitter, Google and Facebook, fewer than 3 percent of tech workers identify as black.

Recognizing the issue three and a half years ago, a former women's rights lawyer in San Francisco, Joelle Emerson, founded Paradigm, a diversity consulting shop that has become a go-to advisor for tech unicorns, including Airbnb, Pinterest, Slack, Udacity and a slew of Fortune 500 companies in a variety of industries, from retail to banking. By taking a data-driven approach, she struck a chord with tech companies.

Paradigm’s CEO Joelle Emerson is an advocate for diversity and inclusion.
Source: Paradigm

For each client, Emerson said Paradigm spends several weeks gathering quantitative and qualitative data and observing people practices, from recruiting and hiring to performance evaluation and promotions. The goal: to develop a comprehensive diversity and inclusion strategy. Then it analyzes a company's HR data and uses algorithms to determine where it has missed opportunities to add more underrepresented groups to its workforce. With this analysis in hand, it can identify barriers and give clients metrics for measuring impact. Emerson and her team also embed themselves in the recruiting process to evaluate the colleges their clients target and even review the wording of job postings.

As she explains, many tech heavyweights, such as Apple, Google, Facebook and Yahoo, have woken up and are starting to improve the representation of women, minorities and other diverse groups — but change is slow.

"They realize there is no silver bullet," said Emerson. "But they can no longer afford to keep a culture that isn't all inclusive."

To address the problem, they have introduced training programs to raise awareness about unconscious bias and improved transparency reporting. Many are also eliminating "white boarding" — a type of tech interview that asks candidates to scribble out computer-science concepts — from the hiring process.

The numbers are telling.

Apple's most recent diversity report, out in November 2017, highlighted an interesting fact: Underrepresented minorities employed at the company grew from just 19 percent in 2014 to 23 percent in 2017. While the tech giant claims that 50 percent of its new hires in the United States this year were from historically underrepresented groups in tech, the results mirror the industry at large.

The numbers for all employees break down as follows: 21 percent of Apple employees are Asian, 9 percent are black, 13 percent are Hispanic, and 3 percent are multiracial. Some 54 percent are white. Women make up only 23 percent of workers in tech roles and 32 percent of employees overall, according to Apple.

Google found similar results in its diversity report: In 2017, Google's overall workforce was 56 percent white, 35 percent Asian, 4 percent Hispanic, 2 percent black and less than 1 percent American Indian or Alaskan Native, and Native Hawaiian or Pacific Islander.

Google was contacted to go over its diversity efforts but did not respond to CNBC for comment.

A fierce talent war is making diversity a must

According to Emerson, who now works with 300 companies, a whole new mindset is needed to change corporate cultures.

"Now that the talent war is so fierce, companies are prioritizing this issue. They want to cast a wide net so they can attract employees of all backgrounds. They can no longer afford to keep a culture that isn't all inclusive," she said.

That's because 47 percent of millennials want to work at diverse companies, a 2017 research report by the Institute for Public Relations revealed.

One company reporting progress is Pinterest, a Paradigm client. According to Candice Morgan, Pinterest's head of inclusion and diversity, CEO Ben Silbermann and co-founder and chief operating officer Evan Sharp have set aggressive diversity goals. In 2015, Pinterest was one of the first tech companies to release its hiring rates for underrepresented groups and make their hiring goals public. At the same time, the company introduced its Rooney Rule-type requirement [referencing former Pittsburgh Steelers owner Dan Rooney] for all senior roles, meaning at least one woman and one ethnically underrepresented candidate in the interview slate onsite. Pinterest also created the office of the Head of Diversity.

At the time, the percentage of black and Latino engineers in the tech industry nationwide was 1 percent.

Pinterest set up Inclusion Labs to collect workforce research to better understand barriers to diversity and to test new strategies for addressing these barriers. In addition, it provides inclusive leadership and unconscious bias training to its employees.

By 2017 the number of people from underrepresented ethnic groups working at Pinterest tripled from 3 percent to 9 percent of the company. Women in tech roles (engineers, product management and design) increased from 21 percent to 29 percent.

While progress has been made, Silbermann continues to move the needle. "The goals we aspire to are currently 25 percent hiring rate for women engineers, an 8 percent hire rate for ethnically underrepresented engineers and a 12 percent hire rate for ethnically underrepresented talent across the rest of the company," said Morgan.

Pinterest is just one example of how some tech companies are aggressively looking for change. "I do see the needle moving," Emerson said. "While Silicon Valley has not been that inclusive, I remain optimistic we are moving in the right direction. But there still is a lot of work to do."