What Affirmative Action Means for Businesses

What Is Affirmative Action?

Affirmative action refers to policies and programs that are designed to actively promote equal opportunity in the workplace—and, in the past, educational settings—for all people, regardless of their race, gender, national origin, sexual orientation, and other factors. Affirmative action policies originated in the 1960s after it became clear that anti-discrimination laws alone weren’t enough to counter past discrimination against historically disadvantaged groups.

Businesses implement affirmative action programs to ensure that people from groups who’ve historically faced discrimination—or who’ve been underrepresented in certain industries—have equal opportunity in their workplaces. Businesses that contract with the federal government are required to have affirmative action programs.

History of Affirmative Action

The first mention of “affirmative action” was in 1961, in President John F. Kennedy’s Executive Order 10925, which required government contractors to “take affirmative action to ensure that applicants are employed, and that employees are [fairly] treated during employment, without regard to their race, creed, color, or national origin.”

Four years later, President Lyndon Johnson signed the Civil Rights Act of 1964, which aimed to end discrimination in various spheres of American life. Title VII of the Act specifically addresses equal employment opportunity. Johnson then followed this with Executive Order 11246, requiring government employers to take “affirmative action” to “hire without regard to race, religion and national origin,” and put Cabinet-level authority, under the secretary of labor, behind implementing its affirmative action and non-discrimination provisions.

The landmark order has been amended over the years. Gender was added to the definition in 1967, people with disabilities in subsequent years, and in 2014, sexual orientation and gender identity were included.

In June 2023, the Supreme Court issued a landmark ruling, banning race-based admissions policies at colleges and universities. While this decision has no direct bearing on affirmative action policies designed to address past discrimination in the workplace, it may have the unintended consequence of altering some business’s policies. Companies that voluntarily implement hiring policies to address diversity in the workplace

What Businesses Are Impacted by Affirmative Action?

Executive Order 11246, according to the Department of Labor (DOL) website, requires that federal contractors and federally assisted construction contractors who conduct at least $10,000 in government business in a one-year period take affirmative action to ensure that equal opportunity is provided in all aspects of their employment.

One-fifth of the U.S. workforce is employed by companies that do business with the federal government, so the order has a broad reach. It also applies to subcontractors that supply components to companies with federal contracts, such as manufacturers of engine parts for makers of vehicles purchased by the Department of Defense. Financial institutions with deposit accounts for federal funds—or that sell or cash U.S. savings bonds—must also maintain an affirmative action plan.

Private companies can also voluntarily adopt affirmative action plans to increase the diversity of their workforces. They just have to make sure their plans comply with Title VII. The Supreme Court has developed a three-part test for them:

1.  The plan must show there has been past discrimination. Companies don’t have to admit they discriminated in the past, but some factual basis for the plan must exist. For example, statistical data can make the case that there’s a “conspicuous imbalance” in a traditionally segregated job sector that needs to be corrected.

2.  The plan must not “unnecessarily trammel” the rights of incumbent workers. For instance, a company can’t lay off a group of White men and replace them all with Black and women workers.

3. The plan must be temporary. It should last only as long as it takes to correct past discrimination.

How Do Businesses Implement Affirmative Action Plans?

The premise of affirmative action programs is that, in the absence of discrimination, the employee profile breakdown at a company would accurately reflect the broader labor pools available to it. A written affirmative action plan (AAP) is a management tool that employs various means to analyze and achieve this. A typical AAP for a business, as outlined by the Code of Federal Regulations, would include:

• Analysis: A profile of the company that identifies the gender and race/ethnicity of each employee, in the context of an organization chart with job roles and how they relate to one another.
• Availability: Calculations of target minorities working at the company in contrast to the population (labor pool) with the right skills for the available positions.
• Comparison: Incumbent employees to available candidates as a basis for making tangible recruitment and promotion goals.
• Responsibility: Specific managers who will track these goals.
• Problem areas: List problem areas. For instance, underrepresentation of Black, Latinx, or women workers in specific departments or job categories, a lack of promotions for these groups to managerial roles, etc.
• Corrective actions: Tangible, action-oriented steps. These often include aggressive educational and outreach efforts aimed at recruiting more employees from underrepresented populations—but also equal treatment during recruitment interviews, and across compensation, training, advancement, and all other components of the workplace experience.
• Internal auditing and reporting systems: Track progress and measure the effectiveness of the actions the company has taken toward achieving a more diverse workforce.

How Is Affirmative Action Enforced?

Affirmative action plans that are required of federal contractors and subcontractors are enforced by the Office of Federal Contract Compliance Programs (OFCCP) under the DOL umbrella.

OFCCP conducts compliance reviews to study the employment practices of government-contracted businesses. A compliance officer may scrutinize a contractor’s affirmative action program by looking at personnel rosters, payroll figures, and other records, in addition to interviewing staffers and management executives. If problems are discovered, OFCCP will recommend corrective action and suggest ways to achieve the desired equal employment opportunity.

Advantages and Disadvantages of Affirmative Action

Discrimination and disparities in opportunity persist as a problem in the American workforce. Over the years there has been controversy over whether affirmative action is the right approach to fixing this. Claims of “reverse discrimination” have been litigated up to the Supreme Court many times.

Then, in June 2023, two court cases reached the Supreme Court; the outcome of these cases resulted in the end of a legal ruling that had been in place since 1978, allowing colleges and universities to factor race into admissions decisions. The cases—Students for Fair Admissions Inc. v. University of North Carolina and Students for Fair Admissions Inc. v. President & Fellows of Harvard College—reversed 45 years of legal precedent. The court ruled in favor of White women who claimed they were denied higher education admission because of their race, an example of “reverse discrimination.”

In light of these decisions, affirmative action policies—and their impact—have been scrutinized to an even greater extent than in the past: Do guidelines that require covered employers to meet certain timetables for hiring and promoting minorities and women pressure them to make hiring decisions based on numbers? Are there negative psychological ramifications of affirmative action policies, stigmatizing women and minority employees as “affirmative action” hires?

Supporters of affirmative action argue that it is essential to correct past discrimination, and there’s work still to be done. The business case for affirmative action has grown over the years, too: From a profitability standpoint, studies show that diversity in the workplace is good for a company’s bottom line—especially when it comes to increasing the number of women and racial and ethnic minorities in leadership roles and board positions.

The groupthink mentality of old-boy networks doesn’t necessarily bring about the freshest ideas to solve difficult business challenges. Case in point: A 2019 study shows that when you reach a critical mass of 30% or more women on a board of directors, behaviors begin to change, governance improves, and discussions become richer. And though sometimes it takes outside forces for higher-ups to shed their “hire-like-me” habits, when they observe the positive consequence, they tend to embrace change willingly.

Finally, although the availability of government contracts varies by administration and federal budgetary outlooks, such accounts are potentially lucrative opportunities for the businesses that win them. As a result, businesses that comply with equal opportunity law may be setting the stage for their own company’s success.

The Bottom Line

Though affirmative action continues to be a source of controversy for some, such programs are a reality for all government contracted businesses. What’s more, many other employers choose to implement affirmative action programs as a helpful way to foster transparency in hiring and promotions and diversity in the workplace.