What Affirmative Action Means for Businesses

Created as part of the Civil Rights Act of 1964, affirmative action refers to the practice of requiring businesses that contract with the federal government to promote equal opportunities among races, genders, religions, sexual orientations, people with disabilities and veterans, in an effort to counter past discrimination against these minority groups.

It was signed by President John F. Kennedy in 1961 and four years later President Lyndon B. Johnson issued it as Executive Order 11246, requiring government employers to take “affirmative action” to “hire without regard to race, religion and national origin.” Gender was added to the definition two years later.

Affirmative action plans (AAP) are enforced by the Office of Federal Contract Compliance Programs (OFCCP) under the U.S. Department of Labor (DOL) umbrella.

According to the DOL's web site, Executive Order 11246 applies to federal contractors and federally-assisted construction contractors who conduct at least $10,000 in government business in a one-year time period. But the order also applies to subcontractors who supply components to companies with federal contracts, such as manufacturers of engine parts for makers of vehicles purchased by the Department of Defense. Furthermore, financial institutions with deposit accounts for federal funds or that sell or cash U.S. savings bonds must also maintain an AAP.

Theoretically, companies with the most robust affirmative action programs will boast employee profile breakdowns that most accurately reflect the broader labor pools available to them. And while affirmative action has its share of detractors, an organization’s failure to comply with equal opportunity laws can result in costly financial and legal penalties.

As an effective management tool, an affirmative action platform employs internal auditing and reporting systems to track a contractor’s progress toward achieving the workforce that would theoretically occur under the total absence of discrimination. In addition to aggressive educational and outreach efforts aimed at targeting underrepresented populations, this includes equal treatment across recruitment, compensation, advancement and all other components of the workplace experience. Simply put: affirmative action mirrors how organizations conduct daily business.

OFCCP conducts compliance reviews to study the employment practices of government-contracted businesses. During a compliance review, 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.

Problems may also be flagged by individuals filing complaints if they believe they have been discriminated against. Complaints must be filed within 180 days from the date of the alleged discrimination, although filing time can be augmented on a case-by-case basis.

(For more, see: 8 Things Employers Aren't Allowed to Ask You.)

Supporters of affirmative action argue that discrimination is still a problem in the American workforce and maintain that differing opportunities persist. In addition to righting this wrong, some argue that from a profitability standpoint, diversity in the workplace is good for a company’s bottom line — especially when it comes to minorities in leadership roles and board positions. The group-think mentality of good-old-boy networks doesn’t necessarily bring about the freshest ideas. Case in point: a recent study shows that when you reach a critical mass of 30 percent or more women on a board of directors, behaviors begin to change, governance improves and discussions become richer. And while sometimes it takes outside forces for higher-ups to shed their “hire-like-me” habits, once they observe the positive consequence, they tend to embrace change willingly.

Finally, although the availability of government contracts vary by administration and federal budgetary outlooks, such accounts are potentially lucrative windfall opportunities for the businesses that win them. As a result, businesses that are willingly compliant with equal opportunity law may be setting the stage for rosy prospects.

Since affirmative action guidelines require covered employers to meet certain timetables for hiring and promoting minorities and women, this may coerce employers to make hiring decisions based on numbers and not the overall qualifications of the applicants. It also creates an increase in competition for well-qualified applicants within these groups.

There also may be negative psychological ramifications at play, in that affirmative action policies can potentially stigmatize certain women and minority employees who may endure suspicious glares from co-workers who question the motivations for their hires.

(For more, see: These SRI Funds Focus on Empowering Women.)

While affirmative action continues to be a source of controversy, AAP’s are a reality for all government contracted businesses. Employers that have been sued for discrimination may choose to implement an AAP as a way to proactively avoid future litigation, but also as a method of securing long-term viability.