Holding Their Own

By RON STODGHILL II/DETROIT

There were many at the time who thought the Supreme Court decision in Adarand v. Pena would drive a stake through the heart of America's minority-owned businesses. In 1995 Adarand Constructors, a Colorado company that installed highway guardrails, sued the U.S. Department of Transportation for awarding a contract to a minority-owned company even though Adarand's bid was lower. The case was widely considered a test of the nation's sincerity about affirmative action. So when the court upheld Adarand's claim, the conventional wisdom was that black entrepreneurs had finally come to Armageddon.

Happily, the doomsday scenario has proved wrong. No doubt, Adarand v. Pena has made it tougher for minority firms to compete. The decision upended an affirmative-action policy in minority contracting that dates back more than 30 years, to the Johnson Administration. But even though federal procurement officials now have less incentive to seek out minority businesses, those firms, operating in the best economic climate America has known in decades, have generally managed to defy the most downbeat predictions. And their most loyal customers are no longer governments; they are in the private sector, from the Big Three automakers to Carolina Power & Light to AT&T.

For the past decade, Big Business has been pushing aggressively to respond to changing demographics in the marketplace. Indeed, corporations are increasingly targeting predominantly African-American, Latino and Asian urban areas as well as ethnic markets overseas, experts say. "It's a business imperative for many companies if they want to retain or expand their market share," says Harriet Michel, president of the National Minority Supplier Development Council.

Michel's organization is proof of the new ways that minority business has woven itself into the American tapestry. It is funded by more than 250 major corporations to foster links between private purchasers and minority suppliers. For the past several years, council officials have reported growing commitments from many FORTUNE 500 companies, including JCPenney, K Mart and Sears Roebuck, which helped drive purchases from minority businesses to more than $33.4 billion last year, up from $86 million when the council was founded 26 years ago. Even more important, corporations have upped their minority share of procurement spending from once token amounts to between 3% and 5% of their overall purchasing budgets. With increased spending has come increased respect. Last month nine of General Motors' 620 minority suppliers were honored as Suppliers of the Year by the company's worldwide-purchasing organization.

This points to further good news: there are enough suppliers out there to meet the demand. Not long ago, it was doubtful that there were sufficient minority businesses muscular enough to supply huge corporate inventories. But corporate downsizing in the late 1980s provided the seedbed for a wave of savvy, well-connected minority entrepreneurs. The U.S. Census Bureau reports that the number of minority-owned businesses rose 60%, to 2.1 million, between 1987 and 1992. Most experts anticipate a continuing trend of rapid minority-business formation. Says Alfred A. Edmond Jr., executive editor of Black Enterprise magazine: "The vast majority of minority business, like most firms in America, are either doing business with other businesses or with consumers."

There is also a thriving new sector of minority middlemen who are helping that process along. Take, for example, C. Ottley Strategies, a minority-owned market-development firm in New York City. Four years ago, Active Transportation, a truck-hauling company based in Louisville, Ky., acquired a major trucking firm, making Active one of the largest African American-owned businesses in the U.S. Seeking to promote stronger name recognition and impressed by the firm's reputation in fostering corporate ties between African-American, Asian and Caribbean communities on the one hand and corporate giants such as Chase Bank and Avis on the other, Active sought out Ottley. The development company gave the Active deal media attention by arranging a signing ceremony in New York City.

The marketing firm was founded in 1993 by Charlotte Ottley, a former executive producer at ABC- and NBC-owned TV stations, who definitely knows how to network. "It's all personal and professional contacts," she says. "Firms like mine have to have the confidence of the community and the acceptance of corporate America." Ottley's continuing challenge is no different from that of any entrepreneur in a highly competitive marketplace. But to do battle against bigger firms angling for her clients' media dollars, she is in the business of developing creative approaches to plug clients into potentially lucrative ethnic markets. One Ottley-inspired program: a seminar at Chase's headquarters with the local chapter of 100 Black Men that was broadcast live over an African-American radio station.

The fact that the private sector is booming doesn't mean that government set-aside programs for small businesses have vanished. Truth be told, however, the Republican-dominated Congress has tried to make that happen. The most recent measure, put forth last year by Republican Congressman Charles Canady of Florida, would have prohibited preferential treatment based on race or gender in federal activities. The legislation stalled in the House, and Canady doubts he will reintroduce it this session.

But while the Clinton Administration has publicly supported affirmative-action programs following a government-wide review in the wake of the Adarand ruling, most of the efforts are focused on eliminating bureaucratic obstacles that discourage loan applicants. The Small Business Administration, which oversees and coordinates minority contracting with federal agencies, reports that the amount of federal procurement dollars going to so-called 8(a) firms has remained just about constant at around $6.4 billion over the past three years. Vice President Al Gore recently added some vigor to what observers call a "mend, not end" strategy when he announced that $1.4 billion in SBA loan guarantees would target African-American firms, with civil rights organizations encouraging applicants and helping them navigate the labyrinthine approval process. "The money, for the most part, has always been there, but it's not an easy process for business owners to get to," says Leona Barr-Davenport, president of the Atlanta Business League, which represents some 300 small businesses owned by African-Americans, Hispanics and women. And some people find the current climate for minority business chillier. "We're having a much rougher time in the federal contracting world," laments Sam Carradine, executive director of the National Association of Minority Contractors.

Still, the issue of government subsidies and other set-asides remains politically charged. "It is important to recognize the history of discrimination against blacks and other minorities," Canady says. "But we will not solve those issues by the government sorting people by race and gender." Some minority-business veterans view the SBA and set-aside programs as overly paternalistic and perhaps more trouble than they're worth. George Bellinger, a former business owner, is a substance-abuse consultant, but for nearly 25 years, until 1994, he headed his own company in Connecticut, Bar-Pat Manufacturing. The business was heavily involved in government contracts, making, among other things, helicopter parts and lightning-ground cables for NASA. In 1988, buoyed by government 8(a) support and solid relationships with the U.S. Navy and Air Force, the company was ranked among the top 100 black industrial and service companies by Black Enterprise. But the end of the cold war exposed Bar-Pat's overreliance on Pentagon orders. "After the Wall came down, they began canceling contracts for the military, and when we went looking for commercial contracts, it was all in the Pacific Rim, and we went out of business," Bellinger says.

Stories like Bellinger's are making minority businesses even more wary of hitching their success to the vagaries of government. For many, though, the prospect of snagging huge federal and municipal contracts is too tempting to pass up. For example, the Wisconsin state legislature authorized $160 million in public funds toward a new baseball stadium in Milwaukee, with 25% of the funds for development, construction and professional services earmarked for minority businesses and 5% for female-owned companies.

The commitments represent a big improvement over the handling of the city's last major project--the Bradley Center Arena, where the Milwaukee Bucks NBA team plays. When the arena was built 12 years ago, the absence of minority contractors and employees sparked a bitter feud. "No black folks or other people of color got any of that," fumes city alderman Fred Gordon, who feels that even today, minority firms often get just "table scraps."

But for Dorothy Rowe, 52, of Atlanta, minority set-asides were far more than that. In 1993 she and her family started Rowe Concessions, a vending-machine-supply company that now has 30 employees. They got a big boost from the city of Atlanta with contracts to supply municipal buildings and the city-run airport with vending machines. The contracts end in 1999. "I don't want a handout. Just level the playing field," Rowe says. "People in charge of procurement are going to deal with people they know socially."

C. Robert Kemp, CEO of the Los Angeles Community Development Bank, also believes that set-aside programs are still essential. Since 1996, his small bank (current assets: $48 million) has offered capital, lines of credit and basic services to businesses in South Central and East Los Angeles. "By enlarging the procurement pie," he says, "it has made it possible for everyone to be a part of the economy. In fact, the increased competition made better products and services." That's a color-blind mantra if ever there was one. --Reported by Patrick Cole/ Los Angeles, Sally B. Donnelly/Washington, Greg Fulton/Atlanta, Erik Gunn/Milwaukee, Emily Mitchell and Adrianne Navon/New York

With reporting by Patrick Cole/ Los Angeles, Sally B. Donnelly/ Washington, Greg Fulton/Atlanta, Erik Gunn/Milwaukee, Emily Mitchell and Adrianne Navon/New York