Why Should Baltimore Businesses and Anchor Institutions Care About Promoting Economic Inclusion?

Collectively We Rise: The Business Case for Economic Inclusion in Baltimore (below is chapter 2) has been informed by data and insights from a variety of sources, including information obtained through interviews held with a range of community advocates, public officials, and—very importantly—Baltimore-area employers and business leaders who have been engaged in economic inclusion efforts. We conducted interviews with more than two dozen representatives of Baltimore-area businesses and anchor institutions. We spoke with owners and other representatives of small and medium-sized businesses, owners and senior staff of development firms, the leaders of a large utility, the executive staff of a regional business association, and senior staff from a variety of healthcare systems and higher education institutions in greater Baltimore. We discussed the economic benefits the businesses derive from the inclusion efforts as well as the moral imperative underlying the businesses’ economic inclusion efforts. That is, such efforts are essential for creating a fair and just society for all residents.

Full Report and Appendices

The Benefits of Economic Inclusion

When asked about why their business or institution was involved in economic inclusion efforts, the consistent response from the business representatives who were interviewed was that such activities will lead to increased economic vitality and growth in Baltimore City and the region, which will benefit everyone. Some employers framed the issue very simply: “As goes the city and region, so goes our business.” In their interviews, the business representatives elaborated on this perspective, and their comments are summarized below:

Economic inclusion efforts are central to promoting both the perception and reality of Baltimore as a healthier community, and the city and region as places of opportunity:

The employers emphasized that perceptions of Baltimore directly impact the area’s ability to secure talent and investment. By creating a healthier community by expanding economic opportunity, economic inclusion efforts will make it easier for the area to attract and nurture talented people, including students, faculty, professionals, and other essential workers. Moreover, if Baltimore is seen as a place of opportunity and renewal (rather than a troubled community), it will add to the area’s competitive advantage and attract greater investment, factors that will benefit all businesses and anchor institutions.

Economic inclusiveness can foster productivity and benefits across the city and region:

The business representatives stressed the benefits that will accrue to the city and region through economic inclusion efforts that increase employment and reduce the number of people who require public assistance or are incarcerated. According to those interviewed, a community cannot maximize economic health without doing everything possible to allow all residents to make positive contributions to the local economy.

Economic inclusion efforts keep more money in local neighborhoods:

The employers interviewed noted that research has shown that small businesses and minority-owned enterprises (MBEs) are more likely than other types of companies to employ local residents and persons of color. Hiring such residents can mean that more disposable income is spent in local neighborhoods, improving the economic strength and vitality of those neighborhoods. Supporting the growth of small and minority-owned businesses also provides wealth-creation opportunities for their owners. A stronger African-American middle class will also help to stabilize neighborhoods and make Baltimore a stronger city.

Economic inclusion can help respond to demographic and policy change:

Employers interviewed for this report noted that the Baltimore business sector must identify and cultivate local talent—along with attracting new workers from elsewhere—to have enough skilled workers to grow the local economy and compete globally. The recent changes in immigration policies (which will restrict businesses’ capacity to import workers), and loss of current workers as “baby boomers” retire, are among the factors requiring employers to fully cultivate the local workforce. Interviewees argued that economic inclusion activities can play a significant role in assisting the business sector to meet its labor requirements.

The business representatives emphasized that more avenues for economic opportunity and advancement are absolutely essential for tackling the underlying economic and social problems facing greater Baltimore. The employers also noted that the unrest that followed the death of Freddie Gray has clearly shown the dire consequences which will result if there is a failure to do so. As Mike Molla, Vice President for Strategic Initiatives at Maryland Institute College of Art (MICA), expressed it: “As anchor institutions, many of us recognize the need to engage the community deeply and in ways that residents desire. The uprising amplified the critical need for institutions, businesses, and organizations to consider their practices while offering new and innovative connections for shared success and access to opportunities for all residents.”

Ken Grant, Vice President for Supply Chain Management at Johns Hopkins Health System, shared a similar viewpoint: “ … When one looks around at the needs of the city [of Baltimore], it’s clear that one of them is more jobs for community residents. And the Freddie Gray incident and the trouble which followed reminded us of the need to accelerate our [economic inclusion] efforts. It was in everyone’s best interest to get people loitering off the streets and into jobs. It used to be described as a ‘social good,’ but we now know it goes beyond that. We understand that if you don’t act, the consequences can be devastating, in terms of the negative impact on the city and its residents, and on local businesses, and on the perceptions of the city …”

The interviewed employers also recognized that it will take the collective efforts of all stakeholders, across both the public and private sectors and in collaboration with community partners, to generate broader economic opportunity. While recognizing the substantial challenges entailed, the business representatives also expressed optimism about the possibility of achieving real change. For example, Greg FitzGerald, Chief of Staff at Notre Dame of Maryland University, observed: “… I believe that there is opportunity through our collective efforts to make a real impact and to be successful in addressing these systemic problems that have contributed to holding the region back. We can make a difference in the city and region to provide economic opportunity for people who didn’t have access before. One institution alone cannot change the landscape, but working together, Notre Dame of Maryland and the other anchors and businesses, alongside city and community partners, can succeed in making the city more equitable … and people will want to come here and stay here because it’s safer, healthier, and a job hub. Through collective impact we can put Baltimore City on a path of economic inclusion and growth that no one of us could do alone … We can collectively rise together.”

The Benefits from Economic Inclusion Efforts for Individual Businesses or Anchor Institutions

Many of the citywide and regional benefits of economic inclusion efforts described above can only be realized if more businesses and anchor institutions are pursuing economic inclusion efforts over time.

But on a smaller scale, the interviews conducted with employers indicated that individual businesses can achieve a direct, and sometimes immediate, benefit from their economic inclusion practices, even in the absence of other businesses pursuing similar practices. The interviewed employers’ arguments include the following:

Economic inclusion efforts help a business or anchor institution to establish positive community relationships, which can generate multiple benefits:

Dana Farrakhan, Senior Vice President for Strategy, Community and Business Development at the University of Maryland Medical Center (UMMC), explained the importance of such relations: “If your customer base or constituency is local, and you’re interested in building and sustaining your business, you need to have a strong and meaningful relationship with your community.”

According to the employers interviewed, this is true whether the business entity is a local retailer, a service provider, a utility, or a developer. Even if a business has a customer base that extends beyond the local community, such as the situation for a manufacturer or educational institution, positive community relationships are often essential to ensuring the smooth, efficient functioning of the business’s operations.

One important way for a business or anchor institution to promote good community relationships is through seeking community input into decisions affecting surrounding neighborhoods. Employers can also build a stronger relationship with the community by emphasize hiring local residents and using local vendors and contractors, particularly minority-owned firms.

Some businesses are bound by certain economic inclusion requirements. For example, in return for receiving state or local funding, a Baltimore development project may be required to achieve certain levels of local hiring and/or MBE/WBE utilization. Similarly, higher education institutions and utilities have had economic inclusion targets established for them by public regulatory agencies and/or by industry associations. While these types of requirements play a role, the businesses interviewed for this report also see intrinsic value in the economic inclusion efforts and view them as part of the business’s moral responsibilities. For example, Willy Moore, President of Southway Builders, stated: “When our business was smaller, we did MBE utilization because it was required, but now that we’ve grown more, it’s become more important for us to do it [in order to] be responsive to the community.”

Yariela Kerr-Donovan, Senior Director for Strategic Workforce Planning and Development at Johns Hopkins Health System, also noted that as a health care provider, “[i]t’s smart business to hire people in your community, people from a couple of blocks away, to support patient care. It also enhances the quality of life in the community.”

Economic inclusion activities of some employers interviewed are part of broader efforts to promote revitalization in the neighborhoods close to, or within which, the businesses’ facilities are located. These broader engagement and revitalization efforts are especially important for the employers who have a substantial number of workers who live in those neighborhoods. For instance, approximately 40% of the employees at the University of Maryland Medical Center live in Baltimore, and 18% percent are from the economically challenged neighborhoods of West Baltimore. Accordingly, the employers recognize that helping those neighborhoods become healthier also benefits some of their employees.

A commitment to economic inclusion and community engagement builds employee and client satisfaction:

The employers interviewed for this report stated that their employees express pride in their business’s or anchor institution’s efforts to help improve the quality of life in surrounding neighborhoods and to promote economic opportunity for community residents. For example, Neil M. Meltzer, President and CEO, LifeBridge Health, discussed the participation of his organization’s employees in efforts to hire local residents: “We have doubled our community-based recruitment events, going directly into our communities with accelerated programs that allow for immediate hiring. We know that our employees are truly our organization’s greatest ambassadors, so we bring current LifeBridge Health employees … to these community events. These employees share their personal experience and offer a genuine perspective to potential new colleagues, which is gratifying for both applicants and the employees themselves, who report a sense of pride and satisfaction with these community connections.”

Representatives of the higher education institutions indicated that their economic inclusion activities can help attract faculty and students who, because of research or other professional interests or personal values, may look at a school’s commitment to its local community in choosing an institution where they will work or study.

Achieving diversity among its workforce and vendors is in a business’s self-interest and improves decision-making:

The employers who were interviewed emphasized the fact that, as the regional workforce becomes more diverse, it is imperative for individual businesses and institutions to develop a workplace culture that can take advantage of that diversity for the business to be able to secure the talent that is needed.

In addition, the employers pointed out that a business will get better results when it receives more varied input via a diverse workforce, group of vendors, and/or advisors. According to Alicia Wilson of Sagamore Development, “if you don’t have diverse voices at the table, you won’t get the best results. A business becomes more successful as a result of diversity of input.” Similarly, Calvin Butler of BGE noted the opportunity to learn from small and minority-owned firms on how the utility can improve its processes: “At the end of the day, I run a 201-year old company, but we don’t know what we don’t know. Working with outside diverse suppliers has helped us to think about being more innovative … it’s forced us to get better.”

Any added costs incurred in using smaller, local firms and/or minority-owned firms as vendors are generally marginal and may be offset vendor responsiveness and quality:

Some employers interviewed insisted that small and/or minority-owned firms do not have to be more expensive than other vendors or contractors. For example, Calvin Butler of BGE commented: “I believe it’s a faulty premise that one has to pay more for working with minority-owned firms and small businesses. The reality is that small businesses, if they’re knowledgeable and if they’re educated about the procurement and contracting processes, will be more competitive because they lack overhead.”

Ken Grant of Johns Hopkins Health System stated: “We [at Johns Hopkins] have come to the belief that small businesses can provide quality products at a competitive price … we’ve worked hard to put the myth that small businesses cannot provide quality services at a competitive cost to rest.

Likewise, Brian Smith, Chief Procurement Officer at John Hopkins University, found that small and minority firms don’t need to cost more for high quality service. According to Mr. Smith: “The university recently set up an agreement with a small, minority-owned local firm to provide lab supplies. This local firm provides competitively priced items and is one of our best suppliers in terms of service. They also provide support to the YouthWorks summer employment program, supporting Baltimore youth in their exposure to health and life sciences. This one example demonstrates that focusing locally can pay off in dividends as far as product, service and community impact.”

Tellingly, most of the employers who were interviewed and that have successfully used small and minority-owned suppliers and contractors still make their procurement decisions based on the lowest responsive bid received. That is, the businesses and anchor institutions do not provide a preference for small, local firms or MBEs/WBEs that overrides price. As Ken Grant stated, “the small firm’s or minority firm’s pricing still has to be competitive—everyone must earn the right [to be a vendor for Johns Hopkins].”

Regarding the quality that can be obtained from using diverse firms for goods and services, Willy Moore of Southway Builders explained that his firm “uses ‘rock star’ subcontractors who just happen to be minority businesses, and we use them because they are ‘rock stars’ and because they help us—they’re great performers and highly competitive.”

Some business leaders also noted that local firms serving as subcontractors and suppliers can often be more responsive than a remote vendor. For instance, if a business is sourcing locally, it may be able to avoid delivery delays or extra charges that would be associated with expedited shipping from a distant supplier.

Several of the employers acknowledged it may take more time to identify qualified smaller local firms and/or MBEs/WBEs, and in orienting them to one’s business needs and procurement processes. But the employers also underscored that identifying reliable vendors of goods and service is a normal part of doing business, and therefore the effort involved in identifying and developing relationships with MBEs/WBEs and/or small local firms should be viewed in that context.

Several of the individuals interviewed for this report also argued that building the capacity of local firms and MBEs/WBEs will add to the competition in the marketplace, which will help larger or more established businesses seeking suppliers and subcontractors to secure the best goods and services at the best price. Increasing the capacity of MBE/WBE enterprises, and the volume of their businesses, will also increase the influence of those minority and female businesspeople in the market place.

Providing job opportunities for local residents and individuals with employment barriers may involve extra effort up-front but can result in a significant payback:

The employers made it clear that a business can achieve a good return on its investment of time and resources spent on recruiting and training local workers. According to the employers interviewed, such activities (and efforts to create advancement opportunities for the employees) contribute to generating a loyal, local workforce for a company or anchor institution. This translates into reduced absenteeism and turnover, which means fewer costs for additional recruitment and re-training.

Dedicated employees are also more likely to be committed to ensuring that the business for which they work provides high-quality services and efficient service delivery. According to the employers, sometimes the most successful hires (in terms of individuals who prove to be dedicated employees) are job candidates that employers typically would overlook or avoid, such as those with criminal records. Gregory Carpenter, whose 2AM Bakery in Baltimore is staffed in part by formerly incarcerated individuals, offered his perspective about those workers: “The [previously incarcerated individuals] whom we hire come with motivation that’s different from regular individuals. They realize it’s a second chance and an opportunity to prove something to themselves and others. We find that these [formerly incarcerated employees] stay with the job longer—it is gratitude for the opportunity. When you give individuals the opportunity to not have to worry about where the next meal for them or their families is coming from [because they have a steady income]—loyalty comes with that gratitude.”

Investing in and Supporting Entry-Level Employees Reduces Costs and Creates Benefits:

Hiring local residents generates local economic benefits, and investing in them can save employers money and creates broader benefits for employers, employees, and customers. The University of Maryland Medical Center studied turnover costs in 2016 for entry-level employees. The internal analysis found that turnover costs in the institution can reach $15,000 per entry-level employee, considering training costs and backfilling employees’ salaries until additional staff can be hired. As the hospital employs hundreds of entry-level employees, turnover costs can easily total millions of dollars annually. The study was used to justify the benefits of institutional investments in employee coaching and workforce development supports to reduce turnover and create career ladders.

National studies reinforce UMMC’s analysis. A report by the National Fund for Workforce Solutions and Jobs for the Future as part of their CareerStat series found that investing in frontline workers shows positive results for employers, including lowering health care workforce costs. Additional benefits include improvements to: employee competence and advancement, employee engagement, patient experience, and community impact, as well as quality and safety.

Economic inclusion can be a key business model element:

For a variety of the employers, the economic inclusion efforts were not just viewed as important, but as integral to their business model. In the healthcare field, for example, changes in the regulatory and funding environment have incentivized healthcare providers to focus on keeping people healthy, rather than treating the sick. According to the healthcare institutions interviewed, this means that healthcare providers now must seriously examine and address the “social determinants of health” for their target populations.

Research has shown that education levels and employment are among the most powerful factors determining health status. The healthcare institutions understand that they need to move beyond their traditional medical approaches and undertake efforts that will improve the educational and employment outcomes of their target populations. In this context, the healthcare institutions’ economic inclusion activities have become key elements of their business model. For example, Neil M. Meltzer, President and CEO of LifeBridge Health, stated:

“Our purpose statement at LifeBridge Health is ‘caring for our communities together,’ and it is the filter through which we pass every business decision. We know that the health of our communities is only as strong as the wellbeing of its citizens, which includes not only their physical health, but also their success in finding meaningful work and economic opportunity. That is why we believe so strongly in inclusion and partnership [as means to promote more employment and economic advancement opportunities for community residents].”

The arguments and evidence presented in this chapter have made it clear that economic inclusion efforts are in the financial self-interest of every business entity in Baltimore, even if those efforts are not absolutely central to a firm’s or institution’s business model.

George Kleb, Executive Director for Housing and Community Development at Bon Secours Baltimore Health System, observed: “You ignore economic inclusion at your peril … If you think folks not having economic opportunities is not impacting your business, then you’re not paying attention. Try to have a business in the harbor [district} with a curfew in place, or a ballgame with no fans. And who is going to buy your goods and services if people don’t have jobs?”

Ken Grant of JHHS expressed a similar view: “… It’s in your interest to ensure that the people living in the surrounding communities of your organization are employed … I believe people want to work, and the sooner that companies realize that they can make a major impact in helping people to get and keep a job, the better … Employment, it’s the only way to achieve improvements [in the city]. We are contributing to the community’s problems if we don’t get involved in finding ways to create jobs for people.”

The section above is “Chapter 2: Why Should Baltimore Businesses and Anchor Institutions Care About Promoting Economic Inclusion?”of Collectively We Rise: The Business Case for Economic Inclusion in Baltimore.  The full report incorporates any necessary sources and footnotes.

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