To be a diversity certified business, the diverse owners must control the business. The owner has to have the authority and “power to direct or determine” or influence what will happen in the business, both now and in the future. According to the City of Detroit, “Control may be affirmative or negative, and it is immaterial whether that control is exercised (such as a silent partner) so long as the power to control exists.”
And, the business must not be under any formal or informal restrictions that limit the owner’s authority.
So what proves control? It isn’t just title. President or CEO means nothing, if the owner doesn’t have the ability or authority that goes with the title. Activities that show control include:
- Financial control: the owner’s signature on bank account signature cards; signatures on the business’s checks in payment for goods or services; signatures on loan documents or contracts with the bank or other creditors; and business credit cards bearing the owner’s name and signature with a history of significant business-related purchases.
- Management control: negotiation of and the owner’s signature on contracts with customers and vendors; hiring and firing decisions, including performance evaluations; supervision of business operations; office management; entering into lease or property agreements; marketing and sales; and purchasing major equipment.
This doesn’t mean the diverse owner’s signature is on every document, unless the business is a sole proprietorship. It does mean that s/he has the responsibility and ability to perform these activities, or manages those people who perform these tasks.
Note: I believe that Board of Directors or Management Committee membership should reflect the diverse ownership.
Owners must also be forward thinking. They are generally expected to be the driving force behind business planning. I am often asked, during state site visits: “what plans do you have for your business’s future?” I believe that a lack of plans can demonstrate lack of control.
Things that could override the owner’s ability to control the business – and prevent it from becoming diversity certified might include:
- Franchises aren’t usually certified by state governments, however, third-party certifiers will if there are no unreasonable restrictions put on the diverse owner.
- If a large number of the day-to-day operational activities are not being performed by the diverse owner or if the person in charge of these activities doesn’t report to or isn’t held accountable by the diverse owner.
- Voting agreements or corporate by-laws that limit the control the diverse owner has over the company.
- Any implication that a prior employer/employee relationship with the diverse owner can make the business appear to be a pass-through.
- The diverse owner doesn’t hold the highest officer position in the company, and/or isn’t the highest paid person.
- The diverse owner has only a nominal amount of the financial authority and/or s/he doesn’t have significant industry expertise.
- Outsourced management or financial agreements restrict the diverse owner’s authority or power to make decisions.
- Required professional or business licenses aren’t held by the diverse owner.
- The business shares employees, equipment, expertise, or facilities with another company in the same industry.
- A non-diverse owner or employee makes more salary than the diverse owner without a reasonable explanation.
To be a diversity certified enterprise, it is imperative that the diverse owners be the controlling owners in practice and on paper.