Customers of Color Make Some Companies Nervous (1995)
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Customers of Color Make Some Companies Nervous (1995)

Discrimination against black customers today is more subtle, but it still exists, and it has the potential to damage a company’s reputation, as Denny’s and others have found.

Paul Holmes

by Paul A. Holmes
 
It’s 30 years since Woolworth’s and other department stores hung out “No Trespassing” signs to make it clear that black patrons were not welcome. Discrimination against black customers today is more subtle, but it still exists, and it has the potential to damage a company’s reputation, as Denny’s and others have found.
 
In 1991, a group of 18 teenagers, most of them members of the Youth Council of the San Jose chapter of the National Association for the Advancement of Colored People, walked in to a Denny’s restaurant in the city and placed an order. They were asked to pay in advance for their order, despite the fact that Denny’s is a table-service restaurant, and other (white) customers paid upon completion of their meals. When the teenagers challenged the manager’s demand, he threatened to call the police. The teenagers sued.
 
Two years later, six young, black Secret Service officers were refused service at a Denny’s restaurant in Annapolis, Md. They too filed suit, and attracted a good deal of media attention, including one CBS report that Dan Rather concluded by pointing out that these agents “put their lives on the line every day, but they can’t get served at Denny’s.”
 
With the filing of this second suit, which was ultimately joined by the U.S. Department of Justice, and the publicity it achieved, thousands of complaints came pouring into the justice department from around the country. Parents of black children reported that managers had refused to extend a special birthday promotion to their kids, even after birth certificates and other proof was produced. The claimants included military officers, teachers, police officers, college administrators and even a federal judge from Houston, who recalled racial epithets being used at a California Denny’s while he endured an hour-long wait for service.
 
“It was a kind of helplessness that came over me,” the judge reported. That sentiment was echoed by Alonso Dyson, one of the secret service agents who had filed suit: “The worst thing for me is I was made to feel like less than a person.”
 
While Jerome Richardson, chairman and chief executive of Flagstar Companies, which owns the Denny’s chain, characterized the allegations as isolated incidents, and insisted there was no intent to discriminate, there is plenty of evidence that corporate culture, rather than coincidence, was to blame. One employee reported that there was an official policy to discourage African-American customers - known within the company as A-As - because they could not be counted on to follow the protocols of restaurant-going: they were boisterous; they left poor tips; they occasionally skipped out on their bills.
 
“We were told we should take whatever measures were necessary to keep A-As to a minimum,” the employee claimed. “You could seat white customers ahead of A-As. You could put A-As in the rear and stall on serving them. You could ask A-As to pay before eating. Or, if you really wanted to get the job done, you could lock them out.” This practice, he explained, was known as a “Blackout.”
 
While Denny’s saw its name dragged through the mud in the national media, the subject of banner headlines in newspapers across the nation and the butt of jokes on the The Tonight Show with Jay Leno, there were those on both sides who felt that there was nothing very exceptional about Denny’s, or the African-American consumers who ate (or tried to eat) there.
 
“A single well-placed bigot in an organization of 10,000 people can act in a way that results in the entire organization being indicted in the court of public opinion,” says Kent Matlock, president of Matlock & Associates, an Atlanta-based public relations and public affairs firm which worked with Denny’s before and after the crisis. “Every company that deals with minority customers needs to recognize that it is vulnerable to charges of racism. For one thing, those charges are very easy to make, and for another it is impossible for an organization to know what is in the hearts of its employees, to be sure that it does not employ people who are bigots.”
 
Indeed, while representatives of the group that became known as the “San Jose 18” were in Chicago to receive an award at the NAACP’s annual convention, a hostess at the local Burger King refused to admit several young delegates to the convention, telling them: “You make me nervous.”
 
Says Mari Mayeda, one of the 18: “I think African-Americans in this country face subtle discrimination frequently, weekly, daily. The Denny’s case just happened to be a nice crystallizing example.”
 
Her attorney, Antonio Lawson, concurs: “It took these very blatant incidents to bring it out in the open, but these things go on all the time at many businesses besides Denny’s.”
 
The majority of African-American customers report that incidents of bias in customer service are not unusual. A recent survey of African-American consumers by research company Yankelovich Partners and Chicago-based Burrell Advertising, a Black-owned agency, found that 59% agreed with the statement: “When African-Americans go shopping, they are usually not treated with respect by white sales people.”
 
The emotional impact of this discrimination can be devastating, humiliating and acutely painful. Patricia Williams, a law professor at the University of Wisconsin and an authority on consumer law, describes an incident in her book The Alchemy of Race and Rights.
 
“Buzzers are big in New York,” says Williams. “Favored particularly by smaller stores and boutiques, merchants throughout the city have installed them as screening devices to reduce the incidence of robbery: if the face at the door looks desirable, the buzzer is pressed and the door is unlocked; if the face is that of an undesirable, the door stays locked. Predictably, the issue of undesirability has revealed itself to be a racial determination.
 
“While controversial at first, even civil rights organizations backed down eventually in the face of arguments that the buzzer system is a ‘necessary evil,’ that it is a ‘mere inconvenience’ in comparison to the risks of being murdered, that suffering discrimination is not as bad as being assaulted, and that in any event it is not all blacks who are barred, just ‘17 year old black males wearing running shoes and hooded sweatshirts.’
 
“I discovered [buzzers] and their meaning one Saturday in 1986. I was shopping in SoHo and saw in a store window a sweater that I wanted to buy for my mother. I pressed my round brown face to the window and my finger to the buzzer, seeking admittance. A narrow-eyed, white teenager wearing running shoes and feasting on bubble gum glared out, evaluating me for signs that would pit me against the limits of his social understanding. After about five seconds, he mouthed ‘We’re closed,’ and blew pink rubber at me.... There were several white people in the store who appeared to be shopping for things for their mothers.
 
“I was enraged. At that moment I literally wanted to break all the windows of the store and take lots of sweaters for my mother. In the flicker of his judgmental gray eyes, that saleschild had transformed my brightly sentimental, joy-to-the-world, pre-Christmas spree to a shambles.... I am still struck by the structure of power that drove me into such a blizzard of rage. There was almost nothing I could do, short of physically intruding upon him, that would humiliate him the way he humiliated me.”
 
The shop, Williams adds, was a Benetton outlet. Benetton is a company that has emphasized its commitment to liberal principles in its advertising, using the “United Colors of Benetton” theme, with photographs of children of all races, colors and creeds, to demonstrate its universality. Needless to say, any positive impression created by that multi-million dollar marketing effort was instantly negated for at least one customer by the actions of a single junior sales clerk.
 
Even Nordstrom, a company known for its second-to-none commitment to customer service, has experienced problems in this regard. The store was sued in 1992, after a Black customer returned clothing without a receipt. In contravention of company policy, a sales clerk not only rejected his claim but called security, apparently suspecting that the item had been looted during the riots that followed the Rodney King verdict.
 
Nordstrom eventually reached an agreement with the man, but to avoid a repeat performance the company provided diversity training for staff in the department involved. The class, until then reserved for managers, teaches Nordstrom employees how to deal with people from all backgrounds, including those who are gay, elderly or disabled, as well as ethnic minorities. In 1992, the company went one step further, hiring the black-managed firm of Nesby & Associates to train 1,000 managers from the level of buyer up on cultural sensitivity.
 
“We have to look at everyone who comes through the door as a potential customer and treat them as guests,” says Andre Watson, Nordstrom’s regional human resources director for northern California. “It is our responsibility to make sure our employees are culturally sensitive.”
 
In corporate America, most diversity training programs have been focused on internal diversity issues, helping managers recognize cultural differences and eliminate bias from their hiring, evaluation and promotion decisions. Most of those undergoing training have been managers; relatively little attention has been paid to those junior employees who interact with customers.
 
Marilyn Loden, a diversity consultant based in San Francisco, believes that this is the case because most corporate diversity efforts have been prompted by equal employment opportunities regulations. Most companies that launch diversity programs do so in order to be in compliance with government regulation, rather than because of any genuine sensitivity to the issue.
 
“Another problem is that training everyone in an organization can be very expensive,” she concedes. She cites US West as one company that has made a company-wide commitment, training everyone from telephone operators to telephone installers to be sensitive to multicultural customers. “US West felt there was a business pay-off in comprehensive training, but for many companies that kind of commitment is seen as an unnecessary expense.”
 
All of this is not to say that companies are not investing more in marketing to minorities. In fact, most industry observers agree, major marketers are directing a larger share of their budgets than ever to target black and Hispanic customers. The problem is that they may be undermining their efforts by failing to educate those employees who interact with the customers those marketing programs attract.
 
Companies that are perceived to be discriminating against African-American and other minority consumers will not only suffer a marketing disadvantage. Kent Matlock says he witnessed the impact charges of racism had on employee morale at Denny’s first-hand.
 
“The first problem at Denny’s was obviously that the company was alienating its customers,” Matlock says. “But beyond that, there was a real impact on people of color who worked at Denny’s, and who knew that Denny’s was not, at its heart, a racist company. There was an impact on good people of all races, from Jerry Richardson down, who suddenly found that they had become targets for attack.” As an African-American who was charged with defending Denny’s in public, Matlock himself came under fire from the company’s critics.
 
This issue is likely to become more pressing over the next couple of years. Not only has the high-profile Denny’s case turned a spotlight on the way businesses treat their black customers, but the Clinton administration’s top civil rights official, Deval Patrick, has brought a new aggressiveness to the government’s enforcement of anti-discrimination statutes, and African-American organizations are turning their attention away from traditional civil rights issues and towards economic empowerment.
 
The Rev. Jesse Jackson’s Operation PUSH pioneered the shift from a traditional civil rights agenda to a focus on economic empowerment, targeting companies that did not employee African-Americans in sufficient numbers or had a poor record of working with minority suppliers. Under the leadership of Benjamin Chavis, the NAACP also paid more attention to economic issues and to corporate racism - it was responsible for structuring a deal with Denny’s that avoided a widespread boycott - before its current leadership crisis cast the organization into disarray. With new leadership now in place, however, such issues are likely to be a continuing priority.
 
Finally, the black churches are also paying more attention, concerned that lax enforcement in recent years has led many businesspeople to believe they can flout civil rights laws with impunity.
 
“Contrary to what many people believe, there is still serious discrimination in this country,” says Ralph Neas, executive director of the Leadership Conference on Civil Rights. “Because of the lack of enforcement over the last 12 years, there’s little fear on the part of business that if they discriminate, the federal government will do anything about it.”
 
Adding to the pressure is the National Black Chamber of Commerce, formed in 1993, which promotes African-American economic empowerment. The group is particularly anxious to ensure that companies that spend heavily on outside contractors actively seek out minority-owned partners.
 
Deval Patrick, the former NAACP lawyer who is now assistant attorney general for civil rights, has made it clear that he plans an activist agenda, particularly in the hot button area of discriminatory lending practices or “redlining.” The justice department’s case against the Chevy Chase Federal Savings Bank has attracted the most attention. Only three per cent of the company’s loans between 1985 and 1993 were to property owners living in predominantly black census tracts. Ultimately, the bank signed a consent decree in which it agreed to spend $11 million to open four branch offices in minority neighborhoods and to offer loans to African-Americans at as much as one per cent below the market rate.
 
The response of Michael Rousch, a lobbyist for the National Federation of Independent Business, preoccupied with issues such as health care reform:
 
“This wasn’t on our radar screen.” Edward Yingling, chief lobbyist for the American Bankers Association, has another complaint: “The government seems to be making the standards as they go along. That is scary to us.”
 
Patrick has expanded the definition of redlining, it seems. The Chevy Chase settlement was a triumph for his argument that the bank had discriminated against the black population of Washington’s inner city and poorer suburbs simply by locating its branches only in affluent, white and mostly suburban neighborhoods. The justice department argued that “anyone who makes credit unavailable on the basis of race is in violation of the Fair Housing Act”; bank lawyers say the judgment extends beyond the scope of the law, forcing banks to open new branches.
 
The debate over bias in mortgage lending has been waged largely in the realm of statistics. Not surprisingly, each side has produced reams of statistics to establish its case. A study released by the National Community Reinvestment Coalition (NCRC) in December 1994 found that minority applicants were being denied mortgages far more often than white applicants. A Federal Reserve Board survey of 6.6 million home mortgage applications showed that 37.6% of Black applications were rejected, compared to 17.3% of white applications. The discrepancy held true across all income levels.
 
Banking advocates have challenged these findings. They concede that minority applicants do tend to be rejected more often than whites, but say the difference is not the cause of racism, but of the objective application of credit standards. Mortgage lenders consider net worth, age, education, probability of unemployment and credit history, and banks say that minorities frequently fare worse by such standards. As evidence that bank lenders are making rational, objective decisions, they point to the fact that black and white default levels are approximately equal. (Of course, there is no evidence that black default percentages would rise if more blacks were approved.)
 
Some industry supporters even concede that they may fare worse because society has offered them fewer opportunities, but say mortgage lenders should not be held responsible for redressing society’s wrongs, particularly if they are more likely to lose money by doing so.
 
“It’s not because they’re being discriminated against,” a real estate broker told The Washington Post. “Some people are good borrowers with good credit histories and others are not. The problem is that the people who are not, and who would be rejected as loan applicants on standard lending criteria, are often minorities.” (The agent said he did not wish to be identified, for fear of being accused of racism.)
 
Others claim that the industry has already moved to remedy its problems, and that its reputation lags reality. “One of the public relations challenges that we’re going through today is that there is a lag in the data,” says Jim Ferriter, head of residential mortgage lending for Chase Manhattan Corp., which has been criticized by the NCRC and others. He says Chase adopted a new strategy in mid-1993 to step up lending to minority customers.
 
Chemical Bank Corp. has also moved to ensure that its loan application processes are fair to minority and low-income applicants. It recently introduced an internal review procedure that requires applications to be reviewed at five different levels of the company before they can be denied. In the past, if any one of these five levels chose to reject the loan, it was refused; today, if any one of these five levels chooses to accept, the loan is approved.
 
If a mortgage loan is denied by an underwriter, it is then screened by a senior loan officer. If this second look confirms that the loan should be denied, and it is for a low-income or minority applicant, it is then sent to a special affordable-lending team that searches for a way to make the loan. If the application still cannot be approved, it goes before a committee of senior bank officers that meets once a month. Finally, the application may then be reviewed by an interbank mortgage review board, where it is examined by representatives of a dozen banks to see if any one of them is prepared to approve it.
 
“We have really covered our bases,” says Michael Burke, vp of Chemical’s affordable mortgage program. “We have an absolute safety net, so if a loan is declined it is for perfectly sound reasons.” Burke says about 50% of the loans originally denied are approved at some point during the process.
 
Banks and other lenders are not the only ones who have been accused of redlining. The NAACP and other public interest groups recently charged that four leading telephone companies - Pacific Telesis, Ameritech, Bell Atlantic and US West - had engaged in “electronic redlining” by bypassing low-income and minority neighborhoods as they begin to build advanced communications networks. Access to the information superhighway is likely to be another major issue for civil rights groups, concerned that new technology has the potential to divide the country between information haves and have-nots.
 
There a problems in the auto industry too. A study by the Harvard Law Review in 1991 found that car dealerships offered better prices to white men than they did to women and minorities. Black men were offered markups, price increases above the invoice price, 100% higher than white men, while black women were offered markups 300% higher than white men, an average of $875 per car.
 
The industry has moved to correct some of these problems, reaching out to minority purchasers. Last year, for example, Cadillac announced a program of racial sensitivity training for its dealers, telling them not to dismiss black customers who might dress and talk differently from affluent white buyers, and issued test-drive invitations to 25,000 young, affluent, black consumers in the Washington, D.C., area and 25,000 others in Houston. The names are drawn from the mailing lists of publications such as Black Enterprise and Emerge, and from U.S. Census data.
 
The training revealed that when a Black man in a business suit wore a wedding ring and played the role of a customer, non-black Cadillac dealership employees were able to talk to him comfortably, without apparent racism, but as the trainer substituted more flamboyant jewelry, the dealers became stand-offish, and by the time he donned a bracelet and sunglasses, the dealers were visibly uncomfortable. When he stepped close during conversation, white employees retreated from him, giving the impression they were afraid, or at least unfriendly.
 
Even pharmaceutical companies have faced charges of discriminatory behavior, the issue in this case being access. Traditionally, for example, clinical trials for new drugs tended to draw from a largely white, male population. Today there is increasing pressure for such trials to include a representative cross-section of the population that the drug is designed to treat.
 
“One of the major issues, since health reform became a major item on the political agenda, has been access,” says Ilyssa Levins, vice-chairman of medical advertising and PR agency GTFH. “It’s access to the clinical trial process, to compassionate use programs, to educational efforts, to compliance programs.”
 
As in the fair lending arena, pharmaceutical companies have been driven to act by a combination of pressure from an increasingly sophisticated activist community and a renewed interest in their behavior by regulators.
 
“In the AIDS arena, it is axiomatic now that minority groups will have a voice in the clinical trial process,” says Jim Jennings, head of the health care practice at Hill & Knowlton in Washington, D.C., and an expert in working with activist groups. “That includes representatives not only of African-American and Hispanic population, but of the deaf and prisoners with AIDS.
 
“It has happened most visibly in the AIDS arena, but it is also an issue in breast cancer trials, and it is going to become an issue in every category where patients demand a more active role in their own treatment. Within corporations, it has become axiomatic that the inclusion of women in clinical trials is crucial, and while it is not yet at that level in terms of minority groups, advocacy groups have to push harder and companies have to listen to them.”
 
Finally, there are companies that alienate their black prospects and customers through their advertising and marketing efforts. Worse than no advertising directed at the black community is advertising that is deemed to be patronizing, or to reinforce stereotypes.
One example is a Revlon ad campaign of three years ago, in which crooner Nat King Cole’s voice was heard singing Unforgettable as a parade of “unforgettable” women endorsed the product. In the black community, the fact that a beloved black artist’s voice was being used in an ad that featured exclusively white women did not go unnoticed, and when Revlon tried to remedy its mistake by tacking on footage of black model Beverly Johnson, the effort seemed forced and clumsy.
 
Last year’s Yankelovich-Burrell study revealed that 60% of the nation’s 31 million African-American consumers believe that most commercials “are designed only for white people.” The study also suggested that black consumers are more avid shoppers, more receptive to advertising, and more brand loyal than white consumers.
 
Companies anxious to insulate themselves against charges of racism need to do more than change their advertising, of course. They could do worse than look at Denny’s, which may have moved forward only because it had a gun pointed at its head, but which has at least moved forward. The company’s efforts to remedy its cultural and reputational problems include contracting with a Black-owned franchisee to operate as many as 47 stores over the next six years, substantially increasing the amount of business the company does with minority-owned suppliers, expanding corporate philanthropy programs targeting minority communities, appointing the first Black member of its board of directors and increasing the number of Black managers hired by 56%. The company also hired Norman J. Hill, a Black executive vice president for human resources.
 
In addition, all employees must watch a 16-minute video about diversity, called “What Color Am I?” and managers must attend sensitivity seminars that include a session on the business advantages of serving a multiracial clientele.
 
The company also created a 60-second commercial called The Pledge, which was telecast in 41 markets and on Black Entertainment Television. Ceo Richardson went before the cameras, acknowledging the problems his company had experienced: “Everyone who comes to our restaurants deserves to be treated with respect.” His words were followed by the appearance of a white hostess, who says: “I promise you a friendly greeting,” and a black waitress who adds: “If there’s a delay, we’ll let you know,” and finally a white waitress, who promises: “If there’s a mix up we’ll apologize.”
 
Richardson’s participation in the ad, and in communicating the anti-bias message internally, is crucial, says Kent Matlock.
 
“All too often, diversity is a pet project in the human resources department or the marketing department,” he says. “But in order for a diversity effort to really be effective, the ceo needs to take the lead, to make it clear that this is not the responsibility of one department, but of the whole company. Jerry Richardson was portrayed in the media in terms of a stereotype, a good ol’ southern boy, but the fact is that he was personally very hurt by these charges and has really taken the initiative to make sure the company is sensitive to all its customers.”
 
The key problem, of course, is that no company can ensure that it does not employ a single bigot or racist, and no amount of training can change what is in a person’s heart. Nevertheless, there are steps companies can take to address the problem.
 
Consultant Marilyn Loden says that the first rule for such training is not to direct blame or inflict punishment on perceived wrongdoers. Adopting such a tone will often create exactly the opposite reaction to that intended, as people become more closed-minded, defensive and hostile. She suggests letting employees hear from customers who have been offended, and to make it clear that this is an economic issue for the company as well as one of common decency.
 
Ultimately, it may be impossible to change attitudes, but it is possible to change behaviors, Loden says, and companies should be absolutely clear about what kinds of behavior are acceptable and what kinds are unacceptable. Then it has to be prepared to enforce those standards.
 
Says Kent Matlock: “Corporate America has to demonstrate its sensitivity, document its efforts at outreach, and develop relationships beyond simply making a sale. It’s just good business.”
 
In a 16-minute video that Denny’s has shown to all employees, representatives of the multicultural customer mix the company serves discuss the company’s past problems and new commitment to nondiscrimination.
 
An African-American man discusses corporate America’s obligations under Title II of the Civil Rights Act of 1964: “You must never deny goods, services, facilities, privileges and accommodations of Denny’s on the basis of race or color.... You must never deny service, offer less service, require prepayment or ask to see identification based on race or color.... You must never enforce different terms and conditions for any promotional offer.... You must never make racially discriminating statements or encourage employees to make statements which would discourage customers from visiting Denny’s.... This all boils down to one thing: treat people the way you would want a member of your family treated.”
 
A Native American woman explains the company’s pledge: “Denny’s will communicate and obey policies which provide a discrimination and harassment free environment for our guests, and provide ongoing education about difference, and about working and serving together. Denny’s will also provide procedures for employees to report any harassment or discrimination and promptly investigate and deal with any reported incidents.... and work to prevent future occurrences. Failure to comply with these policies will result in appropriate disciplinary action, which may result in termination.”
 
An Asian man discusses the changes in U.S. demographics and gives a toll-free number for employees to call if they observe or experience discrimination. He also informs employees that a testing program is now in place to encourage customer feedback on the quality of service they receive. A Hispanic woman then reports that local policies on prepayment have been discontinued, and shows the Denny’s ad pledging equal treatment and respect for all customers. She stresses the need for communication, consistency, sensitivity, flexibility and initiative.
 
Finally, a white man concludes: “In order for Denny’s to remain competitive and, in fact, to survive in this multicultural society, we must create an environment where all people feel comfortable. The marketplace demands this. The benefits will far outweigh the effort.”
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