Valley of Denial It's time for Silicon Valley to pull its head out of the microchips on the issue of diversity.
By Joel Dreyfuss

(FORTUNE Magazine) – For the second year in a row, FORTUNE's list of the best places for minorities to work has a glaring hole: Silicon Valley. Just two of the 50 companies on our list are based in the Valley: Sun Microsystems and Applied Materials. That's a poor showing for a dynamic region that plays such a critical role in our new information economy--and particularly for a region in which about half the population is Asian, Hispanic, or African-American.

I'm not surprised. I've covered the high-tech industry for FORTUNE and other publications for 15 years. As a black American, I could hardly avoid noticing that blacks and Hispanics in the Valley are as rare as orchids in a snowstorm. Asians are well represented, with 31% of the jobs at Valley companies. They also own nearly a quarter of the startups. Thus, Asians are often used as exhibit A to deflect accusations of prejudice and discrimination. But let's get real: Silicon Valley is no happy valley for most minorities.

In the 1960s, civic leaders in Atlanta loved to say theirs was a city "too busy to hate." In 1999, Silicon Valley is a community too busy to care about diversity--and I think that's a big mistake. Our rankings show that many major companies are embracing diversity and reaping real dividends. Yet too many high-tech companies still see it as an annoyance.

For most of the Valley's fabled history, race just wasn't on the agenda. But the silence has finally been shattered, and the issue isn't likely to go away quietly. Last year the usually torpid San Francisco Chronicle pointed out in an article entitled "The Digital Divide" that just 4% of employees in Silicon Valley were African-American and 7% Latino, well below their share of the area's population. The report also noted that many Valley companies didn't even bother to file the federal EEO-1 reports on minority recruitment and hiring required of all companies with 50 or more employees. Earlier this year Rev. Jesse Jackson brought his "shareholders, not sharecroppers" mantra to the Valley, sharply criticizing the industry.

It's even whiter at the top of the Valley. A 1998 survey of 49 Valley companies by a local group advocating fair employment for minorities found just two blacks and one Hispanic among 364 board members. Only one major area company, $600 million software maker Symantec, is led by an African American, president and CEO John H. Thompson, who took over in April after heading the PC business at IBM.

To people in the Valley, the number of Asians in the industry proves success in high tech is a matter of preparation, not discrimination. But one prominent Asian executive disputes that argument. John Yang, a vice president at Hewlett-Packard, heads Monte Jade of Northern California, an eight-year-old organization that facilitates economic ties between Taiwan and Silicon Valley. He says that while Asians are well represented in the Valley, they often face a glass ceiling, "but sometimes that's not easy to get into." Those Asians who are at the top rung of high-tech companies often started their companies, like Charles Wang of New York's Computer Associates.

Clearly, an industry unaccustomed to criticism has been put on the defensive. Its sense of outrage is volubly expressed by T.J. Rodgers, the president and CEO of Cypress Semiconductor. Rodgers--never one to pass up a public battle or a catchy sound bite--told FORTUNE bluntly, "Jesse Jackson doesn't know what he's talking about." Others in Silicon Valley hasten to caution that Rodgers too often wrongly claims to speak for them, but their own views mostly differ in tone, not in substance. There's no race problem, I often hear. This is a bastion of meritocracy, and we don't need the "divisiveness" that Jackson brings.

Valley people marshal their own numbers in their defense. With just 5% of U.S. degrees in engineering and computer science going to blacks and 4% to Hispanics, according to U.S. Labor Department statistics, many in the Valley take comfort in Rodgers' argument that "the work force is based on the Valley's practice of hiring on merit, without regard to race and gender."

But statistics never tell the whole story. Industry experts say there are about 100,000 African-American and 60,000 Hispanic engineers in the U.S., with another 7,000 blacks and Hispanics graduating every year. Says Garland Thompson, editorial director at Career Communications in Baltimore, which publishes magazines for minority engineers: "There's a sizable pool of talent. It just hasn't been tapped." Valley arguments also don't explain the absence of blacks and Hispanics from the growing number of nontechnical positions that are so important in the evolving world of e-commerce--such as marketing, public relations, HR, sales, and operations. For instance, eBay CEO Meg Whitman was wooed by the Internet auction site after years of success at such low-tech companies as Procter & Gamble, Disney, and Hasbro.

As we stride into the new millennium, it's important to understand that racial exclusion today rarely involves malice, ideology, or epithets. Silicon Valley is remarkably insular, so hiring is typically done within a relatively small circle. Since the circle isn't at all diverse, it's no surprise that even as Silicon Valley grows, its complexion remains remarkably pale. Just ask Roy Clay, 70, one of the Valley's few black pioneers. (Another is Marc Hannah, whose Ph.D. thesis was the basis for the creation of Silicon Graphics.) Clay runs Rod-L Electronics in Menlo Park, which manufactures electronic test equipment. He set up the first software development lab at Hewlett-Packard in 1965 and later managed computer R&D for the company. "When someone at a management meeting says, 'I don't know about Jim,' all too often--if Jim is black--there isn't a person to [say], 'What do you mean? I think he'd do just fine,' " says Clay. "We just don't have enough people to guide us, to speak for us."

Symantec's Thompson is the most visible African American in the Valley right now. He was the ideal catch for the company, whose growth had plateaued in recent years. Yet Thompson found himself in the glare of the debate over racism in Silicon Valley, and he was none too happy about it. He works hard to stay out of the line of fire and simply do his job. When we chatted in early June, he was clearly weary of being a symbol for diversity in the Valley. "I'm very focused on the idea that my No. 1 priority is to get my company going and growing," he said. In a place where even the janitor asks what he will do about the stock price, his task is clear. Yet it remains inescapable that if Thompson succeeds, he may well open corner offices for future minority senior managers.

In the meantime, Monte Jade provides a model other minorities should try to emulate. Originally created by Taiwanese entrepreneurs, the organization brings together Asian Americans, Taiwanese entrepreneurs, and Silicon Valley venture capitalists, and is teaching its members to write better business plans.

Of course, none of these efforts will help colorize high tech unless the industry's power elite--Bill Gates, Jeff Bezos, Larry Ellison, and their ilk--get over the affliction that most impedes progress: denial. Says SGI co-founder Hannah: "If you recognize the problem, you can do something about it." Like realizing that there's a tremendous pool of untapped talent right under Silicon Valley's self-righteous nose.