Amazon (NASDAQ:AMZN) Chief Executive Officer (CEO) Andy Jassy sent an email to company employees on Jun. 21 acknowledging that two of its senior executives, who happen to be black, were leaving the company. If you’re considering buying AMZN stock, you might want to consider what these departures mean for Amazon’s future.
While it’s easy to overlook this bit of news, senior management diversity is vital to any business’s sustainable growth. It is especially essential for those with large headcounts.
Amazon already trails corporate America when it comes to diversity in senior management. This move could result in other senior managers departing the company due to its inability to create a welcoming work environment for those who aren’t white or male.
Just as Amazon needs to do a much better job in how it treats its warehouse employees, it appears that it hasn’t done a very good job higher up the corporate ladder either.
If you are considering buying AMZN stock, this is one reason now isn’t the time to consider a purchase.
AMZN Stock Is a Buy
Several of my InvestorPlace colleagues believe now is the time to buy AMZN stock.
Faizan Farooque believes Amazon is a buy because of the company’s cloud business, Amazon Web Services (AWS). It does deliver a boatload of operating income to Amazon’s bottom line. Because of AWS, the rest of the company can do and spend whatever it wants to grow the business. That’s a great position to be in.
Dana Blankenhorn recently pointed out that analysts can’t get enough of AMZN stock. Out of 38 analysts, 36 rate it a buy. You can’t get much better than that. He points to the upcoming Prime Day in July as the next river it must cross if its stock is to rebound from its 2022 correction. Ultimately, he believes analysts are on point. Maybe they are.
The Problems Beneath the Surface
Analysts have little diversity training that I know of. Therefore, the departure of two black executives wouldn’t set off any alarm bells unless they’re a visible minority. Even then, it’s hard to say whether that would move the needle.
Asset management is hardly mistaken for being a bastion of diversity. If it were, Congress wouldn’t be trying to push the Too Narrow to Succeed Act through the House and Senate.
“A 2021 report from the $2.9 billion John S. and James L. Knight Foundation, Miami, showed that just 1.4% of the $82.24 trillion of U.S. assets under management in the foundation’s sample was run by diverse-owned firms as of September 2021,” Pensions & Investments reported in April.
Amazon might look cheap, trading at 2.34x sales compared to its five-year average of 3.89x. However, its human resources issues keep piling up. Like the Titanic, it’s what’s under the surface that matters.
Why All the Fuss?
I may be making a mountain out of a molehill. However, as someone who’s white and writes about investments for a living, it would be easy to turn the other cheek and ignore the situation. After all, it has little to do with me.
However, part of being a good investor is contemplating what can go wrong, even if the odds are remote.
In recent weeks, environmental, social and governance (ESG) investing has taken it on the chin. Elon Musk called it a “scam” because Tesla (NASDAQ:TSLA) got tossed from the S&P 500 ESG Index. Former Vice President Mike Pence called ESG a “pernicious strategy.” I could go on.
While I understand the skepticism, the “social” part of ESG investing is vital to the long-term success of both public and private businesses. How you treat your employees matters.
Amazon’s 5.5% Problem
As Jassy acknowledged in his email to employees, Amazon has a lot of work left to do.
“Though we’ve made substantial progress in hiring Level 8 and Level 10 black leaders the last two years, it’s not lost on any of us that we’re losing two of our most senior black leaders. […] Change sometimes brings about other changes, and it’s often challenging to navigate some of these shifts,” Jassy wrote.
Essentially, Amazon’s Senior Vice President of Global Customer Fulfillment Alicia Boler-Davis got passed over for the CEO position for Worldwide Amazon Stores. It went to Doug Herrington, who is a white male.
According to CNBC, 5.5% of its senior management were black as of the end of 2021. With the departure of Boler-Davis and David Bozeman, that percentage drops even further. As for the company’s board, of the 11 directors, six are white and male. To its credit, five of the 11 are women, one a visible minority. So, it’s not all bad.
I’m here to point out issues that stocks face. The departure of these two black executives could be a coincidence, or it could be the sign of more problems to come on the HR front.
Govern yourself accordingly.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.