We’re here today for one simple reason: America’s greatest companies have long thrived on a straightforward yet powerful principle: hire the best person possible for the job.
That’s how these companies became engines of innovation that have delivered windfall profits to shareholders and changed the world in the process. From Ford’s Model T to Tesla’s Model 3 to NVIDIA’s GPUs, American companies have always punched above their weight. They did so because they hired the best and brightest, and never apologized for it.
In recent years, however, many American companies have been infected by a new orthodoxy that rejects the time-tested principle of meritocracy and instead embraces something new and toxic: hiring based on race and gender.
Here are just three examples of said companies in the S&P 500.
The first is a $20 billion consumer discretionary business that says their goal is “for 1 in 3 new corporate salaried positions to be filled by BIPOC (Black, Indigenous, and People of Color).”
The second is a $56 billion industrials company that states they want “40% gender and ethnic diverse representation in sales and management roles.”
The third is a $115 billion consumer brand known worldwide. Their stated goal is to “achieve racial and ethnic diversity of at least 30% at all corporate levels.”
These are called racial and gender hiring quotas and they are no way to run a business in America. They betray merit, reject the values that made America great, and pervert sound business practices.
In America, the color of your skin and the body you were born into have absolutely nothing to do with what you can bring to the table.
When companies impose hiring quotas, they close themselves off to Americans who could bring tremendous talent, expertise, and perspective to their business. Instead, those Americans are barred from contributing because their race is seen as privileged, their gender is considered inconvenient, or their sexuality isn’t deemed diverse enough.
Racial and gender hiring quotas hurt everyone:
They block qualified men and women who are not deemed diverse from gainful employment and an opportunity to contribute to a company’s mission.
They undermine employees hired under quotas, whether they are not yet qualified or extremely qualified, by treating them as “token hires.”
They harms shareholders who have invested their hard-earned money into these companies, only to see subpar returns because the businesses are run like a high school Model UN tournament instead of a profitable enterprise.
Of the 500 companies in the S&P 500, three dozen maintain anti-meritocratic racial and gender hiring quotas. These companies span different industries—tech, healthcare, financials, consumer goods, and more. They employ over 3 million people and have a combined market cap of nearly $3 trillion.
Despite their differences in products, services, and markets, they share one critical flaw: they reject meritocracy in favor of forced diversity, and their returns are suffering as a result.
We don’t need to speculate on the effect this destructive orthodoxy is having on America’s great companies. The evidence is right in front of us.
Year to date, a portfolio of these three-dozen anti-meritocratic companies has returned just 12%, compared to the S&P’s 30%.
Over the past three years, the anti-meritocratic portfolio has returned 17%, compared to the S&P’s 60%.
This isn’t a case of one or two stocks dragging down the average—it’s a systemic issue. Over the past three years, 70% of anti-meritocratic companies have underperformed the S&P 500.
This underperformance is shocking, but it’s not surprising. When great companies that depend on great Americans to build a great business throw hiring standards out the window in an attempt to out-woke one another, the inevitable result is mediocrity and underperformance.
Let’s look at one company in particular: Starbucks. Starbucks is a $115 billion business with 38,000 stores, $36 billion in revenue, and nearly 400,000 employees serving 15 million customers every day. Starbucks is a great American company—but sadly it has lost its way. Over the past five years, while the S&P 500 has risen nearly 100%, Starbucks has delivered a paltry 12% return.
Starbucks’ problems center around three core issues. First, insufficient staffing leads to longer wait times, discouraging customers from showing up. Second, the customer experience has degraded. Starbucks used to be a cherished “third place” where friends and family would gather over a latte or frappuccino. Today, it has become a sterile industrial operation, pumping out everything from pink drinks to nitro cold brews to egg bites. Finally, Starbucks has failed to meaningfully innovate around its central value proposition: providing excellent customer service.
These issues all share one common thread: people. People are at the heart of what Starbucks does.
Sadly, Starbucks’ hiring policies are inconsistent with hiring for excellence. Allow me to read directly from page 11 of Starbucks’ Global Impact Report under the header “Inclusion, Diversity & Equity”
“In the U.S., our goal is to achieve racial and ethnic diversity of at least 30 percent at all corporate levels and at least 40 percent at all retail and manufacturing roles by 2025.
We also aim to achieve at least 50 percent women working across all corporate levels, 55 percent women working across all retail roles and 30 percent women working in manufacturing roles.”
What does “racial and ethnic diversity” have to do with making a great cup of coffee at a profit, and more importantly, how on earth does this policy benefit Starbucks’ shareholders?
On November 11, we asked Starbucks management that simple question, "How do you see your hiring diversity goal boosting shareholder value?"
On November 15, we heard back.
James,
We believe the strength, diversity, and inclusiveness of our workforce are significant contributors to our success as a global brand.
We are furthering our mission, promises and values by creating an elevated partner experience around the world, which includes making Starbucks a great place to work for every partner.
We believe expanding workforce diversity brings new perspectives and experiences which improves our business and workplace.
Notice how they didn’t mention the word “shareholder” once, after being asked specifically about shareholder value.
Fortunately, there is a silver lining to this mushroom cloud: in August, the Starbucks board of directors fired their CEO and appointed Brian Niccol, a skilled business operator who successfully turned around Chipotle. When Brian took the helm at Chipotle, it was worth $7 billion. When he left, it was worth $70 billion.
Brian has a proven track record of diagnosing the issues that afflict a business and fixing them fast. He has now been handed the mission of reviving Starbucks, a cherished brand in need of a transformation.
At the core of this revival lies a simple truth: who Starbucks hires, retains, and promotes will unequivocally define its future. Starbucks must ask itself a simple question: are we going to hire the best and brightest from all walks of life or not?
We often give businesses like Starbucks a pass. We think of hundred billion dollar businesses like Starbucks as these big, impersonal, inscrutable monolithic institutions, so we are reluctant to push back when they do things that don’t make sense, but imagine for a moment if a friend asked you to invest in his new coffee shop. Great location, good coffee, good brand, but just as you were about to invest, you asked him if he was going to hire the best people for his staff, and he said “you know, my goal is actually to achieve racial and ethnic diversity of at least 30 percent.”
In that moment, your heart would drop, your pen would stop. You wouldn’t give him a penny for two reasons: first, it’s unethical to treat Americans differently based on the color of their skin, and second, it’s a one-way ticket to destroy a business. If you won’t invest in a friend’s coffee shop for playing woke games, why should we tolerate it in America’s largest companies? Whether you know it or not, you are investing in them if you own any S&P 500 index fund like SPY, IVV, or VOO.
Here’s where things stand today: there are three dozen companies in the S&P 500 that maintain these anti-meritocratic hiring practices. In the coming weeks, we’ll announce more of these companies and work publicly and privately to convince them that meritocracy is a precondition to unlock shareholder value. In the first quarter of next year, our new investment firm Azoria will launch the first of its kind exchange-traded fund (ETF) that any American can invest in.
We call it the Azoria 500 Meritocracy ETF (ticker: SPXM). It buys the same stocks in the S&P 500 index except for companies that use racial or gender quotas in hiring, promotions, or pay decisions. The premise is simple: companies that hire and promote on skill and ability will outperform those that do so on race and gender.
Our Meritocracy ETF seeks to do two things
1. Outperform plain-old S&P funds like SPY by cutting out the anti-meritocratic under-performers that hold back returns.
2. We want every company in the S&P 500 to become a meritocracy again.
We will make our case in the marketplace of ideas for why these companies should restore merit. We come in good faith. We don’t seek to hurt these great American companies. We simply want to help them unlock value by doing the right thing.
While companies like Starbucks will be excluded from our Meritocracy ETF at launch, they are not permanently banished. Our goal is to help them see the value of meritocracy with evidence, facts, and case studies. We will meet with leadership and the board to show how meritocracy boosts returns for shareholders. Once they restore meritocracy at their company, we’ll add them back into our Meritocracy ETF. It’s that simple.
The shareholders of Starbucks and these three dozen other companies we’ve identified deserve better. When we hear the word “shareholders,” we often picture a billionaire hedge fund manager like David Einhorn. But that’s not the reality. Shareholders are everyone.
They’re the truck driver in Cincinnati investing for retirement, the nurse in Coeur d’Alene saving for her kids’ college, and the English teacher in Fort Lauderdale putting a little aside each month for her children and grandchildren. That English teacher was my grandmother, Helen Fishback. She passed in September at the age of 97, and she had incredible intuition when it came to investing—a blend of curiosity and common sense that guided her through life.
Common sense tells us that in America, you don’t have to force diversity. Diversity can be a natural byproduct of meritocracy. We saw the power of merit in Paris this summer when Simone Biles, an African-American woman, dominated the vault and floor exercise, and when Suni Lee, the first Hmong-American Olympic champion, delivered an exceptional performance on the uneven bars. Together, they led our team to an astonishing five gold medals and two silvers, showcasing the unmatched depth of American talent.
There are no quotas in gymnastics and no mandates for representation by race. The U.S. team prioritizes excellence above all else, and in doing so, it naturally reflects the diversity of our nation. This is what happens when merit is the standard: diversity becomes a natural byproduct of excellence.
At Azoria, we believe that Americans from all walks of life can contribute their skills and talents to America’s great companies, and no one should ever be excluded because of something they cannot control, like race or gender. This is the essence of meritocracy—and the foundation of greatness.
In 1831, Alexis de Tocqueville came to America to study what made this young nation unique. What he found was extraordinary: a society where opportunity and merit flourished, where hard work and talent determined success.
Tocqueville didn’t just admire America’s strengths—he understood her challenges, and he really did have a way with words: “The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.”
Let’s get to work.
The Azoria 500 Meritocracy ETF will begin trading in 2025 under the ticker ‘SPXM’. Questions? Email us: sunset@azoriapartners.com
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