Company bosses across Birmingham are failing to give jobs to applicants from black and ethnic minority groups because they fear being branded as politically correct.
A survey of 200 professional services firms found a lack of understanding of diversity issues and a failure among employers to recognise the need to change recruitment policies.
The survey, by Birmingham Professional DiverCity, found that senior management were "running scared" of being seen as pandering to a politically correct agenda if they sought to appoint non-white staff.
The findings have been described as extremely worry-ing by business leaders, particularly since Birmingham will be a majority ethnic city within ten years.
It is estimated that 50,000 jobs could be created in the professional, financial and business support sector in Birmingham and Solihull by 2010. At the moment, however, fewer than one in five staff in that sector are from black and minority ethnic groups.
Aaron Reid, executive director of Birmingham Professional DiverCity, said the survey was designed to produce a league table of the barriers stopping companies successfully implementing diversity strategies.
It showed an unwillingness by senior management to "buy-in" to the need to make sure workforces were more reflective of Birmingham's population.
There was also a failure to monitor ethnicity of staff and a lack of awareness of the importance of diversity training.
Mr Reid said: "The results showed a perception of a backlash from a client base by people who are concerned about being seen to be doing the right thing for the wrong reasons. Put simply, they are afraid of being seen as too PC.
"This means the impact of diversity is therefore devalued and actually getting people to understand and tackle diversity issues is the way to deal with that fear.
"It is a fear borne out of ignorance and only by confronting existing attitudes can we overcome this."
Mr Reid said it was vital companies looked at their diversity strategies as a matter of urgency, given the rapid rise of the city's black and ethnic minority population.
"We have never been here before, there is no one to ask. Birmingham is going places no other city has been," he said.
The survey's findings were described as worrying by Jerry Blackett, policy director of the Birmingham and Solihull Chamber of Commerce.
Mr Blackett said: "Birmingham is going to be Europe's first non-white majority city, so we have got to get this right. We have to help employers understand they have to change their ways.
"If they don't take on people from ethnic minority groups they won't have people employed because that is where the employees of the future are going to come from."
The Chamber is producing a brochure outlining advice about ethnicity issues for firms.
The document will also examine issues of ageism when recruiting new staff.
Mr Blackett said he felt many employers were fed up with the "nanny state atmosphere" created by employment laws and this was one reason why they might be unwilling to diversify their workforce.
"They are scared to death of breaking the rules. They fear the dice is loaded against them," Mr Blackett added.