The Diversity Dilemma

Cambridge, MA, USA - June 29, 2022: Harvard flag is seen outside the Harvard Cooperative Society (the Coop), a collegiate bookstore on the Harvard University campus in Cambridge, Massachusetts.
Programs meant to reduce the risk of litigation may actually be increasing it.

On June 29, 2023, the U.S. Supreme Court declared Harvard’s affirmative action program unconstitutional, sending a shudder through diversity, equity and inclusion programs nationwide. Two months later, a federal judge ordered Starbucks to pay $28 million to Shannon Phillips, a white regional manager who said she was fired because of her race in the wake of a national uproar over the ejection of two African American men from a Starbucks store in Philadelphia.

The one-two punch is enough to get the attention of any director with responsibility to oversee corporate DEI programs. Originally developed to reduce the risk of discrimination lawsuits, are DEI programs suddenly a source of risk themselves?

The answer, as in all things legal, is, “It depends.”

Shifting Winds

“The law did not change on June 29 of last year,” says Ishan K. Bhabha, a partner with Jenner & Block and co-chair of the law firm’s DEI Protection Task Force. “That said, there is no doubt the environment has changed.” (For more on DEI practices, see “Doing DEI Differently,” p. 22.)

The Harvard case hinged upon the Equal Protection Clause of the 14th Amendment and Title VI of the U.S. Code, neither of which apply to most companies. However, Title VII, which prohibits employment discrimination, does apply. Conservative groups have also dusted off Section 1981 of the Civil Rights Act of 1866 in order to sue companies for programs that favor members of one race over another.

Law firms and venture capital funds have already halted programs that steered jobs or investments to women and minority-owned candidates in the face of Section 1981 challenges. Large corporations, including Gannett and AT&T, also face lawsuits claiming white employees were fired to fulfill diversity commitments.

 A proposed class action against Gannett, for example, cites that company’s 2020 Inclusion Report, which set a goal to “achieve racial and gender parity with the diversity of our nation, through our workforce.” Executives were awarded bonuses and promotions based on their progress toward DEI goals, the lawsuit charges. Gannett dismisses the complaint as containing “speculation and conclusory allegations,” but corporations can expect to see more such lawsuits in the wake of the Harvard decision and widespread opposition to “woke” policies.

At the same time, corporations still face the risk of old-fashioned Title VII discrimination suits if they don’t pay attention to racial and gender disparities in their workforce. What to do?

Balancing Acts

“Those that attack DEI are trying to create a climate of fear,” says Bhabha. “But digging into details, nuance, of a particular program can give you the courage to proceed.”

First, anything that looks like a quota is trouble, Bhabha says. So are executive compensation schemes that reward managers for meeting explicit numerical goals. There may also be reputational risk: After a door panel blew out of a Boeing airliner in January, critics were swift to point out a 2022 change in its executive bonus scheme that added DEI to its “operational performance” category, alongside “product safety.”

Still, it’s hard to win a reverse discrimination case without solid evidence of intent. The Starbucks plaintiff showed jurors evidence she was fired amid corporate panic over the incident at the Philadelphia store, while the regional manager in charge of that store, who is Black, suffered no discipline. It didn’t help that the other manager testified that he agreed race played a role in the firing.

 Given the risks, some companies may take a more cautious approach to DEI. Others may say, “I get it, but that’s not going to move the needle,” Bhabha says. In that case, it’s a matter of balancing the importance of workplace diversity against financial risk.

“Not every company has the same risk profile,” he says. “Some may say the mandate is worth taking more risk.”

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