Pressure from the Biden administration, regulators, activists, and younger employees is pushing private industry to emulate universities in adopting DEI.
Pressure from the Biden administration, regulators, activists, and younger employees is pushing private industry to emulate universities in adopting DEI.
P rivate businesses are under intense pressure from the government and activists to allocate employment and promotion opportunities to members of so-called marginalized communities. It’s not surprising that they are caving.
The Biden administration set the tone last year by announcing a whole-of-government initiative to advance diversity, equity, and inclusion (DEI), including an executive order, a government-wide strategic plan, and numerous provisions in the Build Back Better legislation. When the opportunity arose for a Supreme Court nomination, Biden limited his choice by race and gender, requirements that would be unlawful in the private sector. The administration also implemented a so-called loan-forgiveness program available only to black, American Indian/Alaskan Native, Hispanic, Asian, and Pacific Islander farmers. The racially exclusive program, which offers up to a 120 percent rebate (a 20 percent profit), has been enjoined by numerous federal courts while class actions work their way through the courts.
Implementation of DEI mandates is accelerating in our universities. Now, rather than award science and other honors to white males, panels have canceled annual events if the finalists do not include minority nominees, and faculty-search committees are setting aside results if the final nominees are white men. Litigation to end this blatant discrimination is increasing.
Concurrently, states and regulatory agencies are requiring diverse boards of directors. For example, California-headquartered public companies must include at least one director who “self‑identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self‑identifies as gay, lesbian, bisexual, or transgender.” If the board has five to eight directors, there must be two such directors, and if the board has more than eight directors, there must be at least three. Multiple lawsuits are pending to enjoin California’s mandates.
The SEC approved a Nasdaq rule requiring companies trading on Nasdaq to explain any failure to have at least two “diverse” directors, including one who self-identifies as female and one who self-identifies as either an “underrepresented minority” or LGBTQ+. Nasdaq will help boards find directors with the right skin tone or pronoun. While Nasdaq asserts that its rule is not mandatory, failure to diversify will result in loss of investment from institutions such as California’s CalPERS, which wields considerable control over many public corporations.
On Biden’s first day in office, he rescinded Donald Trump’s ban on training programs for federal government workers, contractors, and grant recipients that incorporate critical race theory. Instead, federal contractors and subcontractors are required to take affirmative action to recruit and advance minorities and women.
The FDIC, a cornerstone of U.S. banking stability that insures deposits and supervises financial institutions, adopted a DEI strategic plan that requires DEI throughout the FDIC’s mission. The plan’s preface is a message from the FDIC’s director of the office of minority and women inclusion, who expresses her anguish over George Floyd’s and Breonna Taylor’s deaths and promises that the plan will make the banking system “fairer” and “more inclusive” — but says nothing about banking stability. On the plan’s list of “key concepts and terms” is “authentic self.” To achieve racial balance, the FDIC will have to replace many staff members who have contributed to its success. Given its goal of mirroring the U.S. Census, the agency will have to grapple with the distribution of U.S. accountants, who are 65 percent non-Hispanic white, 14 percent Asian, 11 percent Hispanic, and 9 percent black.
The Consumer Financial Protection Bureau, a federal agency that is supposed to ensure that banks, lenders, and other financial companies treat consumers fairly, has extended its guidance to microaggressions. In a report obtained by Judicial Watch, the CFPB cautions against speech that could be misconstrued. Rather than help overly sensitive people coexist with others, the CFPB puts the onus on the speaker to consider how the plain meaning of words could be misunderstood. Remarks that could be offensive include “everyone can succeed in society, if they work hard enough,” “when it comes to race, I am colorblind,” and “all lives matter.” Also to be avoided are empathy, interrupting people of color or women (though it is apparently acceptable to interrupt a white man), and requests for professional attire.
Numerous federal, state, and local government agencies, federal contractors, and financial institutions reserve contracts for, and offer grants, easier loan terms, and other financial benefits to, women- and minority-owned businesses (see, for example, here, here, here, and here). White males may not participate in these programs, and depending on the criteria, white women and Asians also may be excluded.
Ernst & Young’s 2022 Global Private Equity Survey concluded that fund managers see improving DEI as key to building a sustainable private-equity brand. An Urban Land Institute survey of real-estate firms with $2.4 trillion of assets under management concluded that 47 percent of firms with North American operations have formal DEI programs and about a further 45 percent enact some DEI initiatives. The Institutional Limited Partners Association, a trade association for institutional investors with more than $2 trillion under management, recently published a DEI road map that calls for including DEI in the due diligence phase and investment decisions. Leading private-equity firm Blackstone has a company-wide mandate to invest in portfolio companies that have at least one-third diverse representation on their boards and promote hiring of historically underrepresented communities.
With support from universities such as Princeton and Harvard, Morgan Stanley recently implemented an internship program for black, Hispanic, Native American, and LGBTQ+ freshman undergraduates. No straight whites or Asians need apply.
There is some good news. For example, in July 2020, a Qualcomm shareholder filed a derivative lawsuit alleging that Qualcomm’s board failed to follow through on its diversity-and-inclusion objectives. The case was dismissed late last year. Still, the Qualcomm suit and similar actions demonstrate growing comfort with suing to compel racial and gender discrimination.
One of the few victories achieved without judicial intervention occurred last year when Coca-Cola general counsel Bradley Gayton resigned after the company was widely criticized for imposing penalties of 30 percent of time charges on law firms that did not bill at least 30 percent of both partner and associate time for work performed by “diverse” attorneys, including at least 15 percent by black attorneys. The company’s plan inaccurately linked these percentages to the U.S. Census and made irrelevant the qualifications of the lawyers and the quality of their work.
These private-sector plans violate federal law, particularly for federal contractors. The Civil Rights Act of 1866 prohibits racial discrimination in private contracting. Under Title VII of the Civil Rights Act of 1964, an employer may not discriminate with regard to any term, condition, or privilege of employment. Areas that may give rise to violations include recruiting, hiring, promoting, transferring, training, disciplining, discharging, assigning work, measuring performance, or providing benefits.
The U.S. Supreme Court held that “racial classifications are antithetical to the Fourteenth Amendment, whose ‘central purpose’ was ‘to eliminate racial discrimination emanating from official sources in the States’” (Shaw v. Hunt [1996], quoting McLaughlin v. Florida [1964]). More than once the Court observed that “distinctions between citizens solely because of their ancestry are by their very nature odious to a free people” (e.g., Rice v. Cayetano [2000] and Hirabayashi v. United States [1943]). As Chief Justice Roberts has noted, using racial discrimination to undo racial discrimination doesn’t work; rather, “the way to stop discrimination on the basis of race is to stop discriminating on the basis of race” (Parents Involved in Community Schools v. Seattle School District No. 1 [2007]).
DEI has become a major industry, with leading consulting firms, business schools, HR departments, and other professionals jumping on the gravy train. Private-sector DEI placates activists and younger employees fresh from universities saturated in the jargon and mindset of DEI, and wins acclaim from the media. That may appear wise in the very short run.
To slow and even reverse the DEI-ification of the private sector during the Biden administration will be difficult. The most important factor will be the courts. In the fall, the Supreme Court will hear the affirmative-action case brought by Students for Fair Admissions (SFFA) against Harvard and the University of North Carolina; if the Court gives SFFA a compelling victory by ruling that public and private universities may no longer consider race as a factor in admissions, that would presage considerable legal pain for private-sector DEI, particularly for private businesses that are federal contractors. Even a less complete victory would be useful.
In the unlikely event that SFFA loses, the litigation path against private corporations and regulators would be more difficult. However, because the Supreme Court has long given academia greater deference on the use of race, even if Harvard and UNC prevail, the outcome for private corporations should differ. By the time litigation against corporations is decided, we will be approaching, or even past, the 2024 presidential election. If Republicans prevail, the regulatory environment should greatly improve, reducing pressure on corporations to implement DEI.
Given that conservatives seldom boycott corporations, short of litigation or a change in administrations the DEI regime may be undone by simple greed. Over time, DEI will erode the quality, commitment, and cohesion of the workforce. Corporations most strongly committed to DEI will lose their competitive position. Reality may then finally end private-sector DEI.