Corporate diversity push: How it鈥檚 shaken as affirmative action ends
Now that the U.S. Supreme Court has struck down affirmative action at colleges and universities, conservatives are turning their fire on corporations. The struggle over companies鈥� diversity efforts has already begun.
Following the June 29 decision, the House of Representatives passed a defense policy bill with several social policy amendments tacked on, including the elimination of the Pentagon鈥檚 programs for diversity, equity, and inclusion (DEI). Republican attorneys general in 13 states sent a letter warning America鈥檚 largest corporations of 鈥渟erious legal consequences鈥� for their DEI initiatives. And on Friday, the president of Texas A&M University resigned because the hiring of a high-profile journalism professor came under fire for her past work on diversity.
Activists on both sides of the issue expect the fallout to spread. 鈥淚t鈥檚 already happened in higher ed. It鈥檚 going to happen in the corporate space,鈥� says Sy Stokes, vice president of research at Coqual, a New York think tank on DEI.
Why We Wrote This
A story focused onHiring based on race or ethnicity was already illegal before last month. But a court ruling on affirmative action is roiling boardrooms 鈥� even as their focus on diversity isn鈥檛 likely to disappear.
At issue: how best to promote fairness in a society that enshrines equality but whose economic realities continue to fall short of that ideal.聽
鈥淭he fundamental problem is, when you cut through all the rhetoric, ... the idea of individual equality under the law as opposed to equity,鈥� says Reed Rubinstein, director of oversight and investigations for America First Legal, a conservative nonprofit legal foundation challenging preferential hiring and other corporate diversity efforts. Conservatives support the idea of equality, meaning that everyone is treated equally under the law.
Proponents of DEI say that鈥檚 not enough. 鈥淓quity means actually doing things to correct the historical imbalance of racial justice or gender justice that we鈥檝e seen,鈥� says Dr. Stokes. 鈥淚t won鈥檛 be corrected unless there are targeted efforts toward improving the lives of those who are the most marginalized in our society.鈥�
Ever since 2020, when George Floyd, an African American, was murdered by police,聽corporate America has stepped up its focus on equity. The Business Roundtable, a group of CEOs of the nation鈥檚 leading corporations, formed a special committee to address racial equity and justice. Companies such as Walgreens Boots Alliance announced goals to increase the share of people of color in leadership positions. Macy鈥檚, Nordstrom, and other retailers joined the Fifteen Percent Pledge, a movement to get products from Black-owned firms onto 15% of America鈥檚 store shelves.
鈥淎ll of a sudden, you began seeing movement towards metrics,鈥� says Mr. Rubinstein. It鈥檚 these racially based quotas that he views as unconstitutional. His foundation, started by former Trump administration senior adviser Stephen Miller, has filed complaints with the Equal Employment Opportunity Commission, charging that Starbucks, Morgan Stanley, McDonald鈥檚, and others have violated the law with their hiring and diversity practices.
Another conservative group, the National Center for Public Policy Research, sued Starbucks executives and directors for setting diversity targets for hiring and promotion as well as in their supplier base, and linking executive pay to the achievement of these goals.聽
The Supreme Court鈥檚 ruling late last month against affirmative action at universities puts new wind in their sails. After Texas A&M hired Kathleen McElroy in June to lead its journalism department, she came under fire from conservative groups for her previous work at The New York Times, where she researched the relationship between race and the news media. Ms. McElroy stepped down, and on Friday, so did the university鈥檚 president, Katherine Banks, citing 鈥渘egative press.鈥�
As a legal matter, affirmative action in university admissions and corporate DEI are separate, governed by different laws. It is already illegal to hire someone because of their race or ethnicity. But as a practical matter, the court鈥檚 ruling increases the legal jeopardy of corporations. For example, Chief Justice John Roberts鈥� 鈥渮ero-sum鈥� reasoning that a race-based benefit given to some applicants necessarily disadvantages others could also apply to corporate DEI practices, such as hiring and awarding contracts.聽
鈥淭his very forceful statement from the chief justice about the ways in which race can and cannot be used in zero-sum decision-making is going to have an impact on corporate DEI,鈥� says Ishan Bhabha, partner and co-chair of the DEI Protection Task Force at the Jenner & Block law firm in Washington, which represents universities and companies. Already, corporations are taking a closer look at their initiatives and how they can reduce their legal vulnerability.
Both sides expect a surge in anti-DEI suits, putting corporations between a rock and a hard place. Under pressure from many liberal shareholders and employees to increase their DEI efforts, corporations now face the prospect of conservatives filing suit to pare back those initiatives. These range from hiring and promotion to corporate board composition.
One challenge for diversity advocates is that in many cases, a more diverse workforce doesn鈥檛聽appear to lead to a more profitable company or a more empowered workforce, researchers say. What鈥檚 needed, they add, are the other parts of the DEI equation: a workplace culture of (1) equity, in which all employees feel they are treated fairly and (2) inclusion, in which they feel empowered and free to express their ideas. It鈥檚 what Alex Edmans, professor of finance at London Business School, calls 鈥渢rue DEI.鈥�
鈥淵ou want the respondent people to say, 鈥業鈥檓 treated well here鈥�; 鈥楾his is a psychologically safe place to work鈥�; 鈥楶eople are treated the same regardless of their age, race, and sex鈥� 鈥� all of those things,鈥� says Mr. Edmans, whose May 2023 study focused on Fortune magazine鈥檚 annual list of the 100 best companies to work for in America. 鈥淎nd we鈥檙e not seeing that鈥欌�� even among employers that have altered hiring to become more racially and ethnically diverse.
That leads to a deeper question: Is the hiring and promotion of a broad range of races and ethnic groups the best way to achieve the diversity of thought and outlook that corporations are looking for? Or do other factors, such as life experience, education, and income level, matter more?聽
鈥淚 still have experienced discrimination on the basis of appearance,鈥� says Mr. Edmans, who is of Asian descent. 鈥淎nd so if I was to serve in the board of directors 鈥� and I am on several boards 鈥� I would count as a minority. But maybe a white male who never went to university, he would add more to socioeconomic diversity than me.鈥�
To minimize their legal exposure, corporations should broaden their diversity criteria beyond race to include such things as life experience, according to Mr. Bhabha of Jenner & Block.
Others counter that the disparities in racial and ethnic achievement in the workplace remain so large that they need to remain a focus for employers. For example, the typical Black worker earned 24% less than their white counterpart in 2019, according to by the Economic Policy Institute, a liberal think tank based in Washington. And that gap was larger than the 16% gap in 1979, even though African Americans have narrowed the Black-white gap in high school and college completion during that time.聽
In light of the court鈥檚 action, defenders of affirmative action expect a retrenchment of corporate DEI programs but not their end.
鈥淚n this day and age in the 21st century, you can鈥檛 just say, 鈥榊ou know what, we鈥檙e kind of done with that DEI thing,鈥欌�� says Mr.聽Bhabha. The advantages of being able to draw from a greater talent pool and to address an increasingly diverse customer base make diversity a corporate imperative, he adds. 鈥淢any companies completely, correctly recognize that from a business perspective, just from a business balance-sheet perspective ... DEI is actually critical to the success of that business.鈥�
