Companies Caught in Diversity Crossfire Are Frozen by Uncertainty

The US Supreme Court’s ruling against affirmative action has sparked a fierce debate over the future of diversity in corporate America, with dueling sides claiming either that workplace programs are unaffected by the decision, or that they’re suddenly open to legal challenges. The resolution could be years away, throwing companies’ existing efforts into an indefinite limbo.

The court’s decision last month, which effectively banned race-conscious admissions in universities, sent an immediate chill through US company boardrooms as CEOs wondered whether the scope of the ruling could apply to their own hiring goals. It also offered fresh provocation to some Republican lawmakers who’ve long campaigned against what they call “woke” capitalism.

Companies that had been bragging about their diversity, equity and inclusion progress in the three years since George Floyd’s murder are now questioning whether they’ve set themselves up for future legal action, said Lindsay Burke, co-chair of the employment practice group at law firm Covington & Burling, which has done racial equity audits for companies including Airbnb Inc. and BlackRock Inc.

Though most companies designed their diversity programs in a way that would pass any potential Scotus challenge — and the rules that apply to workplace hiring already prohibit what was allowed in universities — the threats from conservatives are causing them to take pause, she said.

“The companies that undertake these projects, we have observed, have generally done so very thoughtfully and enthusiastically and have a lot that they want to share,” Burke said. “Now, are they thinking hard about what they want to share? Yes, they are.”

They’re right to hold off, said Tennessee Attorney General Jonathan Skrmetti, one of the authors of a July 13 letter from Republican attorney generals to Fortune 100 CEOs that urged them to reassess their stated diversity goals.

The letter, which singled out companies including JPMorgan Chase & Co., Goldman Sachs Group Inc., Microsoft Corp. and Apple Inc., was meant to caution executives that their diversity efforts could come under scrutiny if laws that govern corporate equity are reviewed, he said. He claimed there is already interest among private lawyers in challenging existing programs.

Critics of diversity programs often accuse companies of using illegal quotas to give under-represented workers an advantage in hiring, which they say is part of a broader trend toward prioritizing social initiatives over profits. Research shows that most Fortune 100 companies aren’t setting targets to hire people of color beyond each group’s current share of the population. According to an analysis by Windo, which provides diversity information to Gen Z jobseekers, just 23% of companies set race-related targets, of which 93% aimed for numbers that were less than or equal to US Census data for the targeted groups.

But though separate sections of the Civil Rights Act govern education (Title VI) and employers (Title VII) — and only the former was tackled by the high court — detractors say that parallels between the two could lead to future challenges to how companies make hiring decisions.

“There was so much misinformation out there that the Supreme Court case would have no effect on employment law,” Skrmetti said. “It’s irresponsible for any employer to act as if there’s not at least some risk there.”

The leadership of the Democratic Attorney Generals Association hit back with a letter that urged corporate leaders not to be intimidated by the message. The chair of the US Equal Employment Opportunity Commission, Charlotte Burrows, whose agency enforces workplace equity issues, has also weighed in on the Scotus ruling, reassuring companies that it doesn’t address employer programs.

After Floyd’s murder at the hands of police in May 2020, companies were “rushing to get in line, to make commitments in terms of hiring and also in terms of their corporate social responsibility,” said Esther Silver-Parker, an independent consultant whose previous corporate roles included helping develop to Walmart Inc.’s initial DEI program. “Now, I see them now back off and backing down because I think they are really gun shy. They are reacting to the current political environment.”

Companies may still be doing the work, but calling attention to themselves has become a clear risk, she said. “I think the stance is, do what we need to do, and not talk about it,” she said. “Let’s fly under the radar.”

When Bloomberg reached out after the Supreme Court’s ruling to the 69 companies and organizations that signed a legal brief last year supporting affirmative action in higher education, 15 companies responded to reaffirm their support. The rest didn’t respond or declined to comment.

The reluctance of companies to call attention to their diversity efforts builds on a pattern already seen among Wall Street banks and asset managers in discussing investment aimed at environmental, social and governance policy, which includes diversity. A Republican backlash against ESG strategies chilled investor support for such initiatives this summer at annual meetings this year.

For now, there aren’t any cases before the US Supreme Court that might provide answers to questions about corporate diversity practices, and it could take a decade for any potential challenges to work their way to the top court, said Kimberly West-Faulcon, a professor of constitutional law at Loyola Law School in Los Angeles. In the meantime, companies should focus on complying with the law as it is currently enforced and understood, she said.

“There is a true and significant difference between a legal theory and actual legal doctrine,” she said. “What we’re living in is a moment where people with very strong ideological views, very strong policy views, are making inaccurate and erroneous statements.”