2024 Might Be Do or Die for Corporate Diversity Efforts. Here's Why.

As lawsuits rise and opponents like Elon Musk declare that "DEI must die," companies are pulling back from some initiatives.

The Washington Post

December 27, 2023

7 Min Read
diversity hiring

This time last year, big companies had begun backing away from efforts to promote diversity, equity and inclusion in their ranks, otherwise known as DEI. Experts feared energy around the work, which swelled after George Floyd's murder in 2020, was waning.

Since then, things have gotten even more complicated. In June, the Supreme Court struck down affirmative action in higher education, igniting opposition to DEI. Dozens of bills targeting DEI initiatives at public colleges are pending across the country, and there's been a spike in litigation alleging that the methods private companies use to address inequality amounts to discrimination.

While there's no clear consensus on how the court's decision will affect the business world, Elon Musk, the entrepreneur behind Tesla, SpaceX and other tech companies, tweeted this month that "DEI must die." He added: "The point was to end discrimination, not replace it with different discrimination." (Musk did not respond to requests for comment.)

Neal Katyal, a corporate lawyer who served in the Obama administration, said that lawsuits targeting diversity efforts seek "to push the law to ban all affirmative action, even though the court has not said anything like that." Katyal is representing Hello Alice, a free online platform that helps businesses launch and grow, in a lawsuit aimed at blocking its grant program for Black-owned small businesses.

Related:DEI Efforts in Tech Industry Come Under Budgetary Pressure

Growing pushback has some companies reframing their policies, and others axing programs as they look to avoid legal trouble. Experts say the debate around DEI is likely to intensify as the legal battle plays out in court and political tensions rise heading into the presidential election.

Here's what you should know, and what changes might be around the corner, in 2024.

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Why is there so much tension around DEI?

Private employers are barred from making decisions based on race under the Civil Rights Act of 1964. Companies cannot set aside a portion of jobs for minorities, or hire an applicant solely because of their race.

However, decades of legal precedent have allowed companies to take race into consideration, particularly when trying to counter well-documented inequality. These efforts have always faced pushback, but the Supreme Court decision in June gave momentum to opponents of corporate DEI efforts, according to Lily Zheng, a longtime DEI strategist.

"In the DEI space, there's a myth of progress," Zheng said, adding that the resistance facing corporate programs today is a "step-for-step echo of the reverse racism and anti-affirmative-action attacks that were very successful back in the '60s and '70s."

Related:Cybersecurity Skills Shortage: How a Focus on DEI Can Help

The legal challenges are coming as corporate commitment to diversity work ebbs, DEI experts say. Companies made $340 billion in commitments to improve racial equity between May 2020 and October 2022, according to data from the McKinsey Institute for Black Economic Mobility. But in the past year, companies began easing off initiatives and cutting DEI teams amid widespread layoffs as they braced for an economic downturn.

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Who is opposing corporate diversity efforts?

Conservative politicians and advocacy groups have been the main challengers. Florida Gov. Ron DeSantis (R) has barred spending on DEI at public colleges and universities in his state, declaring "Florida is where 'woke' goes to die."

America First Legal, a nonprofit backed by former Donald Trump adviser Stephen Miller, has filed scores of complaints about DEI policies at companies such as Kellogg's, Nordstrom, IBM and Activision Blizzard.

In July, 13 Republican attorneys general sent a letter urging Microsoft and other Fortune 100 companies to reexamine their DEI policies in response to the Supreme Court ruling on affirmative action. The letter threatened "serious legal consequences" for companies that rely on race-based employment preferences, including "explicit racial quotas and preferences in hiring, recruiting, retention, promotion and advancement."

Several suits have been filed since then by the American Alliance for Equal Rights (AAER), a group founded by conservative activist Edward Blum, who was behind the cases that culminated in the Supreme Court striking down affirmative action in college admissions.

It is "not surprising" that the Supreme Court opinion in June has "energized challenges" to policies outside the realm of education "that deal with race and ethnicity," Blum told The Washington Post, adding that the decision "has refocused our civil rights law on that area of public policy."

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What do DEI opponents want?

DEI efforts encompass issues of racial, gender and disability equity, but it's race that provokes the most tension.

Most Americans agree that "an individual's race and ethnicity should not be used to help them or harm them in their life's endeavors," Blum said. "To the degree that DEI is in tension with that, DEI is not a good thing. To the degree that DEI supports and endorses that, it is a good thing."

In August, AAER sued Fearless Fund, an Atlanta-based venture capital firm that offers grants to early-stage businesses owned by Black women. The same month, former employees of Gannett sued the country's largest newspaper publisher, alleging it discriminated against White workers in its quest to meet diversity goals. In late August, a former executive with Morgan Stanley filed a case making similar claims.

Also in August, America First Legal sued Hello Alice, the platform that connects small-business owners with funding over a program offering $25,000 grants for commercial vehicles to Black-owned small businesses. The program is discriminatory, the complaint states, because it "does not permit non-black-owned small businesses to even apply for the grant."

America First Legal did not respond to a request from The Post.

Elizabeth Gore, president and co-founder of Hello Alice, told The Post she hopes the fear of litigation does not scare companies into backing away from DEI. She's continuing to offer grants to small businesses, including those owned by people of color — who often struggle to get early-stage funding for their companies — and has filed a motion to dismiss the lawsuit.

"People need to understand that your coffee shop, your hairdresser, your local grocer depend on grants like these. The outcome of cases like this can impact their ability to grow," Gore said. "We need to really understand that this is hurting Main Street and it's hurting everyone."

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How are companies changing their approach?

As companies face more pressure over their DEI practices, some are tweaking their policies on recruiting, hiring and compensation efforts that target underrepresented groups.

At least six major firms, including JPMorgan Chase, Yum! Brands, American Airlines, Lowe's and BlackRock, have altered language in their DEI policies after being threatened with legal action in recent months, according to reporting from Reuters. The changes involve "removing language that said certain programs were for underrepresented groups" and "modifying executives' goals for increased racial representation in the workforce," Reuters reported.

Similar changes are unfolding in the legal industry, where three big firms — Perkins Coie, Morrison Foerster and Winston & Strawn — opened fellowships aimed at students of color to students of all races and backgrounds after facing lawsuits that claimed the programs discriminated against White applicants. After receiving an Oct. 9 letter threatening litigation, a fourth law firm, Adams and Reese, ended its diversity fellowship.

"They're feeling compelled to protect themselves from litigation, but they're still trying to make progress," said Eric Ellis, CEO of Integrity Development, a DEI firm.

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What policies are most likely to be targeted?

Programs limited to specific populations — such as people of color or those of a certain gender identity — could be subject to legal challenges, according to Jarvis Sam, former chief DEI officer at Nike and founder of the Rainbow Disruption, a DEI consultancy. That might include fellowships and internships, employee affinity groups, grant programs or other targeted opportunities.

"Any kind of affirmative-action-driven program that supports minority development or hiring is at major risk," Sam said, as are benefits that apply only to specific groups, such as gender-affirming care, or companies' approaches to recruiting from historically Black and Latino schools.

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What might happen in 2024?

Key cases — such as the one against Fearless Fund — are expected to progress as DEI opponents seek to get a case challenging racial considerations in the workplace before the Supreme Court.

Meanwhile, it's likely more companies will move away from explicit race requirements for programs such as fellowships, grants and employee resource groups, according to Janet Stovall, global head of DEI at NeuroLeadership Institute.

"A lot of companies are going to stop their work or change what they do," Stovall said. "They're going to run away from anything that's race-based."

-- Taylor Telford, The Washington Post

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