11 Apr 2024 The Shareholder Activism of Anti-Discrimination Proponents
Corporate Diversity, Equity & Inclusion (DEI) policies pose “serious and potentially vast financial risks to companies in addition to being inherently discriminatory and in violation of civil rights.”
Thankfully the National Center’s Free Enterprise Project (FEP) is sounding the alarm and taking the fight directly to corporate executives.
In a post at the Harvard Law School Forum on Corporate Governance, FEP’s Scott Shepard, Stefan Padfield and Ethan Peck explain what FEP is doing to combat these discriminatory policies, and how they’ve seen companies respond so far.
The Harvard Law editors chose not to publish part of the introduction the FEP team submitted, so we are including that section below (entitled “DEI Has Radical Origins”) followed by the text of the Harvard post.
DEI Has Radical Origins
In the words of Ibram X. Kendi, universally recognized as an avatar of equity, “the only remedy to racist discrimination is antiracist discrimination. The only remedy to past discrimination is present discrimination. The only remedy to present discrimination is future discrimination.” Likewise, he has proclaimed: “when I see racial disparities, I see racism,” and that equity requires the absence of disparities in racial outcomes. These assertions are not outliers – they are the founding and guiding principles of corporate DEI programs – and have been extended to other surface-characteristics, including sex, orientation and ethnicity.
Similarly, as Richard Delgado – another founding father of the CRT and equity movements – explained, the Constitution and the whole codex of civil rights laws must be set aside in order to achieve the explicitly discriminatory ends of equity. In, Critical Race Theory: An Introduction – one of the most fundamental texts in CRT canon, therefore undergirding the creed of corporate DEI programs – Delgado writes: “critical race theory questions the very foundations of the liberal order, including equality theory, legal reasoning, Enlightenment rationalism, and neutral principles of constitutional law.”
FEP and Its Goals
The authors of this piece represent the Free Enterprise Project of the National Center for Public Policy Research (FEP), which has for nearly 20 years represented the interests of the center/right majority of Americans against ESG efforts that became more coordinated, better funded and more aggressively left-partisan in each of those years. ESG advocates have long pretended that they are not partisan but rather are “doing well by doing good” – making money for everyone doing lovely things with which no rational person might disagree. That was never a very convincing conceit, but became more demonstrably absurd each year.
In fact, each prong of the ESG lobby’s claim has been shattered. These days, the two primary goals of ESG are to force (or, in the cases of giant investment houses BlackRock, State Street and Vanguard, using other people’s money to force) companies to adopt the equity-based discrimination under discussion here and carbon reduction and elimination on a politically generated schedule without regard to technological, economic or geopolitical considerations. These have long and obviously been obsessions of the hard left, and have been embraced by the current administration as its premiere “whole of government” initiatives. They are hardly nonpartisan positions, and their value to companies is nowhere supported by objective and complete research conducted under appropriate controls and circumstances.
They also turn out to hinder firm performance. This should have been obvious without the need for years of road testing throughout the American (or anybody’s) economy. Making personnel decisions on the basis of surface characteristics rather than talent, hard work, a proven track record and other genuinely relevant factors (in short, according to merit) is definitionally a move away from hiring the best person for the job. And moving from reliable and affordable energy sources and production practices to unreliable, unaffordable sources and methods that cannot be maintained at the required scale given current or legitimately foreseen technologies is, frankly, about as dumb as it gets – for the companies, anyway; those in on the green grift have done rather well for themselves, as have the model generators, calamity predictors and power grabbers at various levels of government and international organizations and NGOs.
But as profitable as ESG is for its proponents, it has proven in recent years to be costly to shareholders. Money has gushed away from ESG-labeled funds as their high costs and either poor returns or Potemkin nature (e.g. “greenwashing”) have been revealed. Some major players like BlackRock have stopped offering them entirely, embarrassed by the living proof of ESG-inferiority. They continue, though, to use investor assets to push ESG in private meetings with companies, despite their failure to disclose that. Because of this, all of their funds are to a significant extent ESG funds despite not being labeled as such. Meanwhile, they continue to offer no funds for which the assets will be dedicated to “forcing behaviors” that are nondiscriminatory and that support using the most affordable and reliable energy available and conducting the analysis to determine relative costs only with regard to objective and complete research, rather than under climate-extremist assumptions that have only negligible grounding in fact. Nor do they use non-ESG-labeled funds to oppose ESG, or even withhold the power of those vast assets from their pro-ESG behavior-forcing activities, in favor of a position of business neutrality with regard to the left-wing goals of ESG.
For it is this aim of corporate neutrality that motivates the efforts of FEP and a growing coterie of like-minded investors, organizations, officials and institutions fighting ESG. Our and their goals are not to push companies to reverse the polarity of company partisanship. Rather, we simply wish to get companies away from any sort of partisanship – back to the business of their core businesses, and on the sidelines of general politics and policy questions. In other words, back to neutral, and to their fiduciary duties. Neutral companies acting in fidelity to fiduciary duty might reasonably spend shareholder assets to pursue limited and constrained ends that are of clear and direct benefit to those shareholders, as by fighting a specific regulation that will, if promulgated, directly and adversely affect the company’s value without recourse to any absurd cogitation of emanations, penumbras and fanciful predictions of the future. But that would be all.
After all, corporate executives are munificently remunerated by those shareholders. If Brian Moynihan or Bob Iger want to spend some of their own extravagant dosh to campaign in favor of the New Bigotry under discussion here or any other of the partisan pillars of ESG, they are welcome to do so. They are neither welcome nor authorized to spend other people’s money – the money of the companies’ owners – to achieve them. That’s as thorough an instance of self-dealing as could reasonably be envisaged, and while the courts haven’t quite gotten to the question yet, it is and should be held to be a willful breach of fiduciary duty of the sort that pries open their personal assets for the payment of damages.
What Our DEI Proposals Request
Particularly since the triggering events of 2020, FEP has put forward a growing series of shareholder proposals addressing those corporate DEI programs. Most seek audits and reports about whether a company’s DEI policies violate civil rights and nondiscrimination laws, while others expand the focus to include the effects of DEI on merit-advancement and therefore on company performance, in addition to the civil rights implications. More recently – in light of the SFFA decision and the growing list of companies that are demonstrating the real-world truth of ‘get woke, go broke’ – our proposals have more directly focused on the financial and reputational risks DEI discrimination carries with it. All address the many ways that DEI is harmful to companies and shareholders.
How Companies Respond to Our Proposals
Whether in public opposition statements or in private negotiations (a standard feature in the proposal-review process), companies’ responses to our DEI-related proposals have broadly fallen into one of three categories:
- Denial
- Doubling-down
- A paradoxical mixture of denial and doubling-down
The first two are fairly straightforward. Some companies simply deny that they’re doing exactly what they’re doing, or that there could possibly be any material risks arising from their active embrace of discrimination on suspect-classification grounds. Or, as we include specific instances in our proposals and raise them in discussion, they may admit that they are doing what they’re doing but insist (or, more likely, pretend) that it’s impossible that any illegality could be at issue or that any adverse public reaction may arise in response to racist, sexist and orientation-discriminatory programs and practices. This response, always ludicrous, has become frankly untenable post-SFFA, resorted to only by the most obtuse of firms.
The second category is the frank and usually heated defense of equity that’s more explicitly representative of CRT ideology – a declaration that “empowering of the disempowered” is wise, good, urgent and cheered by all correct-thinking people, and that we are clearly monsters, supremacists and racists for opposing discrimination on the basis of race. But those sorts of engagements are fading as more lawyers and fewer “diversity officers” have been attending discussions with us.
The most infuriating and nonsensical – but perhaps the most common, oddly enough – of company responses is the third one, a coy mixture of the first two. Companies both assure us that DEI is not actually happening in the way that’s explicitly acknowledged and celebrated on their websites, in an attempt to dispel our concerns, but also reassert their deep pride in all the progress that their DEI programs are making in exactly the way that they explicitly proclaim on their websites – which demonstrate their discriminatory purpose and results.
For example, Apple’s Inclusion & Diversity webpage states: “We’re working toward a future in technology that’s more diverse”; “We’re expanding representation in leadership”; “We’re prioritizing equity and representation within our teams”; “The Inclusion & Equity at AppleCare (IEAC) program… create[s] an even more inclusive environment” and “Over the past year, we filled more open leadership roles than ever with women globally and Black candidates in the United States. We remain committed to continuing to grow leadership representation.”
So Apple states that its goal is more “equity,” explains how its DEI programs are responsible for achieving those goals, and then celebrates that it has achieved those goals. If true, that’s likely illegal given that hiring and promoting on the basis of race and sex is illegal. So out of concern, we submitted a shareholder proposal to Apple last year to audit if the company really does discriminates in the way that it advertises.
Apple advised shareholders to vote against our audit and report, and its statement in opposition to our proposal then denied that such a policy – which is openly flaunted on its website – was being implemented: “The proponent mischaracterizes Apple’s commitment to inclusion and diversity by suggesting that our policies promoting these goals are discriminatory. Apple does not tolerate discrimination or harassment of any kind.” Then later in the opposition statement, Apple added, “We’re building on our long-standing commitment to make our Company more inclusive and diverse and to promote equitable pay for all employees. We’re supporting underrepresented communities with initiatives that combat inequity, expand access to opportunity, and foster belonging through community.”
Of course, this makes our point for us: you’ve got programs, including “equity” programs, that take some or all of race, sex and orientation into account when distributing their benefits. And those undescribed programs appear to apply to employees and other stakeholders against whom that suspect-category discrimination may very well be illegal. You crow endlessly about these programs. How about doing a little audit and report about that? And about the effects of DEI on “non-diverse” stakeholders who have the same civil rights as the “diverse”?, (Especially given the number of audits and reports you have done knowing that those audits would push you to increase the degree to which you offer things on the basis of race, sex or orientation.)
Instead, while Apple asserts proudly and very publicly that both its DEI goals and DEI achievements are of monumental importance to the company, it refuses to reveal to us and to the public the specifics of how this program works or give any substantial explanation for how those achievements were made and how they’re so confident that all of this is not in violation of civil rights law. For example, the company doesn’t disclose every relevant organization it gives to for the purposes of DEI (only that it does give to such organizations and that it’s a saint for doing so), what its inclusion and diversity trainings for employees specifically entail or any material from the trainings (only that it does hold such trainings and that it’s a saint for doing so), or the specific legal advice and reasoning that the company has relied on to make its claim that its DEI program is legal. It’s a bizarre combination of very transparent and also not at all. Apple shouts its DEI program from a rooftop, but then when asked to detail the specifics of its DEI program (or submit the program to an audit) it has nothing, just more shouts from the rooftop.
So Apple is discriminating – and it is getting its desired results in hiring, retention and promotion consistent with having discriminated in those spheres – but it refuses to address the content of those programs at all, much less conduct a comprehensive review of them. This is not an admission of guilt per se, but it sure is the behavior of an organization that has something to hide, knows full well that it does, and fully and willfully intends to defy its disclosure and risk-avoidance duties – not to mention its obligations under the civil rights laws – for as long as it can brazen it out.
Quotas
Another common paradoxical response from companies is claiming that they don’t have race, sex and orientation quotas (acknowledging that such quotas are illegal), but then proudly proclaiming achievement of their “goals” of hiring more women, ethnic minorities and LGBT people. What’s the functional difference between a quota and a goal? Companies refuse even to contemplate the question – again suggesting a full awareness of a material risk that they refuse to address with the fullness that fiduciary duty requires.
Of course, in this context, there isn’t a difference between “quotas” and “goals,” but the woke have made a habit of using esoteric meanings of words to advance a political agenda. “Diversity” and “inclusion” are perfect examples of this linguistic manipulation, which makes attempting to have a genuine conversation with a company’s “Chief Diversity Officer” about the very real legal risks of DEI almost impossible. Paraphrased, it goes something like this:
“You can’t hire or promote employees because they’re black or because they’re female.”
“We don’t do that.”
“Then why does your website say that you do?”
“What we’re striving for is to increase representation amongst historically marginalized communities.”
“That’s illegal – it’s illegal to have race and sex quotas.”
“But we don’t have quotas.”
“What’s the difference between ‘goals to increase representation’ and a quota?”
“Our program doesn’t violate civil rights. We are deeply concerned about civil rights, which is why we have goals to advance equity.”
“But ‘equity’ – which is forcibly redistributing outcomes and opportunities on the basis of race and sex – is by definition in violation of civil rights.”
“That’s not our view.”
“It’s the Supreme Court’s view. This is exactly why your DEI program needs to be audited.”
Merit
There is yet another paradoxical position, still, that companies hold with respect to their DEI programs. When we inform companies during negotiations that hiring based on race, sex and orientation comes at the expense of merit, they always answer the same way: “we hire the best candidates, we just also consider other factors in addition to merit.” Of course, not hiring by merit alone literally means that you’re not hiring the best candidate, and includes an admission of suspect-classification consideration that raises the very risks that our proposal has focused on, but somehow doesn’t lead to the logical conclusion that we have identified a problem and a duty to which they will apply themselves directly, honestly and openly.
Bigoted Stereotyping
Another very common response that we receive from corporations is that they need to hire “diverse” employees in order to appeal to their “diverse” customers. For example, at Progressive’s shareholder meeting in 2022, we asked CEO Tricia Griffith how the company “could justify valuing surface characteristics over merit,” to which she responded:
In order to [succeed], we need to anticipate and understand our customers. So we need to reflect our customers. We think it’s very important to have a fair and inclusive work environment, reflect the customers we serve and for our leaders to reflect the people they lead.
In other words, she said that the company can only be successful if white people sell insurance to white people, black people sell insurance to black people, women sell insurance to women, and so on. First of all, that’s the opposite of racial unity, but also to assume that someone is destined to think or act a certain way because of their immutable characteristics, or that the company needs to proactively silo its employees and customers into groups determined by race, sex and orientation in order to succeed, is the most egregious sort of reductivist racism and sexism.
Shocking an admission as it is, this is unfortunately not an uncommon view for corporations to hold – we get this response all the time in private negotiations with companies. And while they insinuate that members of a group are destined to think a certain way, they also use DEI to repress diversity of thought and ensure that their employees actually conform to their bigotry of the mind. One way they do this is with Employee Resource Groups.
ERGs
Employee Resource Groups, (ERGs, as they’re often called, though the title sometimes varies by company) are something we frequently bring up in these discussions with companies as an example of potentially illegal discrimination. We ask companies why they have ERGs for blacks, women, LGBT people, Latinos, Asians and more, but not ones for men, whites or straight people – or ones for parents or the religious or employees who believe that the company should hire by merit rather than by the surface characteristics of the groups who are permitted to have ERGs. It’s not that we think that those should exist – we think that no ERGs that separate people by immutable characteristics should – but the fact that favored “diverse” categories are represented, while the despicable “non-diverse” are excluded, is evidence of the systemic discrimination within the company. When we press companies on this blatant and very public fact (check pretty much any corporate website for yourself), they almost always predictably answer that “a white person can join our black ERG or a man can join our women ERG” as allies of those groups and those ERG’s demands. But of course, that’s entirely missing the point.
In reality, these ERGs are just lobbying groups within the company for left-wing causes. The women’s ERG is not actually just a women ERG but a feminist ERG (which is an important distinction), and the black ERG is not actually just a black ERG but a Black Lives Matter (BLM) ERG. This is why a white person supportive of BLM would be more welcome in the black ERG than a black person critical of BLM. For example, when Amazon donated $10 million “to organizations in support of justice and equity” in the wake of the George Floyd riots of 2020, it was the company’s “Black Employee Network” that selected the organizations – all of which just happened to be left-wing proponents of CRT-based “social justice” – that received the funds.
But, of course, as mentioned earlier, companies appear to falsely, idiotically and prejudicially assume that because you’re black or because you’re a woman or because you’re gay, then you’re destined to think a certain way and must embrace the victimhood mentality and identity that they ascribe to you. Which is yet another reason why DEI is also bigoted against the people it purports to help.
These ERGs often pressure the company into donating to left-wing groups. For example, it’s very common for LGBT ERGs to have partnerships with the Human Rights Campaign (HRC), Trevor Project, GenderCool or other groups that promote the genital mutilation of teens and the eradication of girls’ and women’s sports and bathrooms. The recent share price collapses of Disney, Bud Light and Target revealed that capitulating to the ultra- and ever-increasingly-woke demands of these groups has a disastrous impact on shareholder value. (All this while companies not only fail to allow ERGs for their religious employees, but also refuse to match donations by believers to religiously minded charities, demoting them to a category that otherwise includes only fraternities and sororities and political campaigns – which aren’t charitable donations at all – while donations to groups like HRC or BLM aren’t deemed political.)
These ERGs are just another way that identity is weaponized to promote the starkly political, partisan and often extremist left-wing agenda that characterizes all of ESG. ERGs are established along racist, sexist and orientationist lines and are denied to the disfavored groups that the companies are actively discriminating against, an odd choice for allocating the community support and lobbying power that spring from an ERG. This is a back-door way for the company to stack discrimination on discrimination, by using discriminatory rules to create lobbying groups designed to generate demands for yet more discrimination, which is then happily acceded to by the company that has set up the system in the first place. Very conveniently for companies, in negotiations with us, they often lean on ERGs as the excuse for all this – that their implementation of DEI or giving to organizations that advance DEI is merely out of their desire to cater to the requests of their employees.
Conclusion
All of this poses serious and potentially vast financial risks to companies in addition to being inherently discriminatory and in violation of civil rights. Perhaps the capping discrimination is the companies’ discrimination on race, sex and orientation grounds of what constitutes and how to measure material risks themselves.
Scott Shepard is General Counsel and Director, Stefan Padfield is Deputy Director, and Ethan Peck is an Associate of the Free Enterprise Project (FEP) at The National Center of Public Policy Research (NCPPR). This post was prepared for the Harvard Law School Forum on Corporate Governance by Mr. Shepard, Mr. Padfield, and Mr. Peck.