Focus: Some companies alter diversity policies after conservatives' lawsuit threat

Kontoor Brands

18/12/2023 15:43

By Jody Godoy and Disha Raychaudhuri
       Dec 18 (Reuters) - At least six major U.S. companies
including JPMorgan Chase have modified policies meant to boost
racial and ethnic representation that conservative groups
threatened to sue over, a Reuters review of corporate statements
has found.
    The companies are among 25 that received public shareholder
letters since 2021 claiming their diversity, equity and
inclusion (DEI) programs constitute illegal discrimination and a
breach of the directors' duties to investors.
    The changes made by the companies primarily involved
removing language that said certain programs were for
underrepresented groups or modifying executives' goals for
increased racial representation in the workforce.
    Reuters could not find any publicly available changes to DEI
policies instituted by the other 19 companies, including
McDonald’s  MCD.N  and Starbucks  SBUX.O . Several companies
received letters after putting out their most recent annual
reports, where some of the policies are outlined.
    A Starbucks spokesperson said the company was committed to a
culture of belonging. McDonald's did not respond to a request
for comment.
    JPMorgan  JPM.N  received a letter in May 2022, alleging 10
of its DEI initiatives were discriminatory and unlawful. Around
February 2023, the descriptions of the bank's "Advancing
Hispanics & Latinos" and "Advancing Black Pathways" programs
were changed, according to archived versions of its website.
    The programs that were previously for Black and Latino
students now invite applications from all students, "regardless
of background."
    "We remain fully committed to an inclusive workforce made up
of top talent," said JPMorgan spokesperson Allison Kahn.
    Investment manager BlackRock  BLK.N , which received a
letter in April, removed language stating a scholarship was
"designed for" members of specific underrepresented groups.
    Ashley Beale, a BlackRock spokesperson, said the company was
proud to expand eligibility for the scholarships.
    The companies where Reuters found changes included Pizza Hut
operator Yum! Brands  YUM.N , American Airlines  AAL.O  and
Lowe's  LOW.N , which declined to comment. The changes at
BlackRock and Lowe's were previously reported. Lee jeans maker
Kontoor Brands  KTB.N  did not respond. Reuters was unable to
directly link the diversity program modifications with the
lawsuit threats.
    The changes show how some of America's biggest businesses
have reacted to a larger conservative backlash against diversity
initiatives, which multiplied after widespread protests
following the police killings of George Floyd and other Black
Americans in 2020. The protests spotlighted racial and gender
disparities in corporate leadership.
    The letters have been sent by two conservative legal
organizations: the American Civil Rights Project, founded by
Texas attorney Dan Morenoff, and America First Legal, led by
Stephen Miller, who was an adviser to Republican former
President Donald Trump.
        "Baby steps toward compliance, toward the fair and equal
treatment of all Americans, are certainly welcome," said
Morenoff.
        "While we welcome authentic moves by corporations to
eliminate racial considerations and comply with the law, we
condemn inauthentic changes that use code language to achieve
the same result," said Gene Hamilton, general counsel at America
First Legal.
    Abandoning initiatives to cut through unconscious bias that
favors white men will, over time, ensure that people from
underrepresented communities don't rise to the top of
organizations, said David Thomas, president of Morehouse
College.
    "(Companies) will be ensuring that 30 years from now the
corporate landscape of America looks like a plantation," he
said.
    Attacks on DEI programs will likely continue as the 2024
U.S. presidential election approaches. Former President Donald
Trump and Florida Governor Ron DeSantis, both current
presidential hopefuls, have banned various DEI initiatives.
    Groups opposed to diversity policies have also been
energized by the U.S. Supreme Court ruling in June that struck
down affirmative action in university admissions decisions.
The admissions ruling does not directly affect employers, which
have long been subject to anti-discrimination laws that bar
using race and gender in individual hiring decisions. DEI
programs that expand the pool of applicants and remove barriers
to advancement are considered legal.
    Atinuke Adediran, a professor at Fordham University School
of Law, wrote in a forthcoming paper that in 2023 nearly 40% of
the 423 companies she studied had adopted targets for racial
representation in reports published before May.
     
    LEGAL RISKS?
    The letters allege certain DEI policies expose the companies
to legal risks and must be abandoned or the groups will sue to
hold the directors liable.
    America First Legal sent Kontoor Brands a threat letter in
July 2022, taking aim at global DEI goals the company set in
2020, including pay incentives for executives to increase gender
and racial representation.
    The next year, the incentives were instead tied to improving
"inclusion" scores on an employee survey without any mention of
gender or racial representation, according to a filing Kontoor
made in March 2023.
    In their most recent executive compensation plans, Yum!
Brands removed references to specific racial groups and American
Airlines dropped numerical diversity targets.
    American said in a July report that it had largely achieved
its prior targets and its new goals focus on DEI training and
activities.
    Shareholders can sue when directors have failed in their
duties, such as oversight, but corporate law protects directors'
good-faith decisions from lawsuits, creating a high legal bar
for the groups' claims if they ever go to court.
    Morenoff and conservative shareholder group National Center
for Public Policy Research sued Starbucks' directors in November
2022. They accused them of pushing the company to adopt a DEI
program to obtain "social-credit" for themselves.
    Chief U.S. District Judge Stanley Bastian in Spokane,
Washington, dismissed the case in September.
    "Courts of law have no business involving themselves with
reasonable and legal decisions made by the board of directors,"
he wrote.
    Morenoff said the ruling does not change his view of the
law.
    Ani Huang, head of the Center On Executive Compensation,
said changes like the ones Reuters found were more of a
"workaround" to deal with critics than a policy shift, as
companies will continue to face calls to improve DEI from
shareholders and others.
    "In this as in many things, companies are stuck in the
middle," she said.

 (Additional reporting by Ross Kerber in Boston; Editing by Tom
Hals and Anna Driver)