Some companies alter diversity policies after conservatives' lawsuit threat
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
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