Business Is Caught in a Diversity Trap

Big corporations are caught in a pincer. Earlier this month, 13 Republican state Attorneys General sent a letter to Fortune 100 companies, warning that their diversity, equity and inclusion (DEI) hiring practices might be illegal. Now 21 Democratic AGs are telling the same CEOs that such policies are above board and should be expanded.

“We write to reassure you that corporate efforts to recruit diverse workforces and create inclusive work environments are legal and reduce corporate risk for claims of discrimination,” the Democratic AGs advise in their letter, dated Wednesday. “In fact, businesses should double-down on diversity-focused programs because there is still much more work to be done.”

The Supreme Court last month relied on the Equal Protection Clause of the 14th Amendment in striking down university racial preferences in Students for Fair Admissions v. Harvard. The Democratic AGs say the decision “does not directly address or govern the behavior or the initiatives of private sector businesses.” That’s true as far as it goes.

But as Justice Neil Gorsuch noted in a concurrence, such policies are independently banned by Title VI of the 1964 Civil Rights Act, barring discrimination in federally funded programs. Title VII, which bans employment discrimination, is similar. That was the point of the Republican AGs: “Courts routinely interpret Title VI and Title VII in conjunction with each other, adopting the same principles and interpretation.”

If anything, judges have been more stringent about discrimination in the workplace. The Supreme Court’s decision in Grutter (2003) carved out a narrow exception for racial preferences in college admissions to promote the putative educational benefits of a diverse student body. The Justices have never upheld a similar rationale for corporate DEI. The Democratic AGs claim diversity is good for business. But even if true, this doesn’t fly as a legal defense.

The legality of DEI policies depends on how they’re structured. Truly race-neutral efforts, such as focused recruitment at colleges with diverse student bodies, aren’t illegal. But the Democratic AGs also defend “aspirational diversity goals” in hiring, which in practice appear to be quotas in disguise.

Microsoft in 2020 pledged to increase its black-owned U.S. partners by 20% over three years, while doubling the number of black managers and senior leaders in the U.S. by 2025. This certainly looks like the sort of racial balancing that courts have ruled illegal. As with college admissions, hiring and promotion is a zero-sum game. Giving an advantage to an applicant of one race put others at a disadvantage.

Some companies have adopted DEI programs to deflect progressive criticism, which is a reason such policies proliferated amid the protests after George Floyd’s death. But as the Democratic AGs note, another motivation is legal protection. In September 2020, Microsoft settled a Labor Department complaint that alleged, based on a statistical analysis, discrimination against Asian, black and Hispanic applicants. A month later, the same agency warned the company its diversity pledge could be illegal.

You have to feel some sympathy for CEOs who get accused of discrimination no matter what they do. So will the Democratic AGs sue if companies now scrap DEI pledges? That’s one implication of their letter. They accuse their Republican counterparts of intimidating business, but at the same time, the Democratic letter makes clear that the legal risks swing both ways.