Organizations are reexamining how they design, market, and measure diversity programs based on gender or racial criteria in the wake of a discrimination lawsuit against nonprofits Fearless Fundthat provides grants to Black women-owned businesses.
The suit has been delivered American Alliance for Equal Rights (AAER), a conservative organization led by Edward Blum, famous for its role in overturning affirmative action in higher education. Since the Supreme Court attempts at race-conscious admissions rejected in June, Blum announced his intention to focus on diversity programs in the private sector.
AAER claims that the Fearless Fund grant program illegally discriminates against other founders, a claim strongly denied by Fearless Fund and prominent civil rights groups who filed an amicus brief on his behalf. AAER’s lawsuit is already having an impact: an appeals court will have it indefinitely blocked Fearless Fund from awarding $20,000 in grants through its fund Strivers Grant Competitionthat supports small black women-led businesses.
Although educational institutions, private employers and grant organizations are subject to various regulations governing employment and contract practices, Blum said AAER will challenge DEI programs using legal strategies similar to those that helped overturn affirmative action in education to do. Companies use numerical targets diversity, equity, and inclusion (DEI) initiatives can be vulnerable.
Who does this affect?
Venture capital firms should pay special attention to this matter. Many have set goals, including quantitative targets for changing the composition of their teams and for their ESG investing practices. They are also being pushed to be more transparent. California passed a law last month requiring venture capital firms to do this to disclose demographic information of the founders in which they invest. The bill’s backers hope that shining “sunlight” on venture capital financing practices will lead to behavior change and expand opportunities for entrepreneurs who have traditionally been underrepresented.
Law firms are also involved in the debate, and not only as legal advisors. Two companies have done that customized fellowship programs focused on promoting diversity in the legal profession in response to AAER lawsuits, and the conservative group is prepare for archiving additional lawsuits. AAER’s early success in this area should appeal to organizations with similar initiatives and encourage them to reassess how they are structured to avoid lawsuits.
Grant agencies and charitable foundations should also pay attention to the Fearless Fund lawsuit, because its outcome could disrupt people with social justice missions, especially those who prioritize opportunities based on race or gender.
The Atlanta-based 11th US Circuit Court of Appeals has temporarily blocked Fearless Fund from the Strivers Grant Contest. The majority wrote that the grant program is “racially exclusionary.” expressed their opinion that AAER will prevail. The dissenting judge described the lawsuit as a “perversion of the intentions of Congress” and considered it unlikely to succeed.
The case will likely make its way to the Supreme Court, where the decision would have significant implications for how private entities can promote diversity.
In anticipation of this, companies should review their DEI programs, policies and goals and work with legal counsel to understand how they can prevail in the current litigious climate.