Duty and Diversity – Roundtable
In the wake of the brutal deaths of George Floyd and Breonna Taylor, lawmakers and corporate boards from Wall Street to the West Coast have introduced a slew of reforms aimed at increasing Diversity, Equity, and Inclusion (“DEI”) in corporations. Yet the reforms face difficulties ranging from possible constitutional challenges to critical limitations in their scale, scope, and degree of legal obligation and practical effects.
In their Article, Chris Brummer and Leo E. Strine provide an old answer to the new questions facing DEI policy and offer the first close examination of how corporate law duties impel and facilitate corporate attention to diversity. Specifically, they show that corporate fiduciaries are bound by their duties of loyalty to take affirmative steps to make sure that corporations comply with important civil rights and antidiscrimination laws and norms designed to ensure fair access to economic opportunity. They also show how corporate law principles like the business judgment rule do not just authorize, but indeed encourage American corporations to take effective action to reduce racial and gender inequality and increase inclusion, tolerance, and diversity given the rational basis that exists connecting good DEI practices, corporate reputation, and sustainable firm value. By both incorporating requirements to comply with key antidiscrimination laws and enabling corporate DEI policies that go well beyond the legal minimum, corporate law offers critical tools with which corporations may address DEI goals that other reforms do not—and that can embed a commitment to diversity, equity, and inclusion in all aspects of corporate interactions with employees, customers, communities, and society generally. The question, therefore, is not whether corporate leaders can take effective action to help reduce racial and gender inequality—but will they?
Diversity and Reimagining the Internal-External Dichotomy
Duty and Diversity makes a major contribution to corporate law, and more specifically to the promotion of DEI within the field. Many aspects of this excellent Article deserve attention, but this brief Response modestly aims to amplify one: its embrace of a dynamic approach to understanding fiduciary principles that is tightly connected to external laws and social norms.
A Duty to Diversify
Fiduciary duties reflect the central role of leaders in corporate governance. Those with the most responsibility benefit the most from corporate success, but also bear commensurate fiduciary responsibilities. Diversity, equality, equity, and inclusion may seem an odd fit among other fiduciary duties. However, fiduciary duties are where governance imposes the burden of “doing the right thing.” Fiduciary duties involve normatively good behavior that proves essential to ensuring responsible decision-making and achieving positive outcomes for firms.
Corporate law allows, encourages and perhaps, today, even mandates, corporate leaders to do the right thing. Not only does it seem appropriate to ask corporate leaders, such as institutional investors, to carry this fiduciary duty, but imposing this duty on them may prove far more effective than other efforts. As a new generation of leaders rise to lead, the resulting changes may prove revolutionary, both for firms and investors.
The Diversity Risk Paradox
There is a growing body of literature discussing the proper role of diversity, equity, and inclusion efforts by and within public firms. A combination of forces brought renewed energy to this topic over the past few years. The #MeToo movement demonstrated a whole host of inequities faced by women within workplaces. Business Roundtable’s 2019 Statement on the Purpose of a Corporation rejected the view that the purpose of the corporation was solely to be focused on the maximization of shareholder wealth. And, in 2020, the murder of George Floyd ignited a racial reckoning within the United States, which prompted many firms to rethink and reaffirm their commitments to creating diverse, equitable, and inclusive workplaces. Chris Brummer and Leo E. Strine, Jr.’s Duty and Diversity, the subject of this Response piece, takes on the issue of diversity efforts within public firms directly. They argue that “the pursuit of Diversity, Equity, and Inclusion is solidly authorized by the operation of traditional corporate law principles and can even be easily squared with the views of those who embrace what has come to be known as ‘shareholder primacy.’ ” Their piece is an excellent and comprehensive addition to the current literature.
This Response focuses on how concerns about risk may influence firms as they evaluate how to best engage in more robust and meaningful diversity, equity, and inclusion efforts. It highlights the tension that can be created when members of a firm fail to take certain risks seriously enough while simultaneously allowing potential risks to block a subset of potentially impactful reforms. First, the failure by a firm to act in accordance with its public statements regarding diversity could create risks for the firm over the long term. Second, members of firms may sometimes be deterred, whether implicitly or explicitly, out of concerns that taking certain actions might create new zones of risk for the firm. These two realities can create a sort of risk paradox. This Response argues that for a firm to properly address the diversity risk paradox, it must consider what actions are likely to lead to the creation of a culture of equity and inclusion throughout the firm. By prioritizing equity and inclusion, firms can engage in more productive risk assessments about what diversity efforts to prioritize and pursue.
Empowering Diversity Ambition: Brummer and Strine’s Duty and Diversity Makes the Legal and Business Case for Doing More, Doing Good, and Doing Well
Chris Brummer and Leo Strine’s Article Duty and Diversity makes several significant contributions that enhance the support for greater corporate focus on diversity, equity, and inclusion (“Diversity” or “DEI”). These contributions are particularly important not only because Diversity itself is an imperative but also because of the inevitable pushback against corporate efforts to advance Diversity. Indeed, as Brummer and Strine note, some corporate scholars contend that the corporation has no business being involved in the business of Diversity. These scholars often support this contention by relying on their interpretation of a mix of soft and hard law which they insist serves as a legal and extralegal barrier for corporate efforts aimed at significantly promoting Diversity. Brummer and Strine convincingly discredit these interpretations, and in so doing, discredit the myths surrounding the corporate law obstacles associated with the for-profit corporation’s ability to advance Diversity. In particular, Brummer and Strine demonstrate the manner in which corporate law mandates a focus on Diversity, at least to the extent that law requires legal compliance with antidiscrimination and civil rights laws. In addition, Brummer and Strine not only reveal the legal safeguards for corporate engagement of Diversity initiatives but also highlight both the costs associated with ignoring Diversity matters as well as the “money to be made by companies that take DEI seriously.” In so doing, Brummer and Strine make an especially compelling affirmative case supporting corporations that would go beyond legal compliance and adopt more ambitious Diversity policies and practices. In this respect, Brummer and Strine persuasively demonstrate that corporations can (1) do significantly more than comply with the law without fear of legal liability, (2) “do good,” by promoting policies that advance economic equality and inclusion, and (3) do well, by profiting from their more comprehensive Diversity policies and practices.