This article is an extract from GTDT Practice Guide Diversity and Inclusion 2022. Click here for the full guide
Introduction: the fierce urgency for general counsel to promote diversity, equity and inclusion
This chapter explores:
- President Biden’s rescission of former President Trump’s Executive Order (EO) 13950, which had limited the parameters for diversity, equity and inclusion (DEI) programming for federal agencies and those receiving federal funds;
- the Biden administration’s plan for advancing racial equity in federal programmes as a road map for equity efforts by other organisations;
- why general counsel (GC) should focus on increasing DEI efforts and linking them to compliance programmes;
- how an equity audit can help a business conduct an invaluable self-assessment; and
- the benefits of hiring impartial outside counsel to structure an equity audit to help build a better workplace and robust compliance programme.
The Biden administration’s commitment to DEI
Joe Biden was sworn in as 46th President of the United States in January 2021. Within a few hours of taking office, on 20 January 2021, the Biden administration rescinded former President Trump's EO 13950,2 which was issued on 22 September 2020. The aim of EO 13950 was to limit the type and range of DEI programming federal agencies, contractors, subcontractors and federal grantees could implement. Many companies, federal contractors, higher institutions and legal advocacy groups criticised the order for chilling speech and undermining uncontroversial diversity programmes and training. Indeed, in response to the order, many federal grant recipients abandoned DEI training and seminar efforts.
President Biden’s EO,3 entitled 'Advancing Racial Equity and Support for Underserved Communities Through the Federal Government' (the Racial Equity EO), not only completely repealed EO 13950 but also laid out a robust plan for federal agencies to ensure that all federal programmes and policies are equitable for all Americans. The Racial Equity EO calls for each federal agency to assess whether 'its programs and policies perpetuate systemic barriers to opportunities and benefits for people of color and other underserved groups' with the aim of better equipping 'agencies to develop policies and programs that deliver resources and benefits equitably to all'. It also embraces the notion that 'advancing equity requires a systematic approach to embedding fairness in decision-making processes'. To implement some of its objectives, the Racial Equity EO includes a plan for assessing equity and calls for the Director of the Office of Management and Budget to work with federal agencies to report to the President on best practices to assess equity within six months, while also providing for an audit of selected federal programmes to take place within 200 days from the date of the Racial Equity EO.
The Biden administration’s commitment to DEI is far from symbolic; it is action-orientated. President Biden also disbanded Trump’s 1776 Commission, which recently published a report criticising the portrayal of slavery in the United States by historians, and signed an executive order reinforcing Title VII of the Civil Rights Act 1964 to prevent discrimination on the basis of sexual orientation or gender identity. President Biden’s cabinet is also the most diverse by race and gender in American history. Kamala D Harris is the first African-American, Asian-American and woman to be Vice President. Deb Haaland is the first Native American Secretary of the Interior and Alejandro Mayorkas is the first immigrant and Latino Secretary of Homeland Security. General Lloyd Austin is the first African-American Secretary of Defense. These are a few of the representative firsts that we have seen in the Biden administration in line with the proclamation in the Racial Equity EO that 'equal opportunity is the bedrock of American democracy' and that 'diversity is one of [America’s] greatest strengths'.
The tangible benefits of DEI
The Biden administration’s commitment to DEI will create political, shareholder, employee and public pressure on companies to openly and meaningfully embrace diversity in their organisations with concrete actions and self-evaluation. There is an expectation that companies, especially GC, can and should capitalise on the benefits of DEI. President Biden’s Racial Equity EO pointed to research finding that 'closing racial gaps in wages, housing credit, lending opportunities and access to higher education would amount to an additional US$5 trillion in gross domestic product in the American economy over the next five years'. McKinsey & Co has also predicted that we can expect to see 'US$12 trillion in additional GDP if the gender gap is narrowed by 2025' and 'US$2 billion in potential revenue if financial inclusion efforts broaden services for black Americans'.4 The benefits of DEI can also be tangible for businesses. A 2020 study conducted by McKinsey found that 'in the case of ethnic and cultural diversity . . . top-quartile companies outperformed those in the fourth one by 36 per cent in profitability' in the prior year.5 This is some of the expansive and well-documented empirical research that support the notion that DEI is good for the bottom line.
How to strengthen your compliance programme through DEI
Beyond embracing DEI to improve business outcomes, GC and corporations should also promote DEI because a strong, inclusive culture is a vital part of effective compliance programmes. In turn, a robust compliance programme is more likely to eradicate wrongdoing before it develops into a more serious and expensive problem and is also more likely to result in cooperation credit from regulators. To lay the foundation for a robust compliance programme, a company must first foster an inclusive culture. This is easier said than done. Substantial research confirms that employees who feel marginalised and sidelined because of structural barriers and other obstacles, such as those linked to implicit or unconscious bias, are less motivated to protect and advocate for their employers. Some threshold questions that can be used to assess whether a company fosters an inclusive and equitable environment include:
- Do company policies protect and promote all employees, on paper as well as in practice?
- Are minorities and under-represented groups found in various ranks of the company, including at senior levels and in critical compliance roles?
- Does the company create an environment that makes certain employees feel more comfortable than others at work?
- Are employees reluctant to confide in their supervisors?
GC, as senior members of the company’s management, are perfectly positioned to shape DEI programmes because of their first-hand knowledge about the benefits of a robust compliance programme and the litigation risks associated with poor workplace culture. Companies that have compliance officers leading this role should task that person to work with the GC in this effort. Collaboration with other functions of the business, including HR and dedicated DEI professionals, can strengthen business outcomes all around the company. Regulators, such as the Department of Justice, have emphasised that the culture of a company and the tone from the top, including senior management, is a key component in evaluating a company’s culpability in enforcement actions. Notably, a company with a culture of trust is more likely to have employees committed to helping the company detect unlawful behaviour and comply with the policies on paper.
How equity audits can lead to robust compliance programmes
Similar to President Biden’s mandate for federal agencies, companies should also evaluate what structural processes could be affecting their culture and compliance programmes. An equity audit is a compelling and now more popular vehicle for doing this. An equity audit allows a company to detect problems and barriers to inclusion in advance, rather than after a serious problem has occurred. The audit should review a broad category of company processes, including:
- policies and procedures and whether their implementation is adequate to foster DEI;
- the company’s strategy for engagement on DEI issues to determine its effectiveness;
- existing structures to understand whether they are addressing key deficiencies and areas of concern relating to company culture; and
- the collaboration, if any, between DEI initiatives and compliance efforts to assess areas for improvement.
To ensure that such a review is deemed independent and credible by stakeholders, companies should engage outside counsel to lead the review to identify barriers to an equitable workplace and to outline specific steps that the company should undertake to strive toward equality in the workplace. Another benefit of involving outside counsel is that with their involvement the audit and its findings can be protected by the attorney–client privilege.
To be executed effectively, an audit with various phases should be developed by outside counsel in partnership with a core group of company personnel, including in-house counsel, compliance officers, DEI coordinators and HR leadership. The phased approach allows the company to remain apprised of the progress of the review and to start thinking about remedial measures even before the conclusion of the review. As an example, the early phases of the audit could focus on targeted fact-gathering through document review and employee interviews. At each phase, oral recommendations and updates can be provided to allow for intermediate implementation, discussion and phase iteration. The final phase can include a formal written or oral report outlining recommendations and an action plan complete with mechanisms for continual monitoring to ensure success in achieving audit goals. The final phase of the review can also be tailored to the company’s needs, including preparing to share the results of the audit with a specific target audience, such as company management, shareholders, board members, regulators or the US government.
Going into 2022, GC should evaluate whether their company’s compliance programmes are robust and whether they are capturing the invaluable benefits of having complementary DEI and compliance programmes. If not, an equity audit can provide a clear roadmap to do so. In a world where the President’ s cabinet comes close to reflecting the make-up of America, there will be a similar expectation for companies. GC should not hesitate to drive DEI initiatives within their companies, especially where the benefits of a diverse and equitable workplace can lead to a better and more robust compliance environment.