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Last week The Federalist published an important story detailing how various companies are “laundering” or “out-sourcing” their efforts to discriminate against so-called “non-diverse” employees on the basis of race, sex and orientation to non-profits, charities and public benefit corporations.

Scott Shepard

Scott Shepard

It reported that

[i]n response to […] growing litigation, corporations have changed tactics: Many now launder their race discrimination through third-party organizations. Visa, for example, touts an entrepreneur program called the “Visa Entrepreneurship Program.” The program is available only for “Black and African American entrepreneurs to grow their ideas.” But contrary to website branding, Visa doesn’t run this program. A Delaware-based public benefit corporation called Bridge for Billions designs and manages so-called diversity, equity, and inclusion (DEI) programs. Bridge for Billions runs these DEI programs on behalf of corporations like Visa. The Bridge for Billions website touts Chanel, Coca-Cola, Salesforce, and Heineken as corporations that “trust us” with their social-justice programs.

The story went on to detail similar discrimination-funding maneuvers at Softbank, JPMorgan Chase (of course), CVS, Exxon, Walmart, American Express, Bank of America (again, natch) and American Family insurance. The piece is very much worth a read.

Mind you, American corporations haven’t completely outsourced discrimination on these forbidden bases. Starbucks, McDonald’s, Pfizer, Citibank and plenty of other companies still directly discriminate by race (and other forbidden grounds) in hiring, promotion, supplier selection, mandatory employee trainings in DEI or myriad other ways.

Whatever the intentions or expectations of implementing these policies, it’s not at all clear that companies relieve themselves from liability for discrimination on the basis of race, sex and orientation by this outsourcing maneuver. But a few tweaks to state corporations and non-discrimination law could make it perfectly clear that such discrimination-laundering is wholly illegal, thereby shutting it down nationwide.

The clearest route to ending this practice is through state corporations laws. A very short amendment would serve the purpose. Add to the law this phrase at an appropriate spot: “Corporate donations or other pecuniary grants to entities that discriminate, facially or in fact, on grounds forbidden by the civil rights acts of this state have breached their fiduciary duty to shareholders unless they have secured from each shareholder written confirmation of their desire to contribute corporate assets to discriminatory entities.”

The limitation of this move is that it would only, by the nature of corporations law, apply to companies that are incorporated (and perhaps headquartered) in the state that makes the change. This will be good in itself, but most companies are incorporated in Delaware. The Delaware legislature can be characterized by two overriding features: it is very liberal – and so likely approves of the new discrimination – and it diverts from its liberality only to cow-tow to the corporations incorporated there, so as to keep all the tax money it derives from being the incorporation haven. The odds that it will act are slim.

But a second move by states inclined to rein in the new discrimination can solve that problem. These states should add to their civil rights statutes a line to the effect that “publicly traded corporations doing business in this state violate this statute if they use corporate assets to fund entities that discriminate in violation of this statute” unless getting the express permission of all shareholders.

As a practical matter, the first states to make this second reform will have to be either large states or a consortium of sparsely populated states. If Kansas were to act alone, it would have to fear that the companies bound and determined to discriminate would shut down their Kansas operations. (Though for companies that run franchises or otherwise have contractual commitments to local outlets, that might be fairly difficult.) But were a large state like Texas to act, and best yet a combination of states including some large ones, then the companies would have no choice but to stop funding third-party bigotry, because shutting down operations to such a vast consumer base would be a clear breach of their fiduciary duties.

Fiduciary duty is per se violated when companies break the law – and violated in ways that could easily make the breaching executives personally liable for damages. (This is something that states could clarify when they revise their corporations laws. If they also revised those laws to make significant shareholders liable for any “behaviors” that they “forced” on corporations – as Larry Fink of BlackRock has so proudly bragged of doing with regard to “equity,” which is discrimination by its own terms – then they’d have broken the back of equity-based discrimination at a deep and fundamental level.)

Fiduciary duty is also violated when company executives make decisions for personal reasons that demonstrably hurt shareholder value. Executives have traditionally gotten a lot of discretion in what constitutes a reasonable business decision, but “we’re leaving Florida, Texas, and 12 other states so that we can continue to discriminate on the basis of race, sex and orientation” is very unlikely to be covered by even extreme discretion.

The exhausting chorus of fossilized “conservatives” who can’t wrap their heads around the fact that supporters of liberty and free markets must support the right laws to advance those goals – not the set of laws that maximizes corporate-executive power to ignore their fiduciary duties not to run companies according to their personal policy preferences – will of course bleat about these changes.

It’s far too late, though, to pay them any mind.


Scott Shepard is a fellow at the National Center for Public Policy Research and Director of its Free Enterprise Project. This first appeared at RealClearMarkets.

Author: Scott Shepard