Supreme Court’s Affirmative Action Decision Could Cause a Ripple Effect In the Private Corporate Sector
Thursday, September 14, 2023
Supreme Court’s Affirmative Action Decision Could Cause a Ripple Effect In the Private Corporate Sector
Thursday, September 14, 2023
September 2023
Supreme Court’s Affirmative Action Decision Could Cause a Ripple Effect In the Private Corporate Sector

Exploring the broad impact — from K-12 schools to corporate DEI initiatives

By Heather Navo, director of Legal at Ethic

Key Takeaways

  • The Supreme Court struck down race-conscious admission policies at the University of North Carolina and Harvard College in June 2023, effectively banning affirmative action as part of the college admissions process (the “SFFA Decision”).
  • The SFFA Decision was limited to higher education and has no direct legal impact on private sector employers’ corporate diversity, equity, and inclusion (DEI) initiatives. 
  • However, the SFFA Decision will cause heightened scrutiny and increased legal challenges of similar initiatives beyond higher education, including at high schools and private sector employers’ corporate DEI initiatives.
  • Corporate board diversity requirements are being challenged on the state and federal levels. The SFFA Decision may impact a pending challenge to a Nasdaq rule set to go into effect December 31, 2023, requiring Nasdaq-listed companies to appoint at least two “diverse” directors or explain why they have not done so.

In June, the Supreme Court effectively banned affirmative action in college admissions, holding that the race-conscious admissions programs at the University of North Carolina and Harvard College violate the Equal Protection Clause of the Fourteenth Amendment (the “SFFA Decision”). The watershed opinion overturned more than 40 years of legal precedent and will reshape college admissions at both public and private higher education institutions. 

This decision is important to the legal landscape and the implications of the decision are  important to us here at Ethic. At Ethic, we believe race-conscious admissions practices are an effective tool to achieve racial justice in higher education and that a more inclusive economy is a stronger economy

As Ethic’s director of Legal and a Supreme Court enthusiast who has been following the Court’s decisions closely, I believe the SFFA Decision — which on paper is limited to higher education — will likely cause heightened scrutiny and increased challenges to race-conscious initiatives beyond higher education, including corporate diversity, equity, and inclusion (DEI) initiatives and diversity-related initiatives at K-12 schools. 

I’d like to take a moment to explore the potential impact on some of these initiatives, but first, let’s review how colleges and universities are adapting now that affirmative action has been effectively disbanded in higher education. 

How Will Higher Education Adapt?

While affirmative action has been an important and effective tool to create a diverse student body, promote integration on college campuses, and create an inclusive educational environment at higher education institutions, it’s not the only tool. At a minimum, higher education institutions must continue to comply with federal and state civil rights laws that require them to provide educational opportunities on an equal basis. 

But many institutions of higher education will likely want to implement initiatives beyond the minimum standards. For example, some institutions, such as Stanford University, look holistically at a student’s accomplishments both in and out of school — in other words, they aim to look beyond academic success to better understand how the “whole person” might grow and thrive at their institution. 

Another initiative that two-thirds of four-year colleges have already implemented is to eliminate requirements to submit college-entrance exam scores, which the institutions hope will address socioeconomic disadvantages and underrepresented students. Yet experts believe that eliminating college-entrance exams will not, in and of itself, result in more diverse classes, and, therefore, the elimination of college-entrance exams should be coupled with increased investment in recruiting, financial aid, advising, and mentoring for low-income, first-generation, Black, and Hispanic students. 

American Civil Liberties Union president Deborah Archer suggests additional alternatives, such as “evaluating academic achievement in context; giving credit to students who have attended underserved and underrepresented schools; considering socioeconomic status and English language learner status; considering group or community demographics; and expanded outreach and recruitment efforts.” 

It is worth noting, however, that there is not yet an alternative strategy as effective as affirmative action, according to Zachary Bleemer, assistant professor of economics who studies college admission policies at Yale. 

Beyond Higher Education

The SFFA Decision was solely deciding the constitutionality of affirmative action in the context of higher education; its impact, therefore, should be limited to higher education. Notwithstanding that fact, educational institutions beyond higher education may be forced to reckon with the increased scrutiny of their affirmative action policies. 

Let’s look at a magnet high school in Virginia as one example. In 2020, the Thomas Jefferson 

High School (consistently ranked among the top 5 best high schools in the country) revised its admissions policy, in part to increase the diversity of the student body. The revised policy eliminated standardized admissions exams and replaced them with a holistic evaluation of the students. While the revised policy increased enrollment among Black and Latino students as well as more lower-income students, English-language learners, and girls, it also lowered Asian American admissions from about 70 percent to 50 percent, ultimately resulting in a lawsuit by parents backed by a conservative legal foundation alleging that the new admissions policy was discriminatory against Asian Americans. 

The U.S. District Court for the Eastern District of Virginia determined that the admissions process was discriminatory and unconstitutional. But in May, the U.S. Court of Appeals for the Fourth Circuit reversed the lower court’s decision, finding that the admissions process did not discriminate against Asian American students. Fast forward to August 23, when the challengers filed a petition with the Supreme Court, asking the Court to determine that the admissions policy is unconstitutional. 

Time will tell how the Supreme Court handles the petition, but I suspect that the SFFA Decision, coupled with the current composition of the Supreme Court, will increasingly cause people to feel emboldened to bring legal challenges to education institutions beyond higher education.

What Does This Mean for Corporate DEI Initiatives? 

The SFFA Decision has no direct legal impact on private sector employers’ corporate DEI initiatives or affirmative action policies. Private sector employers are not required to make any changes — and they may retain diversity as a vital component of their operations and mission, just as we do at Ethic. 

But while there may be no direct legal impact, private sector employers will certainly feel the ramifications of the SFFA Decision. One signal of its importance to companies is that major private sector employers got involved in the SFFA litigation and voluntarily filed a brief with the Supreme Court. Over 60 big companies, who collectively employ more than 4 million people globally, said that “promoting the benefits of diversity — specifically including racial and ethnic diversity — among their workforces is essential to meet client needs, achieve business goals, and strengthen relationships both internally and with the communities.” They also warned the Supreme Court that ending affirmative action in higher education would make it harder to build diverse workforces.

Although the SFFA Decision did not address private sector employers, it carries with it the threat of increasing legal challenges to private sector employers’ corporate DEI initiatives. Why would this be the case? For starters, I suspect the SFFA Decision will result in more focus on DEI initiatives in general. We’ve already seen shareholders exerting pressure to ensure continued progress on DEI initiatives and bring lawsuits challenging DEI policies — and employees are testing the limits of employer initiatives through reverse discrimination suits. This is, therefore, an increasingly fraught legal landscape for private sector employers.

Corporate board diversity requirements are similarly fraught. Over the last few years, there have been efforts to encourage corporate board diversity. At the state level, a handful of states introduced legislation designed to increase board diversity in terms of gender, race, or other characteristics. At the federal level, the SEC approved a board diversity rule by Nasdaq that will require Nasdaq-listed companies with boards of more than five members (subject to certain exceptions) to “satisfy the diversity objective with one female director and one director who is an underrepresented minority or LGBTQ+.” The Nasdaq rule, which goes into effect on December 31, 2023, is a “comply or explain” rule, which means that Nasdaq-listed companies will either have to comply with the rule or explain why they have not done so. 

Corporate board diversity rules faced legal challenges prior to the SFFA Decision. For example, in May, a California law mandating racial, ethnic, and sexual orientation diversity in corporate boards was found unconstitutional. The Nasdaq board diversity rule is also facing challenges and is currently on appeal before the Fifth Circuit. The SFFA Decision could call the Nasdaq diversity rule into question and impact the pending appeal. If the Nasdaq rule is eliminated, Nasdaq-listed companies would not be required to report on board composition, which would be a major setback to improving board diversity and could impact investors’ ability to measure company progress and make informed investment decisions.

In sum, the SFFA Decision could have vast implications and consequences beyond higher education. Therefore, we believe it’s vital that companies committed to racial justice keep a close watch on the evolving legal landscape. 

Ethic will remain diligent in keeping abreast of DEI and affirmative active legal landscape to identify cases that may impact companies. In the meantime, contact your relationship manager to learn more about our Racial Justice Sustainability Pillar and how you may use it to build more sustainable investment portfolios. 

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

Check out our EOY Hub
Download your year-end guide!
Success! Dive in to your year-end guide now:
Download Now
Oops! Something went wrong while submitting the form.
Request a demo
Please enter your first name
Please enter your last name
Please enter a valid email address
Submit
* By submitting, you agree: the personal data you have provided will be processed for purposes of providing you the best service possible. Your data will not be transferred nor assigned to third parties. You can exercise your right to access, rectify and delete your data, as well as the other rights granted by law by sending an email to support@ethicinvesting.com. For further information, please check our privacy policy at ethic.investments/legal/privacy-policy.
Thank you.
Thank you for getting in touch. Keep an eye out for a confirmation message in your inbox.
Oops! Something went wrong while submitting the form. Please try again.
Sources and footnotes

Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com. Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.

Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.

Contributors

Melissa Banigan is a content strategist with over 15 years of communications experience working with global companies and nonprofits. Also a journalist and author, her work appears in The Washington Post, CNN, the BBC, NPR, and the Independent, among other publications, and she's written three books for youth.

Travis Korte is the associate director of Sustainability Research & Data at Ethic. Previously, Travis organized civic-minded technologists at Hack for LA and advised a wide range of clients on data science, data policy, and quantitative methods. You can follow him on Twitter at @traviskorte.