The DEI backlash is growing, but Corporate America must stand firm

It is remarkable how quickly the controversy around what constitutes permissible campus speech has turned into a full-frontal attack on Diversity, Equity, and Inclusion (DEI) in the United States.

Most recently, what started as robust criticism of university students supporting Palestine has turned into a full-fledged campaign against DEI, and it already claimed two university presidents, both women, including Harvard’s Claudine Gay, who is black. Gay gave legally correct responses to a Congresswoman’s questioning at a Congressional hearing. While she restated existing policies, Gay was accused of failing to express sufficient outrage over slogans that pro-Palestine students had raised at campus demonstrations in the days after the horrific attacks by Hamas in Israel. Her critics then alleged plagiarism in her past academic work, and Gay admitted that unintentionally she had not attributed all references as she should have, and left her position. Later, Gay argued that what happened at Harvard was not about her, but it was something bigger, and she is right.

There is a growing backlash in the United States that blames DEI policies for many of society’s problems.

The argument behind the DEI backlash

DEI is a set of policies companies, academic institutions, and many other organisations implement to ensure that their recruitment and promotion policies (as well as retention, and ideally retrenchment policies) are consistent with the standards of non-discrimination, so that the employee or student profile is diverse, based on fairness and equity, and no company policy or practice makes any members or groups feel excluded from the company’s practices. The groups DEI covers may go beyond what is legally protected and required, and often include race, ethnicity, language, religion, ability, gender identity, sexual orientation, and social status.

Tech entrepreneurs like Elon Musk, conservative politicians, and chief executives of financial firms like Bill Ackman have long railed against the broad range of measures companies take to make their workforce more diverse, more representative of the society the companies are part of. The logical leaps these critics make are breath-taking. They blame DEI policies for the collapse of a bank as well as an aircraft’s panel getting ripped off after take-off, implausible and improbable though that sounds.

The backlash against DEI rests on the argument that DEI is against merit. That raises two crucial issues: what constitutes merit, and whether correlations imply causality.

Bill Ackman, the chief executive of Pershing Square Capital Management, who was among those who led the charge against Harvard, is not alone in insisting that affirmative action policies and DEI policies have led to ‘lowering of standards,’ with people from more diverse (i.e. non-majoritarian, non-powerful) backgrounds getting hired and promoted, to the detriment of ‘more qualified’ candidates from the privileged, majority communities. He has also made the preposterous claim that had the Nobel Laureate and civil rights leader Martin Luther King Jr been alive, he would have opposed DEI policies. Ackman calls DEI policies ‘reverse racism’ and Florida Governor (and presidential hopeful) Ron DeSantis too had claimed that King believed people should be judged not by the colour of their skin but the content of their character, citing one of King’s famous speeches. But as King’s daughter Bernice King wrote recently, “My father’s dream and work included eradicating racism, not ignoring it.” When the author Alex Haley asked King if he’d approve a multi-million dollar programme that offered preferential treatment to black candidates, King in fact said, “I do indeed. Can any fair-minded citizen deny that the Negro has been deprived?”

Ackman’s naïve argument rests on an assumption that meritorious candidates from privileged groups are treated unfairly to the detriment of an organisation’s effectiveness. But the US Supreme Court’s ruling last year outlawing admissions by affirmative action was based on a similar premise: you can’t discriminate against one group to favour another group.

Corporate America thinks differently

Corporate America understands the problem and thinks otherwise. After a police officer killed George Floyd in 2020, which gave enormous energy to the Black Lives Matter movement, corporate America had responded vigorously, saying businesses would actively hire more minorities, and they did. While a New York Times analysis suggests that investors no longer quiz companies about their DEI policies with the same level of interest, companies are not jettisoning the policies. In some cases, they are renaming those policies, focusing on organisational culture.

Whether DEI policies help or harm the bottom-line is not exactly relevant. First, human rights are not a matter of dollars and cents. And second, a wide range of factors affect a firm’s profitability.

All companies are driven by the desire to boost profits and are answerable primarily to their shareholders. Many companies do not seek out candidates from different backrounds to look good or to score points in moral sweepstakes (although there are reputational advantages for companies which want to demonstrate that they are ‘doing good’). Companies do realise that DEI policies make sense. Research has shown that the results of DEI policies are often good for business. Despite skepticism, executive polls suggest companies are not driven solely by the financial argument about the effectiveness of DEI, and smart companies pursue these policies regardless of the so-called ‘business case.’ These companies know that a diverse workforce sparks creative ideas, spurs innovation, brings in different perspectives, and makes under-represented groups feel comfortable because they can see that those who look, speak, pray, love, or eat like them are included and therefore they too have a fair shot of being rewarded for their competence. That DEI also sets historical wrongs right is an added advantage.

In his path-breaking book, The Economics of Discrimination (1957), the Nobel Laureate Gary Becker  showed how firms and employers that discriminate on grounds such as race will bear the costs, including not having the most skilled or talented workers, nor have access to the ones most likely to be determined to succeed because they have overcome so many obstacles in life. His research anticipated the inefficiencies inherent in economies like apartheid-era South Africa.

However, whether DEI policies help or harm the bottom-line is not exactly relevant. First, human rights are not a matter of dollars and cents. And second, a wide range of factors affect a firm’s profitability. It is impossible to establish a causal link between a particular executive action and an outcome in many cases. Whether or not DEI is legally required, it is important for companies to eliminate discrimination on grounds of ethnicity, race, religion, language, gender, class, caste, or sexual orientation and gender identity.

We cannot ignore the politics of power

Many American universities are privately-held and are run as businesses, but unlike private businesses, they are accountable to a far wider constituency than a regular business. Alumni donate generously, and pleasing them is part of the equation. Some of them find that their children, or students from a background similar to theirs who they recommend for admission, are not getting into the universities as easily as in the past because universities have widened the pool of applicants. And the powerful resent losing power. And so they call it reverse racism.

That argument disregards privilege and power and misses the fundamental aspect of affirmative action, which is intended to make the playing field level.

Last year’s Supreme Court ruling and Ackman’s logic rest on the belief that merit is apportioned in some miraculous manner, and organisations must find the right candidate solely on the basis of nebulously defined merit and the resume, paying no regard to the candidate’s experiences and life circumstances. Privileged students from elite schools sometimes get admitted to elite universities due to a universities’ legacy admission policies. Underprivileged students studying at state schools have to work far harder to overcome their circumstances to get where they have reached. Making allowances for that, and recognising their efforts, is laudable; its results are not always quantifiable; and there is no reason to believe that such candidates are undeserving. And yet, there is disdain, not only in the US towards black, Hispanic, and other minorities, but also in other countries that have affirmative action policies, including in Britain, where students from private schools resent top universities making efforts to widen the applicant pool, or the outrage in India against reservation of college admission seats for Dalits and other marginalised groups.

The bad news is that the forces ranged against DEI are powerful and real. The good news is that many senior executives believe in expanding recruitment of DEI candidates, and almost unanimously have ruled out any backsliding.

A more dangerous accusation is that candidates from protected groups are undeserving and likely to commit frauds like plagiarism, or may be incompetent. But when you look at the greatest corporate scandals to affect American capitalism, a different picture emerges. Whether it is the collapse of Enron, the accounting scandal at Worldcom, the recent conviction of Sam Bankman-Fried, the Ponzi scheme of Bernie Madoff, the accounting scandal at Tyco, or the disinformation campaign about the health effects of smoking by tobacco companies, Union Carbide’s Bhopal gas disaster in 1984, BP’s Deepwater oil spill, the opioid crisis and Purdue Pharma, all these cases showed unethical, negligent, or illegal conduct in well-known companies led usually by white men. None of these CEOs were beneficiaries of DEI policies or affirmative action. And yet, there has not been an outcry from anyone saying men who happen to be white, and are from elite universities, should be barred from senior positions.

The underlying conceit is ignoring the politics of power: those who have the power and privilege believe that a different set of rules apply to them. Those who do not have those privileges – typically ethnic minorities or other protected categories – would be judged more harshly and scrutinised more thoroughly before they can aspire to senior positions. This is hypocritical and plain wrong. It also shows that competence, ethical conduct, integrity, and merit are not the monopoly of any ethnicity, nor of any group; and every effort must be made, always, to widen the pool, if we are to have organisations that operate fairly. The bad news is that the forces ranged against DEI are powerful and real. The good news is that many senior executives believe in expanding recruitment of DEI candidates, and almost unanimously have ruled out any backsliding.