Saying Your Company Is Dedicated to DEI Efforts Is Well and Good, But Fail to Act and Face a Litigious Minefield

Companies — and their legal counsel — find themselves in uncharted territory as diversity, equity, inclusion, and belonging initiatives draw more attention and scrutiny.
By: | May 5, 2022

The reckoning on matters of social justice has reached an inflection point, and the pressure is on for corporations to pick up the pace in diversifying their workforces as well as their leadership.

California is currently in a legal battle over its recent legislation putting a strict timeframe in place for publicly-traded companies in the state to have at least one board member from an underrepresented community.

Nasdaq will soon require companies listed on its exchange to disclose the ethnic and gender makeup of their boards and have at least two “diverse” members or explain why they do not.

But haste to implement diversity, equity, inclusion and belonging (DEIB) initiatives can lead to costly missteps and legal battles.

Companies that lack commitment or fail to execute on pledges can be held accountable by even one employee or a small group of employees or external stakeholders, as Julia Oltmanns, director of workplace DEI services for Zurich Resilience Solutions, noted.

“We used to always worry about class action claims,” Oltmanns said. “Today, even one employee who challenges whether a particular organization really provides equity in terms of development, training and advancement opportunities can seek a significant judgment.”

Creating intentionally inclusive boardrooms and workplaces requires broad internal stakeholder participation. Increasingly, legal teams are refreshing their perspectives on how to best implement DEIB strategies.

Avoiding Legal Blindspots

Even with intensifying legislative and market pressure to be more inclusive, organizations — especially publicly-traded companies — must develop their DEI efforts strategically and exercise caution in drawing loose connections between their DEI strategies and their innovation and financial outcomes.

If they announce goals that they do not or cannot meet, investors notice.

Julia Oltmanns, director of workplace DEI services, Zurich Resilience Solutions

“Shareholders are holding their boards and their senior leadership accountable,” Oltmanns said. “We are seeing an increase in some shareholder derivative lawsuits.”

Boards of directors are increasingly vulnerable to litigation “even if there has been neither an adverse event nor tangible (or even hypothetical) losses,” Zurich North America shared in a white paper from June 2021.

“Merely failing to undertake certain measures — or to implement existing measures more swiftly — has, so the shareholder and their lawyers will claim, caused the company harm and should subject the board and senior management to legal liability,” according to Zurich’s findings.

Reverse discrimination claims are also making headlines, involving organizations that embarked on DEI efforts without understanding the legal implications, Oltmanns said. In the eyes of the law, an organization cannot discriminate against one group in order to advance its DEI efforts with another

“The DEI landscape is impacting the litigation trends that we’re seeing in a few different areas,” Oltmanns said. “It’s definitely an area of risk for an organization.”

Not staying abreast of litigation trends and missteps in DEI can increase risk exposure for an organization, Oltmanns said.

Things We Do Talk About at Work

As companies craft and modify their DEIB strategies, their legal counsel may need to reconsider traditional stances on the subject.

Many legal and HR professionals were trained to avoid controversial topics in the workplace, and likewise, counsel their colleagues to do the same.

“There’s this idea that certain topics are taboo,” Oltmanns said. “Talking about sensitive DEIB issues can be uncomfortable from a legal perspective, but we’re in the stage of DEIB work where to have true inclusion and belonging, we have to be willing to have really tough conversations at work.”

How do organizations create forums for open conversations within a corporate setting? Employee resource groups (ERGs) are one place from which courageous dialogues emerge.

These employee-led organizations, also known as “affinity groups,” can be a powerful way for organizations to enhance inclusion and belonging, Oltmanns explained, not only for people of color.

“You’re seeing that the employee resource groups for individuals with disabilities are much more active and are really impacting the policies and the practices of [an] organization around mental health and overall wellbeing,” Oltmanns said.

“You’re also seeing faith-based employee resource groups and other types of employee resource groups arising,” Oltmanns said. “There’s this recognition that being your authentic self can involve a lot of different identities.”

Increased workplace engagement spurred by employee resource groups is not only influencing the practices of an organization, Oltmanns noted, “it’s continuing to expand how we talk about diversity.”

Creating Space for All Employees to Reach Their Full Potential

Bringing more people to the proverbial table is not simply for the sake of thought-sharing. Cultural shifts within an organization can create environments for long-term success, Oltmanns said.

Organizations that strive for true inclusion and belonging are more likely to be ones where people want to stay and develop their careers, Oltmanns said.

“If you really want your employees to be able to reach their full potential, to be everything they can be and to stay with your organization, you have to make them feel that you care, respect and value every aspect of who they are — and that others in the organization do too,” she said.

Navigating Potential Backlash

Companies aiming to foster environments where all employee voices are heard, and heard publicly, will need to prepare for potential negative impacts or backlash.

Disney’s special self-governing status, for example, is in jeopardy after leaders stood in solidarity with LGBTQ employees and publicly opposed what critics call Florida’s “Don’t Say Gay” law.

“Subjects that we, in the past, would have said we don’t talk about at work are now in the forefront of conversation,” Oltmanns said.

Silence on today’s social issues, on the other hand, Oltmanns said, can also be risky. It can convey that an organization does not care about the topics or employee sentiment around the issues of our time.

“And your employees may go work somewhere else,” Oltmanns said. “They may seek an organization they feel is more on top of the current issues — an organization that they perceive is trying to be more proactive on social equity issues.”

Oltmanns will delve into recent changes in employment law regarding diversity, equity, and inclusion during her keynote presentation at the May 18-20 CLM Workers’ Compensation and Retail, Restaurant & Hospitality Conference in Chicago. Those interested in attending can view the conference details here. &

Raquel Moreno is a staff writer with Risk & Insurance. She can be reached at [email protected].

More from Risk & Insurance

More from Risk & Insurance