Joe Biden has now been sworn in as the 46th President of the United States of America. Within a few hours of taking office, on January 20, 2021, the Biden Administration rescinded former President Trump’s Executive Order 13950, which was issued on September 22, 2020.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 criticized the order for chilling speech and undermining uncontroversial diversity programs and trainings. Indeed, in response to the order, many federal grant recipients abandoned DEI trainings and seminar efforts.
President Biden’s Executive Order, titled Advancing Racial Equity and Support for Underserved Communities Through the Federal Government (“Racial Equity EO”), not only completely repeals EO 13950 but also lays out a robust plan for federal agencies to ensure that all federal programs 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 programs 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 oriented. President Biden has already also disbanded Trump’s 1776 Commission, which recently published a report criticizing the portrayal of slavery in the United States by historians, and signed an executive order reinforcing Title VII of the Civil Rights Act of 1964, to prevent discrimination on the basis of sexual orientation or gender identity. President Biden’s cabinet will also be 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. Upon confirmation, Deb Haaland will be the first Native American Secretary of the Interior and Alejandro Mayorkas will be the first immigrant and Latino Secretary of Homeland Security. General Lloyd Austin, recently confirmed, is the first African American Secretary of Defense. These are a few of the representative “firsts” that we will see in the Biden Administration in line with the proclamation in the Racial Equity EO that “[e]qual opportunity is the bedrock of American democracy” and that “diversity is one of [America’s] greatest strengths.”
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 organizations with concrete actions and self-evaluation. There is an expectation that companies, especially GCs, can and should capitalize 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 $5 trillion in gross domestic product in the American economy over the next 5 years.” McKinsey & Co. (“McKinsey”) has also predicted that we can expect to see “$12 trillion in additional GDP if the gender gap is narrowed by 2025” and “$2 billion in potential revenue if financial inclusion efforts broaden services for black Americans.” The benefits of DEI can also be tangible for businesses. A 2020 study conducted by McKinsey found that “[i]n the case of ethnic and cultural diversity…top-quartile companies outperformed those in the fourth one by 36 percent in profitability” in the prior year. This is some of the expansive and well-documented empirical research that support the notion that DEI is good for the bottom line.
Beyond embracing DEI to improve business outcomes, GCs and corporations should also promote DEI because a strong, inclusive culture is a vital part of effective compliance programs. In turn, a robust compliance program 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 program, a company must first foster an inclusive culture. This is easier said than done.
Substantial research confirms that employees who feel marginalized 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:
GCs, as senior members of the company’s management, are perfectly positioned to shape DEI programs because of their first-hand knowledge about the benefits of a robust compliance program 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 emphasized 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 behavior and comply with the policies on paper.
Similar to President Biden’s mandate for federal agencies, companies should also evaluate what structural processes could be impacting their culture and compliance programs. 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 from the front end, rather than after a serious problem has occurred. The audit should review a broad category of company processes, including:
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 U.S. government.
Going into 2021, GCs should evaluate whether their company’s compliance programs are robust and whether they are capturing the invaluable benefits of having complementary DEI and compliance programs. 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 makeup of America, there will be a similar expectation for companies. GCs 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.