That Starbucks DEI Case Doesn’t Stand for What You Think It Does

Shareholders have many reasons to be concerned about the embrace of DEI by the corporations they are invested in. One can draw a direct line from corporate DEI commitments to the staggering losses of Disney, Target, and Bud Light this past summer, as well as the $26 million “reverse discrimination” judgment levied against Starbucks this past year. And there is reason to believe the financial losses attributable to corporate commitments to DEI will only get worse before they get better, because many of the relevant corporate decision-makers appear zealously committed to discriminating on the basis of race and pushing radical gender ideology regardless of the legal and financial risk, while the growing backlash against this radicalism will ensure more cases are filed and more boycotts are implemented. Simply put, the “true believers” will continue to push their radical neo-racism and biology-defying and family-destroying transgenderism until they are forced to stop.

Some may argue that associating DEI with “neo-racism” is too harsh, but it is easy to understand the position. DEI initiatives segregate individuals along racial and other demographic lines, prioritize immutable characteristics over merit, traffic in notions of race essentialism, encourage the demonization of “whiteness,” subjugate blacks and women to a bigotry of low expectations, and push the oppressor-oppressed narrative of CRT in a way that stokes division and resentment to the point of implicating itself in support for the Hamas atrocities of October 7th and the nationwide eruption of antisemitism that followed.

All of this makes the dismissal of our recent related case against Starbucks, NCPPR v. Schultz, worth a second look because that loss has been celebrated by DEI advocates as an affirmation of their agenda. A closer look at the decision, however, reveals that it is better viewed as a poorly reasoned decision lacking serious precedential value. What follows are four key points adapted from a longer piece one of us published previously on the case.

1. Judge Bastian concluded that NCPPR “did not file this action to enforce the interests of Starbucks.” However, for NCPPR’s concerns about DEI to conflict with the interests of Starbucks and its shareholders, the court would have had to conclude that illegal discrimination under the guise of DEI poses no risk to Starbucks’ bottom line. Otherwise, our concerns about DEI align perfectly with the interests of Starbucks and its shareholder.
2. Judge Bastian went on to argue: “Whether DEI initiatives are good for addressing long-simmering inequalities in American society is up for the political branches to decide.” But this ignores that the legislatures of this country have already spoken clearly and loudly on the issue before the court and made it clear that discriminating on the basis of race is illegal. It also fails to recognize that by adopting those policies, Starbucks was the first non-political-branch mover – the first to take that decision into its own hands. This point ought to have worked in our favor, not that of the defendants.
3. The judge concluded that NCPPR failed to rebut the business judgment rule. What is missing from the judge’s analysis is an acknowledgment of the fact that knowingly engaging in illegal conduct is generally not protected by the business judgment rule. NCPPR’s complaint makes clear that this is precisely what it is alleging Starbucks was doing when it purposely discriminated on the basis of race.
4. Finally, Judge Bastian expressly invited Starbucks to seek Rule 11 sanctions. Effectively, that threat forced NCPPR to drop the case without filing an appeal.

The foregoing should make clear that no one should expect future related cases to be resolved as easily in favor of the DEI-industrial complex.

There should have been no question even before SFFA that these and related programs were illegal. The companies appeared to be aware of the problems, with Starbucks executives asserting in court filings both that they had relied on fully three sets of assurances by Covington & Burling’s equity program (headed by the unquestionably disinterested and objective Eric Holder) that their facially racist programs and policies didn’t violate the law, and that, anyway, they were obliged to adopt the policies and programs because BlackRock had forced them to.

These assertions raise their own concerns. Have Covington & Burling – and other firms that have conducted “civil-rights audits” that failed to objectively and fully consider the legal and reputational risks arising from their recommendations or otherwise blessing these DEI programs – in effect warranted their legality for the companies they advise? Have BlackRock – where Larry Fink has spoken so many times about forcing companies to adopt various (happenstantially!) left-wing policies, such as equity-based discrimination and political-schedule decarbonization – and the other giant investment houses and proxy advisory firms joined together or acted directly upon companies in a (potentially criminal) conspiracy to deny “non-diverse” Americans the benefits of civil rights laws that apply equally to all Americans?

DEI programs and policies, and the defenses of those programs and policies by various American corporations, have both demonstrated that there really is systemic discrimination at American corporations on the basis of race, sex and orientation – against whites, men and straight people.

Finally, it’s worth noting here another decision that we were involved in as co-plaintiffs with the Alliance for Fair Board Recruitment: AFBR v. SEC. The original Fifth Circuit opinion rejected our challenge to the SEC’s role in Nasdaq’s diversity rule. This was unsurprisingly celebrated by advocates of “discrimination in the name of anti-discrimination” – but this celebration may have been premature. The Fifth Circuit has recently agreed to an en banc review of the case, of which one of us previously provided an overview under the headline, “Nasdaq’s Absurd Diversity Rule Will Replace Women With Men Who Identify as Women to Achieve Equality for Women” (noting, among other things, that “the SEC admitted that ‘studies of the effects of board diversity are generally inconclusive’”).

The rule “provides in relevant part that each Nasdaq-listed company shall ‘have, or explain why it does not have, at least two members of its board of directors who are Diverse, including at least one director who self-identifies as female and at least one director who self-identifies as an Underrepresented Minority or LGBTQ+.’” The case challenges the SEC’s role in approving the rule, and the original panel “rejected plaintiffs arguments that the rule violates the First and Fourteenth Amendments to the U.S. Constitution, as well as the argument that the SEC’s approval of the rule violated its statutory obligations under the Exchange Act and the Administrative Procedure Act.” It seems unlikely that the Fifth Circuit would have troubled itself with a re-hearing were there not at least a significant likelihood that the full court will, contra the “left-leaning panel of judges appointed by Democratic presidents,” conclude that the SEC’s powers do not extend to blessing the reintroduction of overt racism and sexism to American business life.