Corporate pledges to address racial inequality: a cause of action?

In the aftermath of the murder of George Floyd and the Black Lives Matter movement, businesses have been publicly acknowledging their role in perpetuating racial inequalities and pledging to improve diversity.

In the UK over 40 companies publicly pledged to improve diversity while prominent companies linked to historic slavery such as Greene King and Lloyd’s of London pledged to donate to black, Asian and minority ethnic (‘BAME’) charities.

These pledges were welcomed by the Confederation of British Industry (CBI) and the Institute of Directors (IoD) who urged that “companies with a history of benefiting from slavery should carefully consider how they address their past”.

However, research by YouGov has found that while 83 per cent of business decision-makers would feel comfortable taking on racial discrimination in their workplace, “just 26 per cent say their organisation has taken new steps to improve diversity and inclusion as a result of the Black Lives Matter protests.” Further, 55 per cent say that there had been no change on the prioritisation of achieving a good standard of internal diversity and inclusion in the workplace and fewer than 30% said that this has become more of a priority over the past year.

Impact of corporate pledges

Reports suggest that in the aftermath of diversity pledges by companies, responsibility for implementation "has fallen to non-white hires, who are not remunerated for additional labour” or diversity and inclusion officers, some of whom may be newly recruited and lacking the seniority or power to actually effect change.

Whether they take on these extra responsibilities voluntarily or after being appointed, some BAME employees describe the extra work as extremely draining and a “psychological burden”.

Additionally some BAME employees feel trapped as a result of companies putting them under pressure to spearhead internal diversity programmes without providing the extra support needed to fulfil these roles, adjustments to their existing workloads or extra pay to reflect the extra work they are asked to do.

Similarly, pledges to financially support charities on specific racial equality programmes risk leaving them worse off, in the event that companies renege on their promises. For example, Greene King has pledged to support the Prince’s Trust in creating 1,000 employment opportunities for young people from BAME backgrounds in the next five years.

JPMorgan has committed £2 million to “organisations with Black and ethnic minority leaders to design and implement a programme that helps address economic disparity in a targeted and meaningful way”.

Pledges such as these and those made by other companies may result in charities employing more staff or spending more on BAME-related activities in anticipation of a guaranteed supply of work and money. If the companies making the pledges fail to uphold them, charities and the communities reliant on them could be left in a worse position than if the pledges had not been made.

So how can companies be held to account for public statements about increasing diversity or for pledges of financial support?

A cause of action?

In the United States companies making pledges to redress racial inequality are facing increasing instances of board diversity litigation.

This approach is being pioneered in the District Court of the Northern District of California where suits have been brought against companies such as Gap for violations of federal law, breaches of fiduciary duties and unjust enrichment. The Gap suit alleges that “Gap’s Directors have deceived stockholders and the market by repeatedly making false assertions about the Company’s commitment to diversity”.

Among others, the remedies sought include the publication of an annual diversity report, the creation of a $700 million fund to hire, promote and establish a mentorship scheme for BAME individuals, annual diversity training for Gap’s board and a five-year diversity target for hiring BAME individuals.

These suits follow on the heels of a decision earlier this year arising out of the #MeToo sexual harassment campaign. In that decision, a US court found that a statement made by a company chairman in support of #MeToo while he was trying to conceal his own sexual misconduct was misleading. Such a statement of reassurance made during a time of concern may become actionable.

While it remains to be seen whether the board diversity suits succeed, what they and the #MeToo decision demonstrate is an appetite for holding to account companies that make public pledges in support of social causes during moments of social unrest.

There are currently no claims before the English courts based on the racial diversity pledges made by companies. However, some of the legal bases employed in the US suits such as breach of fiduciary duty and unjust enrichment could easily apply to a claim in this jurisdiction.

Such claims in equity could be coupled with claims in negligence for damage arising out of the public statements.

In respect of claims in negligence, the UK Supreme Court has held that a company may incur responsibility to third parties for commitments made in published materials, even if it does not in fact follow through with those commitments—"In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken”.

Unjust profits

Liability for unfulfilled public statements is all the more justified when one considers that companies often derive financial, public relations and human resource benefits from making such statements.

A 2018 survey covering 35 countries showed that 64 per cent of consumers reward firms engaged in social activism.

More recently, a YouGov report found that ITV enjoyed better brand identity and an increased likelihood of people watching it after supporting a Black Lives Matter dance routine on one of its programmes.

As for the impact on prospective employees, “53 per cent of those aged 18-34 said they would not work for a firm that failed to speak out during the [Black Lives Matter] protests, compared with 42 per cent for all ages.”

So when one considers the impact of diversity pledges on those on whom it falls to implement them and the profits and goodwill generated to companies for making the pledges, there is a strong argument for ensuring that companies are held to account for failing to fulfil those pledges.

From the murder of George Floyd, the Black Lives Matter Movement and the impact of Covid 19 on BAME communities, the tragic events of 2020 have shown us that racial inequality remains a significant front in the fight for justice.

Companies must not be allowed to unjustly profit from making commitments which they know they will not fulfil. And where individuals and groups suffer harm as a consequence of reliance on such pledges, the companies that made them must rectify the injustices they bring about.