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Starbucks Hired Eric Holder To Conduct a ‘Civil Rights Audit.’ The Policies He Blessed Got the Coffee Maker Sued.

It was 2018, two years before the tidal wave of diversity initiatives unleashed by George Floyd’s death, and Starbucks needed a public relations win. The coffee giant was under fire after an employee at one of its stores mistakenly called the police on two black men, prompting the company to announce a “multiphase effort” to become “more diverse, equitable, and inclusive.”

Part of that effort was a series of “civil rights assessments” conducted by Covington & Burling, one of the top white shoe law firms in Washington, D.C., under the leadership of former attorney general Eric Holder, a senior counsel at the firm.

Holder—who has charged as much as $2,295 an hour for such work—issued a final report in 2021 that outlined the steps Starbucks had taken to promote “equity.” They included tying executive pay to diversity targets, setting spending goals for “diverse suppliers,” and launching a mentorship program for “BIPOC” employees, which Holder pressed the company to expand. Each initiative, he wrote, demonstrated the coffee maker’s “commitment to civil rights and equal treatment.”

But one year later, Starbucks was fending off a civil rights lawsuit over precisely the programs Holder had blessed. The lawsuit, which is still ongoing and was filed last August by the National Center for Public Policy Research, a conservative nonprofit that is also a Starbucks shareholder, argued that the programs violate non-discrimination laws as well as the company’s fiduciary duties. Such claims may have come as a surprise to Starbucks executives: At no point did Holder’s report address the legality of the policies at issue.

When a law firm’s “civil rights” advice gets its client sued for race discrimination, one might expect the firm to dispense less of that advice, or at least to warn other clients about the risk of taking it. But Covington, which represents some of the largest companies in the world, did neither.

Through its “racial equity audit” practice, the firm continued rubber stamping race-based initiatives for its clients, including BlackRock, Citigroup, and Verizon. Such practices have become common in recent years as c-suites, often under shareholder pressure, seek third-party validation of their diversity efforts, something top law firms have been more than happy to provide.

WilmerHale, Skadden Arps, and Paul Weiss are just some of the legal heavyweights that now offer “civil rights audits”—part of their growing portfolio of environmental, social, and governance (ESG) services—which they claim will keep clients out of trouble.  “Our audits can address potential issues of bias and discrimination before legal risks emerge,” Skadden Arps’s audit practice states.

But critics say the assessments have exposed clients to the very risks they’re meant to alleviate. Covington’s audits alone endorse a plethora of programs many lawyers, including current and former government officials, say are illegal, from a minorities-only scholarship at BlackRock to a bonus scheme linking executive pay to diversity targets at Verizon.

These programs “are lawsuits waiting to happen,” said Noah Peters, the former solicitor of the Federal Labor Relations Authority, who has represented numerous government employees in discrimination lawsuits.

Some conservative groups are working to ensure the wait won’t be long. In April the law firm America First Legal filed a complaint against BlackRock with the Equal Employment Opportunity Commission, an agency that enforces workplace discrimination laws, alleging that its race-based scholarship violated the Civil Rights Act.

At least one of that agency’s five commissioners seems to agree: Andrea Lucas, who was appointed in 2020 by former president Donald Trump, said that while she could only speak hypothetically, the kinds of programs Covington blessed are on thin legal ice.

Race-restricted internships, fellowships, and mentorship programs are “generally unlawful,” she said, “including programs where participants receive offers for a company’s general internship program (open to all applicants) but also receive a unique benefit like an expedited interview process” or “additional compensation beyond what other interns receive.” Those criteria describe almost verbatim the BlackRock Founders Scholarship—established before Covington’s audit and praised therein—which offers “diverse” internship applicants an “accelerated interview process” and an award of $20,000.

As for programs tying executive pay to racial targets, “the more a company seeks to ensure diversity ‘goals’ are achieved through significant financial pressure, the higher the risk that a court might find that such ‘goals’ actually are unlawful quotas,” Lucas said.

Such policies were being challenged even before the Supreme Court struck down race-based college admissions. Now, as companies brace for an onslaught of litigation in the wake of that ruling, they may find that their most legally vulnerable programs trace back not just to diversity officers but to some of the most prominent lawyers in the country—retained for the express purpose of reducing liability.

“It’s been surreal to see law firms encouraging clients to pursue these policies, often in what seems like open defiance of the Civil Rights Act,” said Jonathan Berry, the managing partner at Boyden Gray & Associates.

For Adam Mortara, who represented the plaintiffs in the case that outlawed affirmative action in college admissions, the race-based bonus schemes were especially shocking.

“I’m stunned that a law firm would have counseled any company to do this,” he told the Washington Free Beacon. “What could possibly be the justification?”

Covington & Burling did not respond to requests for comment.

Firms have made these recommendations with full knowledge of the legal headwinds facing them. It was one thing for Relman Colfax, which specializes in civil rights law, to tell Facebook in a 2020 audit that it should tie manager pay to “diversity metrics” before such programs were facing high-profile legal challenges. It was another for Covington to tell BlackRock and Verizon to expand their own versions of that policy this April, eight months after Starbucks had been sued for doing the same thing.

In a March audit of Google, Wilmerhale likewise praised the tech giant’s special grants for minority start-up founders—programs nearly identical to an initiative that got Amazon hit with a class action lawsuit last year.

WilmerHale, Google, Relman Colfax, BlackRock, Verizon, and Meta, Facebook’s parent company, did not respond to requests for comment.

Firms have also pushed for racial preferences in investment and lending practices, where efforts to close the racial wealth gap could soon face legal challenges of their own. Covington blessed a BlackRock index fund that invests only in companies run by or for people of color—”probably illegal,” Mortara said—as well as a Citigroup program that gives “preferential financing” to minority housing developers.

“That’s absolutely unlawful under fair credit and housing laws,” Reed Rubinstein, the director of oversight and investigations at America First Legal, said of the Citigroup program. “It could open them up to massive potential liability.”

Citigroup declined to comment.

The focus on finance has given Covington a golden opportunity to boost demand for its own services. In its April report on BlackRock, which was also led by Holder, Covington praised the asset manager for pushing, via shareholder proxy votes, the very sort of audits the firm conducts.

BlackRock has supported nearly two thirds of proposals “related to racial equity assessments” since 2021, Holder wrote. Even so, he continued, it should “strengthen [the] consistency” of its votes.

There are nonetheless signs that the audits won’t be long for the post-affirmative action world. Senator Tom Cotton (R., Ark.) warned 51 law firms this month that Congress could investigate them for blessing illegal diversity programs, a threat that followed demands by 13 Republican attorneys general for Fortune 100 companies to scrap their race-based hiring practices.

“If you choose not to do so,” the officials wrote in letters to companies, “know that you will be held accountable.”

Covington itself read clients the riot act in the wake of the High Court’s decision, issuing a client alert that was far less sanguine about racial preferences than its audits have been. Quoting an article by Lucas—the Equal Employment Opportunity Commissioner who warned against the sort of policies Holder blessed—the firm encouraged employers to “take a hard look” at their diversity programs.

“‘[R]ace-restricted internships, race-restricted mentoring, [and] race-focused promotion decisions,’” Covington said, “may already be ‘violating the law.’”

Editor’s Note: The Free Beacon is a Covington & Burling client. The Free Beacon has not had the firm conduct a racial equity audit. 

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