First, in establishing DEI goals and objectives, a company should ensure that they be articulated with sufficient clarity to pass legal, including constitutional, challenges and be accompanied by evidence supporting the rationale for those objectives. In a recent case, National Center for Public Policy Research. v. Schultz, 2023 U.S. Dist. LEXIS 161680 (E.D. Wash. Sep. 11, 2023), Starbucks defeated a shareholder derivative suit against the company and its board of directors seeking a declaratory judgment that the DEI initiatives violate federal and state laws, and injunctive relief against the initiatives' continuation by demonstrating that it had considered a variety of factors in determining that the DEI initiatives it adopted were good for its business and within the fiduciary responsibility of the board.

Second, it is important that criteria for any “benefits” offered under DEI programs be available to all. Put another way, eligibility criteria that appear to exclude applicants based on a protected characteristic risk running afoul of the law. Importantly, in the same Starbucks decision, it is not suggested that initiatives to promote DEI in one’s businesses or educational institutions are themselves unlawful. Instead, they address the methodology used to accomplish the objectives to ensure the programs do not discriminate in any way based on a protected characteristic. Requiring essays regarding one’s commitment to DEI and/or how that applicant’s socioeconomic status and life experiences have affected or influenced their qualification for the program for which they are applying would appear to survive any claims of discrimination based on race or other protected characteristic.

Ultimately, the legal challenges by AAER against law firm diversity programs might have trickle-down effects on external counsel and alter the composition of external legal teams that MCOs can use. Many companies, including MCOs, require diverse outside counsel teams.

AAER’s aim at diversity fellowships has resulted in one firm canceling the fellowship and others modifying it. In response, law firms can change their fellowship criteria to include a commitment to diversity and inclusion efforts in the legal profession. By changing their criteria, they can continue to fulfill their commitment to DEI while also comporting with the law.

As the law continues to develop in this area, businesses must remain diligent in establishing DEI objectives, and develop evidence supporting the rationale for those objectives and the methodology adopted to achieve them. Doing so should not only better equip businesses to navigate the new legal challenges that may befall DEI initiatives but also enable them to measure their effectiveness and enhance their accountability to their stakeholders.

When boards and corporations take thoughtful, well-considered positions within the scope of the business judgment rule, courts are less likely to interfere with those business decisions. Decisions made on behalf of the corporation should be informed, in good faith, and with the honest belief that they are in the best interests of the corporation.