Starbucks becomes the latest example of the legal and financial liability of DEI governance policies after settling its civil rights lawsuit with the state of Florida. The settlement came with the agreement to pay the state $1 million and commit to complying with the state’s civil rights laws.
The suit claimed that the company paid certain employees more than employees of other races with equal experience, and that until March 2024 the company tied executive bonuses to diversity goals.
This adds to the growing list of companies spending millions of dollars to settle allegations of discriminatory hiring practices, with Accenture, Deloitte, and IBM all paying multi-million-dollar settlements to the DOJ over the last few months.
The coffee giant has a long, recorded history of DEI priorities, but as part of the settlement, it has also agreed to not participate in organizations that require increased racial diversity on its board of directors. This is a clear walk-back of the company’s 2020 commitment to BIPOC representation of “at least 30% at all corporate levels and 40% at all retail and manufacturing roles by 2025,” which was tied to the Board Diversity Action Alliance.
Companies like Starbucks are a cautionary tale for others who are captured by the discriminatory ideology of DEI. More DEI-practicing corporations are being hit with lawsuits that disrupt operations, damage reputation, and ultimately risk shareholder value. Without fully admitting fault, the settling companies are showing that DEI governance is bad for business. They are learning the hard way, but they are learning. Starbucks’ agreement to not join organizations using discriminatory metrics for board appointments is evidence of that.
The best time to plant a tree was 20 years ago; the second-best time is today. The same is true of ditching DEI. To get ahead of an impending civil rights lawsuit from a state attorney general or the federal government, a company should audit its hiring practices and DEI governance before it is forced to. Companies may have gotten swept up in the wave of social and activist pressure of years past, but the tides are shifting, and it is okay for a company to focus solely on business without ESG and DEI distractions; in fact, it’s welcomed by consumers and shareholders alike.
This past proxy season saw a historic low in shareholder approval of pro-ESG proposals, and as Nike’s recent spiral shows, consumers are also unsatisfied with companies being driven by ideology. The best course of action then is to avoid the lawsuit, avoid the market backlash and reputational risk, and get back to business.