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In August, a group run by conservative activist Edward Blum, whose lawsuits prompted the Supreme Court to strike down the use of racial preferences in college admissions, sued the Fearless Fund, alleging that it engaged in “explicit racial exclusion” by operating a grant program “open only to Black females.” The case is among the most prominent in a flurry of recent lawsuits and legal claims aimed at translating the Supreme Court’s race-blind stance on college admissions to the corporate sphere of hiring, contracting and investment.
U.S. District Judge Thomas W. Thrash rejected arguments from Blum’s group, the American Alliance for Equal Rights, during a hearing Tuesday. He said that Fearless Fund’s grant program qualifies as charitable giving, which is a form of protected speech under the First Amendment. Thrash, who was appointed by President Bill Clinton, is expected to file an opinion in the case later this week.
The venture capital fund was “sending a message” of support through their charitable giving “to Black women who face discrimination and obstacles in their access to capital,” said Jason Schwartz, an attorney with Gibson Dunn & Crutcher who works on Fearless Fund’s legal team.
Blum said his group is “disappointed” with the decision and intends to appeal. “Our nation’s civil rights laws do not permit racial distinctions because some groups are overrepresented in various endeavors, while others are underrepresented,” he said in an email to The Washington Post.
Fearless Fund’s stated goal is to help even out the racial imbalance in U.S. venture capital: Last year, a scant 1.1 percent of the $214 billion in venture capital funding allocated went to companies with Black founders, according to data from Crunchbase. In 2019, research from Stanford University concluded that founders of color face more bias from professional investors the better they perform.
“Women of color continue to face significant barriers in obtaining access to capital,” Fearless Fund founders Ayana Parsons and Arian Simone said in a statement to The Washington Post. “We are very pleased with the Court’s decision to deny [the] plaintiff’s attempt to shut down our grant program and look forward to continuing to advance our critical mission.”
The lawsuit claims Fearless Fund’s practice of awarding $20,000 grants, business support services and mentorship to Black women-owned businesses violates a section of the Civil Rights Act of 1866 that guarantees “race neutrality” in contracts. That law, which was passed after the Civil War to protect the rights of people freed from enslavement, also is being used in similar lawsuits, as is the Civil Rights Act of 1964, to claim that companies’ attempts to eradicate racial inequality qualify as discrimination.
“What the plaintiffs are attempting to do here is to turn a civil rights statute on its head,” said Alphonso David, civil rights attorney and chief executive of the Global Black Economic Forum, who works on Fearless Fund’s legal team.
In the past four years, Fearless Fund has invested in more than 40 businesses, including popular brands like the Slutty Vegan restaurant chain and the Lip Bar makeup company. Backed by Mastercard and Bank of America, the firm has doled out more than $26 million in investments and $3 million in grants.
To fight the lawsuit, Fearless Fund lined up a heavyweight defense team with expertise in civil rights, including the NAACP Legal Defense Fund, Gibson Dunn & Crutcher and Ben Crump, the attorney who represented the families of George Floyd and Tyre Nichols in their civil suits over the men’s killings at the hands of police.
Although private employers were already barred from making decisions based on race, long-standing legal precedent has allowed employers to take race into account when attempting to eradicate racial inequalities in their workforces. But conservative activists are citing the Supreme Court’s June affirmative action ruling to argue that corporate endeavors to level the playing field for people of color mirror the injustices they aim to stamp out. The ruling is already having “sweeping impacts” on how employers approach these issues, according to Todd Clark, dean at Widener University Delaware Law School.
In July, more than a dozen attorneys general sent a letter to the chief executives of Fortune 100 companies, warning that the overturning of affirmative action could have ramifications for corporate diversity, equity and inclusion (DEI) programs. In recent months, America First Legal, the conservative nonprofit organization backed by former Trump White House adviser Stephen Miller, has filed complaints against Nordstrom, Activision Blizzard and Kellogg’s, alleging that their diversity policies constitute racial discrimination.
“DEI is a chance to help us heal the deeply-rooted stains on our country’s historical record,” Clark said, noting that such inequalities persist for wide swaths of the American workforce. “It’s like nails on a chalkboard for someone to say to a marginalized group: ‘We’re going to take away these things that benefit you because we’re at a point where we no longer need it.’”
Clark predicts the legal pushback against corporate diversity practices could lead to “a decline of Black and Brown people and possibly women” having access to opportunities. Lawsuits are already sparking change in how companies frame their efforts. Weeks after Blum’s group sued two prominent corporate law firms over diversity fellowships for law students of underrepresented backgrounds, Morrison Foester (one of the firms named in the suit) and Gibson, Dunn & Crutcher revised the language around their programs, opening them to students of all races.
The rise in legal activity is coming at a critical moment for corporate DEI efforts. Amid scrutiny and calls for public action in the wake of George Floyd’s murder, companies made $340 billion in commitments to racial equity efforts from May 2020 to October 2022, according to data from McKinsey. But companies have been pulling back in the past year, with big companies axing diversity, equity and inclusion roles just as the practices they oversee become a political and legal target.
Janice Gassam Asare, a diversity consultant, said that she and others in the space have “gradually seen less interest and less investment” since the 2020 peak. She noted that the waning investment has coincided with a period of escalating tension and “insidious rhetoric” around corporate diversity efforts. “Every time you open the news or social media, another place is being sued for its diversity program,” Asare said. “It feels like there’s constant attacks on those of us who do this work.”
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