Target shares fell 22% during a single day of trading in November. The retail giant had reported a meager 1% increase in its third quarter, while net income declined 12% to $854 million. The selloff wiped out $16 billion from Target’s market cap.
In the company’s earnings call, CEO Brian Cornell blamed the poor results on weak consumer spending — even though companies such as Walmart posted massive sales growth. Some shareholders appear not to have bought this explanation.
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Three months later, the City of Riviera Beach Police Pension Fund in Florida filed a lawsuit against Target alleging that it defrauded investors into paying inflated stock prices; concealed the risks of its diversity, equity, and inclusion and environmental, social, and governance policies; and misused investor funds “to serve political and social goals.”
The lawsuit is one of a growing number of legal actions against DEI and ESG policies.
In January, a federal judge found that American Airlines, the world’s leading passenger carrier, unlawfully used ESG in its employee retirement plan. In a 70-page ruling, Judge Reed O’Connor said American Airlines violated the Employee Retirement Income Security Act, which requires investments to prioritize the interests of investors.
“ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” O’Connor wrote.
The explosion of equity-driven social activism began in 2020 following the death of George Floyd and the rise of Black Lives Matter, a period during which numerous leaders made public commitments to supporting DEI. Yet in their zeal to promote equity, institutions may have been blatantly violating federal laws.
“[I have a] very strong suspicion that many universities and progressive nonprofits have a lot of legal exposure around hiring,” left-leaning journalist Matthew Yglesias tweeted in January.
Yglesias was responding to a trove of University of Colorado Boulder emails published by scholars at the Manhattan Institute and the National Association of Scholars, which show “brazen race-based hiring.”
“Our aim is to specifically hire a Black, Indigenous, or Latinx faculty member,” one email read.
“Our commitment, should we be successful with this application, is to hire someone from the BIPOC [black, indigenous, and people of color] community,” another email read.
Hiring based on race is illegal in the U.S.; it constitutes discrimination under Title VII of the Civil Rights Act of 1964, which plainly states that “employment discrimination based on race, color, religion, sex and national origin” is prohibited.
The language of the act runs counter to the goals of DEI, which seek to create a more equitable society by treating people unequally based on race, sex, and sexual preference. For years, institutions in America have overlooked the clear language of the Civil Rights Act to pursue the DEI ends they seek — even when this has meant overt discrimination.
This month, the Supreme Court will hear arguments for Ames v. Ohio Department of Youth Services, which involves a 60-year-old Ohio woman who sued her employer. Marlean Ames began working for the Ohio Department of Youth Services in 2004 and was promoted to administrator of the Prison Rape Elimination Act in 2014. But her career began to unravel in 2017 when she was assigned a new supervisor who, according to Ames, passed over her in favor of less qualified candidates because she was heterosexual.
The 6th Circuit Court of Appeals found that Ames met the standard prima facie elements for a sex discrimination claim, as she was demoted from a position for which she was qualified and replaced by a gay man. Yet the court denied her appeal on the grounds that she had failed to show that an employer was inclined to discriminate against a “majority group.”
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Ames appealed to the U.S. Supreme Court, which agreed to hear her case. Oral arguments are slated to begin on Feb. 26. Ames’s and others cases stand to have profound implications for employment law, and it’s becoming clear that the avalanche of lawsuits against DEI and ESG does not bode well for their supporters.
While social activism of this kind has been in retreat for some time, many are waking up to the realization that these policies are not just unpopular and unethical, but illegal. As a result, a DEI reckoning is unfolding before our eyes in courtrooms across the U.S., and it poses a genuine threat to the $10 billion DEI monstrosity. For those who oppose race-based hiring policies and companies abandoning fiduciary responsibilities in favor of social activism, now is the time to intensify efforts on the ground to defeat DEI for good.
Jon Miltimore is senior editor at the American Institute for Economic Research. Follow him on Substack.
