Starbucks hired Eric Holder for a ‘Civil Rights Audit,’ but his approved policies led to lawsuits against the coffee maker.

Starbucks’ Diversity Initiatives: A ⁣Closer Look

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.