The Surety Business After Supreme Court Decision on DEI presents a new risk management concern. In the case of Students for Fair Admissions, Inc. v. President & Fellows of Harvard College and identical plaintiff v. University of North Carolina, No.. 20-1199 & 21-707, the Court held that Harvard and UNC’s admissions programs which consider race at various stages in the admission process violate the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. While EEOC Commission Chair Charlotte A. Burrows opined that, “the decision does not address employer efforts to foster diverse and inclusive workforces or to engage the talents of all qualified workers, regardless of their background.”, and that, “It remains lawful for employers to implement diversity, equity, inclusion, and accessibility programs that seek to ensure workers of all backgrounds are afforded equal opportunity in the workplace.” (Fisher Phillips, 09/20/2023), surety companies need to look carefully at the potential fallout of this decision.
The Supreme Court’s opinion specifically addressed the use of race within the context of admission to PUBLIC universities. Its logical extrapolation, confirmed by Chairman Burrow’s position, is that private industry and employers are unaffected by this erosion of broadly practiced DEI criteria. Surety bond operations are non-governmental by their very nature; HOWEVER, most surety companies that engage in a broad contract surety program are invariably participants in the Small Business Administration’s Surety Bond Guarantee Program. Among other purposes, the Program aims to encourage surety support of minority and other disadvantaged parties. Jennifer Flickinger’s commentary about this point is instructive. She states, “For construction, this also affects minority and disadvantaged business designations, which have come under fire via a handful of lawsuits challenging their constitutionality. Before, a contractor could say that they were a disadvantaged business based simply on race, for example, and that’s not the case anymore.” (Flickinger, J., Construction Drive, 01/30/2024). Surety underwriters may or may not recognize race when applying the MWBE test, however, the Supreme Court’s position and other pending cases in the private sector should prompt all sureties to manage the potential risk associated with race-based decision-making, even if they consider it only passingly during the bond guarantee application process for MWBEs.
Attorneys Raymond Pérez and Sheila Abron warn, “Employer Diversity, Equity & Inclusion (DEI) programs and federal contractor affirmative action practices were not directly addressed by the Court’s decision. Still, many employers and interest groups have been focused on what the SCOTUS decision means for employers and their DEI programs.” (Fisher Phillips, 09/20/2023) Counsels address the construction industry directly which should give pause to surety professionals, to ponder what may be “coming down the pipe”. The surety business after Supreme Court decision on DEI impacts public agencies however private plaintiffs have taken notice and are pursuing similar changes in the private sector. “The American Alliance for Equal Rights (AAER) filed a lawsuit against Fearless Fund, an Atlanta-based venture capital firm run by two Black women, alleging that the fund is engaging in racial discrimination by running a grant program exclusively for early-stage companies owned by Black women. On Tuesday, the firm notched a big victory when a federal judge declined AAER’s request for an injunction, which would have blocked the program. On Saturday, however, a panel of federal appellate judges temporarily blocked the fund from awarding grants, effectively reversing Tuesday’s ruling. In September, AAER also sued two major corporate law firms, arguing that their fellowships aimed at bolstering diversity amount to racial discrimination because they exclude non-minorities.” (Telford, T., The Washington Post, 10/02/2023)
The proverbial writing is on the wall. Surety bond professionals must prepare for the incursion of DEI restrictions in their internal hiring processes as well as their program underwriting practices.