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 Fearless Fund, alleging 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 new race-blind stance of the Supreme Court on college admissions to the corporate sphere of hiring, contracting and investment.
U.S. District Judge Thomas W. Thrash rejected arguments from his group, the American Alliance for Equal Rights, during the hearing Tuesday. He said the Fearless Fund 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.
Fearless 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 on the Fearless Fund 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 a statement to The Washington Post.
The mission of Fearless Fund is to help even out the racial imbalance in venture capital funding in the United States. 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 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 the Fearless Fund practice of awarding $20,000 grants, support services and mentorship to businesses owned by Black women violates a section of the Civil Rights Act of 1866 that guarantees “race neutrality” in contracts. That legislation, passed after the Civil War to protect the rights of people freed from enslavement, is also being used in similar lawsuits, as is the Civil Rights Act of 1964, to claim that corporate 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, a civil rights attorney and the chief executive of the Global Black Economic Forum on the Fearless Fund 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 lawsuits over the men’s killings at the hands of police.
Although private employers were already barred from making decisions based on race, legal precedent has allowed employers to take race into account in attempts to eradicate racial inequalities in their workforces. But conservative activists are citing the Supreme Court ruling on affirmative action in June 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 having “sweeping impacts” on how employers approach these issues, according to Todd Clark, the dean of 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 White House adviser Stephen Miller, has filed complaints against Kellogg, Nordstrom and Activision Blizzard, alleging 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 such inequalities persist for wide swaths of the American workforce. “It is like nails on a chalkboard for someone to say to a marginalized group: ‘We are going to take away these things that benefit you because we are 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 the American Alliance for Equal Right sued two prominent corporate law firms over diversity fellowships for law students of underrepresented backgrounds, Morrison Foerster (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 diversity efforts. Amid public scrutiny and calls for action in the wake of Floyd’s murder, companies made $340 billion in commitments to racial equity efforts between May 2020 to October 2022, according to data from McKinsey. But companies have started pulling back over the past year, with some large companies axing diversity roles just as the practices they oversee become a political and legal target.
Janice Gassam Asare, a diversity consultant, said she and others in the space have “gradually seen less interest and less investment” since the 2020 peak. She noted 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 are constant attacks on those of us who do this work.”