The Supreme Court ruled in SFFA v. Harvard that discriminating on the basis of race in college admissions violates the equal protection clause of the 14th Amendment.(1) As a result, the legality of corporate Diversity, Equity and Inclusion (DEI) programs was called into question(2) and 13 Attorneys General warned that SFFA implicated corporate DEI programs.(3)



Those implications widened when the Supreme Court ruled in Muldrow v. City of St. Louis that Title VII of the Civil Rights Act protected against discriminatory job transfers.(4) The ruling also lowered the bar for employees to successfully sue their employers for discrimination,(5) and is therefore likely to lead to an increase in discrimination claims.



And more recently, the Fifth Circuit Court of Appeals ruled in National Center for Public Policy Research v. Securities and Exchange Commission that Nasdaq could no longer impose its board diversity rule, which required Nasdaq-listed companies to meet race, sex and orientation quotas on their boards.(6)



After SFFA, a number of DEI-related lawsuits were filed. Starbucks was successfully sued for $25.6 million for discriminating against an employee,(7) and the risk of being sued for such discrimination is rising.(With over 100,000 employees,(9) Caterpillar likely has thousands of employees who are potentially victims of this type of discrimination. If even only a fraction of them file suit, and only some of those prove successful, the cost for the company would be substantial.



In light of rising litigation risks, and widespread consumer and investor backlash to DEI, many major companies have sensibly rolled back their DEI efforts. John Deere publicly halted DEI-related policies(10) after Tractor Supply explicitly stated that it will “eliminate DEI roles and retire our current DEI goals;”(11) Lowe’s and Ford ended their participation in the Human Rights Campaign’s Corporate Equity Index (CEI);(12) Harley-Davidson and Boeing ceased their DEI efforts;(13) and Jack Daniel’s and Walmart ended both their DEI efforts and CEI participation.(14)



Despite this wave of corporate DEI retreats responding to the various legal, financial and reputational risks that DEI poses, Caterpillar maintains its DEI program,(15) which includes: considering and valuing race and sex in hiring and promotion decisions;(16) employing a “Global Director of Diversity & Inclusion;”(17) a “Supplier Diversity” policy that considers race and sex when selecting suppliers;(18) Employee Resource Groups for some (those arbitrarily deemed diverse) but not for others;(19) and contributing shareholder money to organizations that advance DEI.(20)



These efforts pose a number of clear risks to the Company, and therefore to shareholder value, and the company has a fiduciary duty to protect shareholder interests from such risks.