July 21, 2023
Due Diligence: Implications of the SCOTUS’s Affirmative Action Decision
Last week on TheCorporateCounsel.net, Liz blogged about the potential implications of the SCOTUS’s recent decision striking down affirmative action in college admissions on governance and securities lawyers. A recent BakerHostetler memo says that M&A lawyers also need to keep the decision in mind during their due diligence review of a potential target. This excerpt provides an overview of some things that will need to be reviewed & evaluated:
Potential acquirers of companies with a material number of U.S. employees should request that any target DE&I employment policies be provided for review, and they should work with employment law specialists to assess potential risk. In addition to DE&I policies, counsel should review DE&I communications and mission statements, as well as related initiatives, programs and resource groups. If necessary, counsel can assist with the design and implementation of an alternative approach to DE&I that meets the client’s objectives in a way that is compliant with law.
As we have previously discussed on July 5, 2023, DE&I hiring or promotion policies that rely on the use of group preferences or quotas based on protected categories (including race or ethnicity, among others) are already prohibited by federal law. However, the spotlight on such policies generated by the Supreme Court’s ruling makes it more likely that policies that are either noncompliant or susceptible to attack but may have escaped scrutiny in the past will be the subject of claims by private litigants.
The memo also highlights the importance of reviewing any provisions in the target’s material contracts that bind it to comply with the counterparty’s DEI policies. These can create financial and legal risks, particularly if the terms purport to bind the target’s affiliates. Any pending or historical litigation involving the target that contains DEI claims should also be reviewed and evaluated in light of the number of cases, the dollar amount of damages, and any equitable relief or other outstanding obligations under a settlement agreement.
– John Jenkins