US affirmative action ruling casts doubt on Asian DEI efforts
The recent decision by the United States Supreme Court to strike down positive discrimination programmes used in education to provide equal opportunities to minorities appears set to send a chill through the diversity, equity and inclusion (DE&I) policies of asset owners, managers and portfolio companies not only in the US but also in Asia.
“The affirmative action decision from the Supreme Court applies to education admissions, but the same concepts are probably going to be applied to the workplace,” Marcia Ellis, a Hong Kong-based partner and global chair of the private equity practice at US-headquartered law firm Morrison Foerster, told AsianInvestor.
“We're going to see that in the United States – people starting to push against diversity programmes – and that will have ripple effects in Asia with respect to both multinational companies and also limited partners,” she said. “The impact could be quite detrimental.”
DETRIMENTAL EFFECT?
Ellis explained that the wording in Title VI of the Civil Rights Act of 1964 – which deals with education and bans discrimination based on “race, colour, religion, sex and national origin” including positive discrimination such as that advanced by DE&I programmes and policies – also appears in Title VII of the act, which applies to the workplace.
She said it covers all employers bar the smallest, and that it had extraterritorial effect in cases involving a US employer and a US citizen employee.
“So, if a US citizen is working for, say, Goldman Sachs in Hong Kong or Singapore, Title VII applies there," she said. "The law was intended to support affirmative action, but the way the court is reading it, it means companies can’t ‘discriminate’ against white men.”
Ellis said the law doesn’t require enforcement by the government and can rely simply on a case being brought by a US citizen who felt they had lost out on an opportunity to someone of a different ethnicity or gender due to a DE&I policy adopted by a US-headquartered asset owner, asset manager, private equity firm or portfolio company.
“But I don’t think a case being brought is what’s going to create the ripple effect,” she said.
“What’s going to create the ripple effect is the concern that’s going to spread. So, head office in the US will become concerned and start looking at all the DE&I programmes they have and see these are now legally challengeable under this new regime, and then they’ll globalise whatever solution they come up with.”
NEED FOR DIVERSITY
Debanik Basu, APG Asset Management’s senior manager of global responsible investing and governance for Asia-Pacific, told AsianInvestor that whatever threat any legal precedent set following the court’s ruling would ultimately be outweighed by the benefits of diversity in investors’ and portfolio companies’ hiring practices.
“We don't know for sure how this is going to pan out – it could go either way,” he said. “We'll have to review our strategies globally and in Asia based on how things turn out. Having said that, people believe that companies that embrace diversity today don't do it just to fulfil quotas, but do it because they understand the value in having that diversity.”
Ellis said that in the Hong Kong context, diversity had been a neglected resource whose value was now becoming increasingly recognised.
“In Hong Kong, underrepresented ethnic minorities account for 4% of the population, many of whom have been here for generations, and up until not too long ago, employers would just ignore them,” she said.
“Now, one of the things that employers have realised in Hong Kong is that this is an expanding population, against the Hong Kong birthrate, which is among the lowest in the world.”
Basu said that the value of diversity, which is still a nascent concept in many emerging markets around the world, would in fact grow with self-sustaining momentum, despite potential challenges presented by illiberal political winds blowing through places such as Washington.
“I think diversity will always be an area of focus, both for investors and for companies, because it's not about setting targets and ensuring that we get there,” he said. “It's about the fact that we have global supply chains, global operations and global workforces – and that ensures that diversity is critical.
“Representation from different communities and different stakeholders is critical, and I don't think that's going to change, so we’re going to see more progress on this.”