Do Nonprofit Boards Violate Fiduciary Duties By Maintaining DEI Policies?

Kimberly Yuracko and Max Schanzenbach, two professors at Northwestern Law, argue in a Bloomberg opinion piece this morning that university trustees violate their fiduciary duties and thus are subject to liability if their university maintains DEI policies. They note that DEI statements are still in widespread use and that those policies “require faculty members to commit themselves to the very kind of race-based preferential treatment” that the Supreme Court rejected, citing Students for Fair Admissions:

University trustees, often financially successful alumni but outsiders to higher education, need to step up and ensure compliance. They should do so out of love for their institutions, but also out of self-interest. Failure to monitor and ensure compliance is a breach of their fiduciary obligations and can ultimately lead to personal liability.

I am tempted to call “bullshit,” not because the authors are necessarily wrong that SFFA renders DEI polices unconstitutional, but because many scholars and lawyers don’t believe that it does. Some do, some don’t. Nonprofit (and for-profit) boards don’t avoid liability by being right. They avoid liability by being careful, taking into account considered advice from all sides before making a decision. There is no consensus that SFFA outlaws DEI policies.

Said former EEOC Chairperson Charlotte Burrows after the Supreme Court’s declaration that race based college admissions are unconstitutional:

However, the decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College and Students for Fair Admissions, Inc. v. University of North Carolina does not address employer efforts to foster diverse and inclusive workforces or to engage the talents of all qualified workers, regardless of their background. 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.

I think the authors are disguising normative arguments as descriptive analysis. I concede, of course, that SFFA ought to be interpreted to preclude the explicit use of race in  government or government subsidized activities. But that hardly equates to declaring unconstitutional government or government-supported activities that pursue diversity, equity and inclusion. The most I am willing to concede, as both a normative and positive assertion, is that SFFA means that white people, too, are entitled to be treated as though their presence (i.e., their hiring or admission) contributes to a world of diversity, equity and inclusion.

Anyway, here are some of the doctrinal points the authors make concerning nonprofit boards:

Like a private corporation, university boards of trustees bear ultimate responsibility. State law generally imposes on corporate boards a compliance obligation, often under the so-called Caremarkstandard, which requires boards faced with issues that pose a serious threat to the corporation to set up compliance frameworks and ensure they work.

. . .

University trustees typically are bound by the same duties as are those on for-profit boards. Although some state laws are more protective of nonprofit boards, nonprofit boards nonetheless face risk of personal liability for their decisions. Though there are no shareholders to sue, a state attorney general or dissident board member may do so. Few such actions have yet been brought, but we suspect such cases are likely to grow.  Of course, not every compliance issue is existential. Government agencies sometimes overreach, and the law is not always clear. A reasonable and attentive board may choose to litigate ambiguous or unlawful government demands. But recent Supreme Court decisions have added clarity, and a passive board that fails to monitor or enforce clear regulations is putting itself and the university at dire risk.

This post simultaneously published at Jonesing on Nonprofits