Affirmative Action’s End Is Already Testing CRE’s Resolve To Diversify Its Ranks

The Supreme Court’s decision to strike down affirmative action in college admissions has already fanned a widespread movement to tear down corporate DEI programs across the U.S. — and commercial real estate’s resolve to diversify its ranks is already being tested.

Advocates for and against diversity, equity and inclusion initiatives told Bisnow this week that over the next few years they expect a wave of lawsuits, shareholder actions and judicial decisions will reshape corporate diversity policies nationwide.

The real estate industry has long lagged other industries in terms of diversity and has struggled to live up to its promises to address the problem, especially in the wake of George Floyd’s murder in 2020.

Bisnow’s reporting and analysis of diversity efforts in CRE have most recently found that momentum for change has been waning. While no such changes or announcements have been made by any CRE companies since the high court’s decision, many worry the changing landscape will lead companies to pull back or water down their pledges.

“Some of the passion, enthusiasm and focus has been lost,” CRE Recruiting founder Allison Weiss said. “And people are so afraid of stepping on a land mine, they’re thinking of other ways of pursuing this that aren’t as risk averse. They look at Budweiser and public examples of taking a principled stance on diversity.” 

Corporate hesitation or even reversal on DEI is coupled with a societal movement pushing back against the programs and representation of some groups, at the same time that many companies are looking to cut costs.

“There is a cottage industry of attorneys who have been waiting for the Harvard case to come down to then bring this issue forward to corporate DEI programs,” said Justin Danhof, head of corporate governance at Strive, an Ohio-based asset management firm that has taken the lead in shareholder action against corporate DEI in the weeks since the court’s decision.

He expects shareholder derivative suits, reverse discrimination lawsuits and even federal and state legal action. What he calls the “DEI-industrial complex” will take time to unwind, but he expects action to quickly commence. 

“The parallels [to affirmative action], there are too many to count,” he added.

This has particular salience in commercial real estate, argue proponents of DEI, given the industry’s slower-than-average adoption of diversity efforts in the first place.

“We know diverse teams create better outcomes, there’s tons of research and data around that,” said Manikka Bowman, executive director of Project REAP, an organization that aims to foster multicultural talent for jobs in commercial real estate. “To be in a place from a governmental perspective where we’re not encouraging diverse voices to be part of education and employment; there are a lot of unintended consequences that will come from this decision.”

This comes as the larger corporate push for DEI over the last few years has stalled. High-profile chief diversity officers, or CDOs, at big firms have recently announced resignations, and CDOs have experienced 40% higher turnover than other human resources positions. Ernie Jarvis, CEO of Washington, D.C.-based Jarvis Commercial Real Estate, told Bisnow last fall, “My sense is that the DEI initiative will be important but no longer a priority, and it will lose momentum.”

The Supreme Court’s decisions, in the cases of Students for Fair Admissions v. University of North Carolina and Students for Fair Admissions v. Harvard, struck down the use of affirmative action in college admissions on the basis that "eliminating racial discrimination means eliminating all of it," as Chief Justice John Roberts wrote for the court in the majority decision. 

"The student must be treated based on his or her experiences as an individual — not on the basis of race,” he continued in the decision. “Many universities have for too long done just the opposite."

Those who favor this decision, and have long argued that affirmative action is an unfair and biased practice, echoed Roberts’ words about the importance of eliminating racial discrimination. Danhof helped pen a letter for Strive addressed to McDonald’s in the wake of the affirmative action ruling, arguing that shareholders had a right to demand firms end DEI practices that might expose them to legal action.

“As a shareholder, our concern is companies digging in their heels on an illegal program and distracting management unnecessarily and spending shareholder dollars to defend something legally indefensible,” Danhof said.

“My immediate response is, that’s nonsense,” said G. Lamont Blackstone, of G.L. Blackstone and chairman of the board of Project REAP, and author of a recent article pushing back against the pushback.“Typically those who advance that type of notion say we should be colorblind. I’d like to turn that idea inside out. They are colorblind, but that attitude and sentiment is indicative of the fact that for decades, many in corporate America and CRE have been colorblind in that they didn’t see the talent in those groups and ranks.”

Action on this issue has been swift. Dueling letters and statements by Republican and Democratic attorneys general have argued firms should either re-examine their DEI practices or hold firm against efforts at “intimidation.” Other groups, including America First Legal, have already begun filing lawsuits around DEI programs. Strive has gone through a number of companies in which it owns shares, flagging potentially troubling DEI programs.

Gibson Dunn, a legal firm specializing in employment law, released a client alert noting that while the affirmative action cases didn’t explicitly mention employment law, the decisions “nevertheless have important strategic and atmospheric ramifications for employers,” and could “accelerate the trend of reverse-discrimination claims.”

Danhof said many DEI programs would have been thrown out before the Harvard case, but the SCOTUS decision gives opponents of DEI firmer legal ground to stand on. In particular, it suggests that any programs that set specific, time-based goals, like having a certain percentage of BIPOC executives by a specific date, are “illegal programs.”

Danhof also cited the Civil Rights Act — from 1866 — that applies to suppliers, arguing it suggests that DEI initiatives to provide minority-owned businesses priority in construction jobs is also a “major risk” for companies because doing so opens them up to the same legal action as similar hiring practices. That would therefore undermine efforts to create community benefit agreements, tools used by community groups and local governments to extract social investment and local jobs guarantees in exchange for permitting megadevelopments. 

Proponents of these programs argue that not only is there a moral imperative for DEI action by companies, it is also clearly a smart business decision. Research has shown DEI programs help firms improve employee performance, tap new pools of talent and foster the kind of collaboration and creativity that lead to new and valuable business ideas. An analysis by HR Dive found that all 100 of the Fortune 100 firms have a DEI program. 

Blackstone points to the ability of diverse talent to see unique investment opportunities as one of many financial benefits of DEI in CRE. He specifically points to the famous example of Magic Johnson pushing Starbucks to invest in urban neighborhoods, a mutually beneficial situation that created a new market and significant returns for the firm and developers, as well as jobs in underserved areas. Identity diversity leads to cognitive diversity, he added, which creates incredible value to corporations.  

Other voices within commercial real estate have reiterated their support of DEI since the Supreme Court’s decision. Clarion Partners, which has $81.6B of assets under management, noted in a statement by Managing Partner Khalid Rashid that DEI programs are “part of its growth story.”

Bowman said there are sponsors of Project REAP who are committing to doing the work. On the other hand, the economic situation and uncertain landscape has also led others to roll back commitments. She’s worried that those with a will to do the work will question how to implement it without being targeted, due to the uncertainty around these kinds of programs.

“We’re in the middle of a perfect storm, coupled with the economic environment, and lack of understanding what DEI is,” Bowman said. “It’s about opening up opportunities to those who are qualified.” 

Weiss said the industry hasn’t been as focused on this issue in the wake of recent economic uncertainty and the crisis over the office market. She has heard many CRE leaders voice support, but said there’s a lot of uncertainty about what can and can’t be done. She’s being asked by clients if it is OK if, say, a company has quotas for recruitment, another area that has been studied by HBR. She worries that those looking to de-risk may end up diluting programs to the point that they’re more performative than effective. 

Both Blackstone and Bowman also reiterated how important it is to continue these efforts, in light of the progress that remains to be made, and the historic connection between racism, redlining and real estate. 

Bisnow’s examination of diversity within the commercial real estate industry showed progress had begun to wane in 2022. The percentage of people of color in the C-suites and executive teams across 89 of the largest firms in the industry rose from 10.9% to 11.6% year-over-year. 

Organizations like Project REAP have seen progress in diversifying CRE’s executive ranks, but that may be challenged by this backlash. 

“Because of the uncertainty that our country has presented because of this decision, companies question how to be able to implement [DEI] in a way without being targeted,” Bowman said.