A jointly authored paper by Georgetown law professor Chris Brummer and BigLaw legal eagle Leo Strine on fiduciary duty and diversity initiatives has been named one of the top 10 corporate and securities articles for 2022. Aptly entitled “Duty and Diversity,” the piece was published in Vanderbilt Law Review as the lead article in the volume.
Dr. Brummer is an attorney and a Professor of Law at Georgetown University. He has extensively worked in the domain of financial inclusion and equity and penned previous research on the absence of diversity among U.S. regulators. Along with working on issues of financial inclusion, he has been internationally recognized as a leading expert on financial technology and trade.
Leo Strine is Of Counsel in the Corporate Department at Watchell, Lipton, Rosen & Katz and the former Chief Justice of the Delaware Court of Chancery. Mr. Strine has written extensively on matters of corporate and public law and is widely regarded as one of the country’s top experts on board and corporate governance.
Their article is a timely addition to the debate on diversity, equity, and inclusion (DEI) practices, as it seeks to address the lack of diversity in American corporations by providing a legal framework for fiduciaries within which they can enact DEI practices. The authors also convincingly argue why attention to diversity, equity and inclusion are not only permitted, but in some instances a legal requirement for boards and corporate leaders.
For Brummer and Strine, existing corporate law provides sufficient and straightforward instructions for understanding the importance of diversity. The present legal framework for corporations ensures loyalty to the corporations by establishing a fiduciary relationship between board members and the corporation. When someone is said to owe a fiduciary duty to a person or a corporation, that means they are under an obligation to act in the best interests of that person or corporation. Dr. Brummer and Mr. Stine’s paper proposes that such duties also bind corporate fiduciaries to take affirmative steps to make sure that corporations comply with important civil rights and anti-discrimination laws and norms designed to ensure fair access to economic opportunity.
The article goes a step further than just highlighting this duty. It discusses in detail how different corporate law principles encourage American corporations to take effective action to help reduce racial and gender inequality. One such principle is the business judgment rule, which affords directors considerable latitude in forwarding policies they believe to be in the best interests of the company, including DEI. The authors note that the business judgment rule generally provides immunity for a corporate actor for his or her decisions if it can be shown that there is a rational basis behind the decision. Such wide discretion is anything but limiting. And consequently, it creates a conducive environment for directors of corporations to implement DEI practices. All that directors need to show is the link between DEI practices, corporate reputation, and sustainable firm value.
The article also works to abate some of the concerns that directors of corporations may have who believe in the implementation of DEI practices yet are held off by a misguided belief that it is beyond the remit of their responsibilities and powers. Arguing to the contrary, the authors state that it is precisely their duties of care and loyalty as fiduciaries that require them to focus on antidiscrimination practices, and how failing to do so can create legal and business risks to the firm, especially in an age of enhanced discovery tools for plaintiffs. To make matters easier for skeptical directors, the paper also shows how the framework to effectively implement DEI practices already exists in corporate law, and how such actions are supported by contemporary and even traditional corporate law principles. Harnessing the power of these principles and coupling them with the mandatory application of anti-discrimination laws, Dr. Brummer and Mr. Stein argue that directors should be able to implement DEI policies that go well beyond the legal minimum.
Having answered the question of whether directors can enact DEI policies, the authors leave the readers with only one unanswered question: Will they?
The top 10 list was released by the Corporate Practice Commentator. The Corporate Practice Commentator is a compendium of a 30-plus volume set of journals that provides key information to corporate practitioners so that they may advise their clients on a range of corporate matters.
These articles were chosen through a poll, in which law professors and teachers voted on the best articles out of a total of 400 submissions. The top 10 articles, listed in alphabetical order by title, are:
A Sober Look at SPACs, 39 Yale J. on Regul. 228-303 (2022), Klausner, Michael; Ohlrogge, Michael; Ruan, Emily.
Cleaning Corporate Governance, 170 U. Pa. L. Rev. 1-70 (2021), Frankenreiter, Jens; Hwang, Cathy; Nili, Yaron; Talley, Eric.
Corporate Governance and the Feminization of Capital, 74 Stan. L. Rev. 515-602 (2022), Haan, Sarah C.
Duty and Diversity, 75 Vand. L. Rev. 1-92 (2022), Brummer, Chris; Strine, Leo E. Jr.
Indirect Investor Protection: The Investment Ecosystem and Its Legal Underpinnings, 14 J. Legal Analysis 16-78 (2022), Spamann, Holger.
Insider Giving, 71 Duke L.J. 619-700 (2021), Avci, S Burcu; Schipani, Cindy A; Seyhun, H Nejat; Verstein, Andrew.
Stealth Governance: Shareholder Agreements and Private Ordering, 99 Wash. U. L. Rev. 913-960 (2021), Fisch, Jill E.
The Corporate Governance Gap, 131 Yale L. J. 782-860 (2022), Kastiel, Kobi; Nili, Yaron.
The Rise of Bankruptcy Directors, 95 S. Cal. L. Rev. 1083-1136 (2022), Ellias, Jared; Kamar, Ehud; Kastiel, Kobi.
The Supreme Court and the Pro-Business Paradox, 135 Harv. L. Rev. 220-266 (2021), Pollman, Elizabeth.