Woke Capital Revisited

Woke Capital Revisited Jennifer S. Fan* ABSTRACT Inclusive corporate leadership is now at the forefront of discussions related to corporate governance. Two corporate theories help to explain the rise in prominence of diversity, equity, and inclusion (“DEI”) efforts in corporate leadership. First, an expanded definition of corporate purpose which elevated the idea of the importance of stakeholders, contributed to the momentum from business and legal quarters for broader corporate inclusion. Second, the increasing publicness of corporations—the social expectation of how large, typically public corporations should act given their position of power—also led to corporations becoming more active in the DEI space. It is against this backdrop that companies began to embrace diversity measures in form and sometimes, substance. Put simply, for companies to attract and retain talent, customers, and investors, their leaders need to lead—or at least be perceived to lead—on corporate inclusivity, especially with respect to the most visible members. However, the implementation of DEI measures within corporate leadership has not been without its challenges. Some have characterized such measures as “woke capital.” Too often, such efforts are limited to press releases, speeches, and reports on diversity statistics. In other words, companies emphasize form over substance. This Article analyzes how the reconceiving of corporate purpose and societal pressures has impacted corporations’ implementation of DEI measures in the boardroom and throughout the corporation itself. In addition, this Article explores the question of whether a company can ground the fiduciary duties of officers and directors in its duties to society generally. As a complement to environmental, social, and governance and human capital management-related activities of companies, this Article also proposes ways to hold senior executives and boards accountable for * D. Wayne and Anne Gittinger Professor of Law and Associate Dean for Research and Faculty Development. For helpful discussion, I thank the participants of the Berle XIII: Inclusive Corporate Leadership Symposium. Special thanks to Aubin Fefley, Cindy Fester, and Ellie Pakzad for their research and editing help. 421 422 Seattle University Law Review [Vol. 46:421 diversity-related goals that are touted in public forums. It identifies legal and business mechanisms that could amplify corporate DEI commitments or spur more action. CONTENTS INTRODUCTION ..................................................................................... 423 I. VALUE OF DIVERSITY ........................................................................ 428 II. CORPORATE PURPOSE AND PUBLICNESS: BUSINESSES AS FIRST MOVERS ON SOCIAL ISSUES .................................................................. 431 A. Corporate Purpose ....................................................................... 432 B. Publicness..................................................................................... 433 III. CASE STUDIES IN DEI IN CORPORATE LEADERSHIP ....................... 436 A. Public Companies, Corporate Inclusivity, and Government Regulation ......................................................................................... 437 B. Private Companies and Corporate Inclusivity ............................. 439 C. Case Studies ................................................................................. 440 1. The Black Lives Matter Movement .......................................... 441 2. Voting Rights ............................................................................ 445 3. Transgender Youth and the LGBTQ+ Community .................. 448 IV. APPLICABILITY OF FIDUCIARY DUTIES TO CORPORATE SOCIAL RESPONSIBILITY .................................................................................... 452 A. Fiduciary Duties Under Delaware Law ....................................... 452 1. Duty of Care.............................................................................. 452 2. Duty of Loyalty ......................................................................... 454 B. Fiduciary Duties and DEI ............................................................ 456 V. AMPLIFICATION OF DEI GOALS ....................................................... 457 A. Revisiting and Communicating Legal Policies............................. 458 B. Leadership .................................................................................... 460 C. Whole-of-Company Approach ...................................................... 462 D. Cultural Changes ......................................................................... 464 E. Creating Avenues Within the Corporation for Reflection and Discussion ......................................................................................... 465 F. Additional Disclosures ................................................................. 465 G. Third-Party Suppliers .................................................................. 466 CONCLUSION ......................................................................................... 466 2023] Woke Capital Revisited 423 INTRODUCTION Corporations continue to wield enormous influence in society, perhaps now more than ever.1 Their increased influence has come with increased expectations. In fact, as governments around the world continue to struggle to address societal problems, “corporations are seen as having untapped potential to help mitigate these problems.”2 It is not uncommon to see corporations—typically through their chief executive officers— making public comments about particular social issues.3 Those critical of corporations’ foray into the realm of social issues staunchly believe that corporations should not venture into such territory. One such critic is Senator Mitch McConnell, Senate Minority Leader, who stated: From election law to environmentalism to radical social agendas to the Second Amendment, parts of the private sector keep dabbling in behaving like a woke parallel government . . . . Corporations will invite serious consequences if they become a vehicle for far-left mobs to hijack our country from outside the constitutional order.4 Businesses have long been speaking out on social issues.5 However, in the aftermath of COVID-19, the perception that businesses should provide leadership on social issues became even more pronounced. In a May 2021 survey conducted by the Edelman Trust Barometer, trust in businesses had increased from a poll taken earlier in the year and continued to be higher than trust in non-governmental organizations (“NGOs”), government, or the media.6 A majority of people in each of the surveyed countries agreed that “our country will not be able to overcome 1. See, e.g., Over 100 Companies Have Responded to Supreme Court Overturning Roe v. Wade, CNET (July 29, 2022), https://www.cnet.com/news/over-100-companies-have-responded-tosuprem (...truncated)