Elizabeth Gore, President & Co Founder, Hello Alice Neal Katyal, Partner, Hogan Lovells Moderator: Phil Wahba, Fortune
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00:00I mentioned this in a couple of other panels.
00:02We've seen a lot of companies fall like dominoes
00:05in recent months saying, yeah, DEI, okay,
00:08we're done with that.
00:10Caving to pressure or maybe using that pressure
00:12as a pretext.
00:15What do you think is behind that?
00:17And do these companies not have deeply held convictions?
00:22What do you think is, or is there a lot more
00:26backlash bubbling under the surface
00:27that we might not have seen?
00:30Well, howdy, y'all, it's good to be with you
00:31and always great to be at Fortune.
00:34So I'm gonna flip my answer and say the ones
00:37that are staying will probably make the most money.
00:40And the reason I say that is in my world in small business,
00:45it is so critical that we're funding everyone
00:47in that ecosystem to ensure that they're growing,
00:50they get the capital they need,
00:52and the Fortune 1000 in the room,
00:54they have the supply chain, they need to be successful.
00:56And so I think, when I think about it,
00:59I think of the other way, those, like I saw today,
01:02whether it was Exelon or Delta or Whole Foods
01:04who are keeping to it, I think they're gonna come back
01:07with better stock prices, better employee retention.
01:11So I kind of think of it in the opposite way.
01:13So the naysayers are gonna miss out?
01:14Yeah.
01:16And we're capitalists, and I think that the naysayers,
01:19they're gonna lose money.
01:23Now, you, of course, had your own battles
01:26with people on this front.
01:30That shall not be, is it like Voldemort?
01:32Yeah, no, I mean, you can name them if you want,
01:34but I mean, how can DEI initiatives
01:39be lawsuit-proofed a bit more?
01:41Or it's, with some of the legal challenges to them,
01:49you've seen maybe some of the weaknesses,
01:50but how can they be lawsuit-proofed, in your opinion?
01:53Well, I mean, I've certainly learned a lot
01:54by amazing lawyers like Neil sitting here with me.
01:57I didn't think I would need to know any of this,
01:59but I think like any issue, the law is evolving,
02:04and we have to evolve with it.
02:06And so any company in the room that is a good fiduciary
02:10is gonna have to keep watch on how they,
02:13particularly with money, and we're a credit company,
02:15we do credit loans and grants,
02:17so we have to keep evolving with the law
02:19and the interpretation of the law.
02:21And so it doesn't mean you have to stop these programs,
02:24it means you have to be smart
02:24about the language you're using,
02:26you have to have great counsel.
02:28I love that Sherm and the CHRO folks were here,
02:31because I think they're a really key part of it.
02:33So I think you don't stop what you're doing, you evolve.
02:39And what about small companies with fewer resources?
02:42I mean, who might?
02:43That's who we are.
02:44Yeah, well, but you know, you,
02:45well then tell us, maybe spend a few seconds
02:48on the audience, what I'm talking about.
02:50Hello, Alice, we serve 1.5 million small business owners
02:54with credit loans, grants, fiscal resources,
02:57and our largest customers are actually all of you.
03:00So we serve the Fortune 1000 who have small business owners
03:04as their customers, so banks, large fintechs,
03:07everyone from PepsiCo to Delta Airlines
03:10who have really critical supply chain with small business,
03:13and we help them engage, transact,
03:15and fund small businesses.
03:17So, but we're still a small but mighty company,
03:19we're a series C venture backed company,
03:21and we were sued a year ago for our programs
03:26for black owned small business owners,
03:27our philanthropic programs, and you know,
03:31like any company that gets hit by a black swan event,
03:33you know, you gotta be careful
03:35and make sure you watch your budget, your P&L,
03:38hire great people, and fight like hell
03:41and get on the other side.
03:41Yeah, well you keep pointing to Neil,
03:43so we should bring him in.
03:44Well, I mean, I have to, he's our hero in this scenario, so.
03:48Well, what are your thoughts, Neil, on,
03:51so your first question, well, first of all,
03:53thank you for having me here,
03:54it's a privilege to be with all of you.
03:55Your first question was why are companies caving,
03:59and you know, I've been involved
04:01in every affirmative action case at the Supreme Court
04:03for the last quarter century.
04:05I think why are companies caving?
04:06Because they're wimps.
04:08And look, I mean, I think,
04:11I think it's, if a company doesn't wanna have
04:16a diversity or affirmative action program, that's fine.
04:19My view is not at all they're constitutionally compelled
04:23or legally compelled to have such things.
04:25It's a free country, different companies
04:27can do what they want.
04:29But what really offends me is companies that stand up
04:33and say, oh, we really wanna do diversity
04:35and affirmative action programs,
04:37but we can't because of the law.
04:39And that's just, to use the technical legal term, poppycock.
04:43The Supreme Court has not stopped DEI programs.
04:47There's, and there are ways to do them right
04:51and ways to do them wrong,
04:53and obviously you wanna do them right.
04:54And what I found so troubling,
04:56and I have the privilege of advising
04:58many of the Fortune 200 companies,
05:01including some that I think are in this room,
05:04and some of them have thrown in the towel,
05:06even though they say in the boardroom with me,
05:08they wanna do it, but they're just worried too much
05:11about either the litigation risk
05:13or the reputational risk and the like.
05:15And so then you have people like Elizabeth's company,
05:20that's not a multi-billion dollar cap company.
05:25The legal expense alone is such a huge percentage
05:29of their annual spend,
05:31but they're fighting to do the right thing.
05:33And if I have any message for you,
05:36it's that that fight is important.
05:37For those of you who want to have the fight,
05:40there is a fight to be had,
05:41and there's a way and a path
05:43to getting affirmative action programs
05:46to be upheld by the Supreme Court.
05:49Yes, the Supreme Court in the Harvard case
05:51has restricted them in the educational setting.
05:54That doesn't apply in the corporate setting directly.
05:57And so all you have is some innuendo
06:00that says the justices, when they get these cases,
06:03are going to strike down program after program.
06:06And I just don't think that's right,
06:08and I certainly don't think it's pre-foreordained,
06:11and that you should throw in the towel
06:12and unilaterally disarm now,
06:14because one day you might face an adverse result.
06:18Should we, well, should we worry about three weeks from now
06:23if one person gets elected?
06:25We should worry about three weeks from now
06:26for many reasons.
06:27Yeah.
06:30But, you know, do you see a scenario
06:32under which we would have more judges
06:36than put on courts who would then be less favorable
06:40to affirmative action type cases?
06:44Sure, I think that Donald Trump
06:46would try and put additional judges like that on.
06:50But, you know, the justices he put on the Supreme Court,
06:53for example, are ones that I am very convinced
06:56that were Elizabeth's case, for example,
06:59to go to the Supreme Court,
07:00we could win it in front of all three of those appointees.
07:04So I do not think, I think that there's a knee-jerk reaction
07:08that's happened among some on the left
07:10to say this court is so out of step
07:13and will do so much to mess us over
07:16that we might as well get ahead of it
07:18and throw in the towel now.
07:19And I just think that's wrong.
07:21And we've seen that in example after example
07:23of companies, if they do the right thing
07:25and do it in a responsible way,
07:27those programs can be upheld by the Supreme Court.
07:30So just out of curiosity,
07:31the companies that you're speaking to
07:33and they say, oh, we're afraid of litigation,
07:36does activist investor come up?
07:39Sure, it comes up and there have been some letters
07:41and also state AGs come up too.
07:44And then of course, the possibility
07:46that if there's a Trump administration,
07:48there'll be government investigations as well
07:50of affirmative action programs.
07:52So all of those are things that come up.
07:54But on the other side, I think you have to weigh
07:57what Elizabeth's talking about,
07:58which is how important diversity is
08:00to the bottom line of companies to better performance.
08:04So just from a purely instrumental internal perspective,
08:08and someone like me,
08:09and I think most of the companies
08:11that I'm privileged to represent in the boardroom
08:13care not just about shareholder value,
08:15but they care about their impact on the world.
08:17Okay.
08:19We'll open it up to questions in a few minutes.
08:21Just wanna backtrack a little bit.
08:23I guess I have my own little stereotypes about the SCOTUS.
08:26And what's the case for thinking
08:28that a case like Elizabeth's could be won
08:31if it went all the way up there?
08:32I mean, there's this idea
08:33that they're pretty set in their views,
08:36or are we being a bit unfair?
08:38Yeah, I think it's unfair.
08:39I mean, there's certainly more set
08:40than when I started arguing at the court.
08:41My first case in 2006, Justice Kennedy was on the court.
08:45You know, there was definitely much more
08:47of a swing justice feel to it than there is today.
08:51You know, sometimes today,
08:52I do think it's pretty clear
08:54what's gonna happen before argument.
08:56And the question is, can I engineer a soft landing,
08:59a soft loss for my client, or something like that.
09:02But I would say, like, for those who think like,
09:04oh, the Supreme Court's always striking down liberal things.
09:08Remember, they voted against Donald Trump,
09:10you know, time after time in 2020 in the election.
09:13They called his citizenship question on the census.
09:16They said that his cabinet officials lied
09:18and struck it down.
09:20They saved Obamacare, of course, you know, twice, notably,
09:23in Moore versus Harper, a huge election case
09:27that the Republicans thought, if they won,
09:29would entrench Republican rule for decades.
09:32They lost that six to three.
09:34They just upheld Mephistopheles Stone,
09:35the abortion drug, last year.
09:37So, you know, example after example
09:39of the court doing the right thing.
09:42With Elizabeth's case in particular,
09:44and I don't think it's gonna go to the Supreme Court
09:45because it's just so obviously right
09:47that I think she'll win this.
09:49And I don't think that the other side
09:50would wanna try and take it to the Supreme Court.
09:53But basically, you know, they've got,
09:57in the case, there's a program that Hello Alice administers
10:01with an insurance company where they give 10 grants
10:04to African American owned businesses.
10:08And the claim is that it's, you know,
10:10discriminatory and so on.
10:12Well, the guy who they found as their plaintiff
10:15to file the lawsuit couldn't even allege
10:17that he met the criteria for getting a grant
10:20in the first place, like the capital thresholds
10:22and things like that.
10:23So, you know, it's conservatives who've generally wanted
10:26to restrict access to the federal courts
10:29and say a plaintiff has to jump through
10:31a series of hoops first.
10:33So were the case to go to the Supreme Court,
10:35I think it would appeal to the left and right
10:37of the court equally.
10:39So what kind of programs do we think
10:43opponents of all this could go after?
10:45I mean, I'm thinking, you know,
10:47all the different government levels
10:48have set asides for women and minority owned businesses,
10:51et cetera, and they're a pretty big part of it.
10:53So are programs like that eventually potentially threatened
10:58by this, you know, this?
11:00Well, I mean, there is certainly, I think,
11:04I can't speak on the intention of those who sued us,
11:06but there's certainly a movement,
11:08and I wouldn't even say by conservatives.
11:10I mean, we're based in Houston, Texas.
11:12We had a lot of centrist Republicans
11:14very much supporting our case.
11:16Our small business owners are about 50-50,
11:18and they were all very supportive of this.
11:21So I think there is this alt-right, you know,
11:25extreme groups that are just trying to stamp out
11:30anything that they don't recognize.
11:32And the reason I brought up supply chain earlier
11:35is when I was an entrepreneur in residence at Dell,
11:37we did four billion a year in supplier diversity contracting.
11:40It was critical to our P&L.
11:42So that is an area where I just wanna encourage everyone
11:45to keep going.
11:46It's not new money.
11:47It's really important, both to the small business ecosystem
11:50as well as the companies themselves.
11:52Those are the types of things
11:53that I don't wanna see next on the list.
11:56Particularly, I live in a U.S. veteran household, Air Force,
11:59and if you look at the intersectionality
12:03of a lot of these issues, it does affect all of us.
12:05So my case, for example, is not just black
12:07and African-American small business owners.
12:09The vast majority of U.S. veteran friends now
12:11are people of color that are starting businesses.
12:14So if you say this doesn't impact veterans,
12:16it doesn't impact women, it doesn't affect, you know,
12:18your coffee shop, your dry cleaner, it's just not the case.
12:21So I wanna make sure
12:22that it's not just philanthropy and grants.
12:26I want us to think of this as supply chain, as jobs.
12:29It is a lot bigger than that concept.
12:32And just to pick up on something Elizabeth said
12:34about the politics, which I think she's absolutely right,
12:36I mean, it was an old line conservative principle
12:39when I was growing up that if you're running a business,
12:41you should generally be able to run it
12:43free of government regulation.
12:45And if you think about what these lawsuits are
12:47that Stephen Miller and all these people are filing,
12:50I don't think they expect to win.
12:51I think they expect to just force companies
12:54to unilaterally disarm and throw in the towel.
12:56But what's the basis of the lawsuit?
12:58They're saying, look, you know,
13:00you shouldn't have this diversity program.
13:02And look, if you wanna have like a debate
13:04about whether to have a diversity program or not,
13:06the company should have that debate.
13:08But they've lost, Stephen Miller's lost that debate.
13:11Companies wanna have these programs.
13:13And so he then runs to the court to say,
13:16oh, you can't have this program, even if you want to.
13:19He's trying to get the courts to do the work
13:22he was unable to do in persuading them
13:24to abandon their DEI programs.
13:27And so, you know, that to me is the antithesis
13:31of the conservative party that I grew up with.
13:34So is it unfair to surmise that the companies
13:37that dropped DEI a few months ago,
13:40they didn't really want it to start with
13:41and just had maybe jumped on,
13:43there was a lot of peer pressure?
13:45I think there's, you know, a range of different views
13:47from companies as there should be.
13:49I do not, I'm not someone who thinks you, you know,
13:51you're immoral if you don't have a program
13:54or something like that.
13:55But I think, you know, Elizabeth's right.
13:57The numbers are in the studies on diversity contributing
14:00to shareholder value are really powerful,
14:02but I'm sure there are people in every company
14:05that don't wanna have it or who wanna have
14:06an extreme version of the program, you know,
14:09in the other direction, you know, so it's all out there.
14:12But I do think, you know, that's where the debate should be.
14:15It should be in the boardrooms, not in the courtrooms.
14:18Okay, are there any questions?
14:20Don't be shy.
14:22Okay.
14:24Can somebody bring our friend from RBC a mic?
14:26There we go.
14:29Hi, thanks.
14:30First of all, congratulations for taking up this fight.
14:34I never thought I'd be congratulated for that,
14:35but thank you.
14:36Or condolences, either works.
14:38You made a point about it's okay for companies
14:42to do what they like and they can still run
14:45their D&I programs.
14:46They just have to do it right.
14:47Can you say more about what you mean about that?
14:50And if we're practitioners who are looking to do it right,
14:52what would that look like?
14:54Yeah, I mean, it's gonna depend on the various company
14:57and, you know, you'd wanna articulate the reasons
14:59for doing it and document them and, you know, and the like.
15:04You know, obviously things like quotas are impermissible,
15:08but things that are goals and outreach
15:10are absolutely permissible.
15:12I think it's important oftentimes,
15:14depending on the nature of the company,
15:16to do like what Elizabeth's company does,
15:18which is not just a grant program for racial minorities.
15:22It's for women, it's for veterans, it's for the disabled.
15:25And it's about what Hello Alice calls
15:28building an inclusive economy.
15:30So for that company, that, I think, program is structured
15:33really, really nice and is a wonderful example to look to,
15:37but it'll depend, obviously, on the company.
15:39Another example I'll just give is I was really,
15:44I thought it was very thoughtful,
15:45the argument for ESG from Delta this morning on,
15:48they want, you know, fuel emissions to lower
15:50because it saves them money, right?
15:52So I look at our business, so we're in credit,
15:55and there's a $40 billion gap for BIPOC community
15:59who applied for credit and got declined
16:01in the small business area.
16:01That is terrible for business, for our banks, for everybody.
16:05So to me, some of these programs are very relevant
16:07to our P&L, our bottom line,
16:09so that makes a lot of sense to me,
16:11to run a program that's gonna benefit the business, right?
16:14So I also think it's very relevant, to Neil's point,
16:17to what is your core mission, and then what fits in that,
16:20and hopefully that is an inclusive economy.
16:23So in our final moments together,
16:27do you think we're gonna see more of these kinds of losses
16:30as the one we saw that went after Hello Alice, or you know?
16:35Yeah, I think that that's the business model
16:37of some of these organizations that wanna do it.
16:40I don't think we'll see successful ones,
16:41because I think, you know, we've already won,
16:45you know, Elizabeth's case in the trial court.
16:47We're going to the Court of Appeals now.
16:50I suspect that when we win that,
16:51that will be at least something of a chilling effect
16:54on these lawsuits, and again,
16:57I think we should have this debate.
16:59It should just be a debate that's not as much legal
17:02as policy and what we think is right
17:04for the future direction of the company.
17:06Any final thoughts?
17:07I think, again, if we can all look at the bottom line,
17:11you know, the new majority of the small business owners
17:14we serve, they wanna make money, they wanna create jobs,
17:17and I think America as a capitalist society,
17:19and if we concentrate on that fact,
17:21we're all gonna move forward.
17:22Okay, thank you very much.
17:24Yeah, thank you.
17:25So please join me in thanking Neil and Elizabeth
17:27for joining us today.
17:30Wonderful.