Civil Rights Audits: A Good Value
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Civil Rights Audits: A Good Value

Brownstein Client Alert, May 12, 2022

What do civil rights laws, emerging technology and the business community have in common? The growing demands for civil rights audits.

There are several reasons businesses should conduct civil rights audits. First, it makes cents. Literally. Research has shown that a company’s reputation accounts for 63% of its market value. Of course, reputation is influenced by a myriad of factors, including quality of services, quality of employees, ethics and values, corporate culture, and diversity and inclusion to name a few. Promoting a culture of respect for civil rights directly—and positively—impacts three of the five foregoing reputational factors. In other words, a civil rights audit enhances a company’s demonstrated values, corporate culture and diversity efforts. These enhancements lead to a better reputation. A better reputation measurably leads to a higher market value. A civil rights audit makes good financial sense.

Second, investors are increasingly asking for civil rights audits. Third, technological advancements, such as the proliferation of algorithms, is leading to increased regulatory scrutiny surrounding algorithmic discrimination and proxy discrimination. Fourth, civil rights audits identify litigation and public relations risks. Indeed, various state attorneys general offices have dedicated civil rights units.1 Also, the federal government is increasingly focusing on the potential discriminatory effects of emerging technology (see e.g., here and here). Notably, the House Financial Services Committee has focused on civil rights issues throughout the 117th Congress. Last summer, the committee held a hearing highlighting the value provided by a commitment to economic and racial justice issues. In the hearing, Congress introduce H.R. 1187, the Corporate Governance Improvement and Investor Protection Act. This bill, which passed out of the U.S. House of Representatives, would require publicly traded companies to periodically disclose information related to:

  • environmental, social and governance performance metrics;
  • expenditures for certain political activities;
  • compensation information regarding executive officers and employees;
  • climate change-related risks, including direct and indirect greenhouse gas emissions and fossil fuel-related assets;
  • tax jurisdiction, income and assets of constituent entities on a country-by-country basis;
  • workforce management policies, practices and performance;
  • incidents of workplace harassment and retaliation;
  • cybersecurity;
  • the demographic composition of the board of directors and executive officers; and
  • manufacturing activity in China's Xinjiang Uyghur Autonomous Region.

We have seen several rulemakings at agencies that align with the intent of this bill. In addition to Congress, several agencies have also made these issues a priority. For example, the CFPB last fall named Eric Halperin, a fair lending litigator and civil rights official at the Justice Department in the Obama administration, as its head of enforcement. As another example, the U.S. Department of Education recently announced plans to gather public input on possible amendments to strengthen and protect the rights of students with disabilities in regard to Section 504 of the Rehabilitation Act of 1973, the landmark disability civil rights law. These are just two examples, but the trend of an increased focus on civil rights issues can be found in numerous federal agencies and in administration priorities.

Finally, even without further legislation, there are many federal civil rights laws2 that enable litigation. An ounce of prevention is worth a pound of cure. In other words, it is more cost-effective to prevent civil rights litigation and/or a public relations crisis than it is to respond to the crisis after it blindsides the company.

So, what is a civil rights audit? The answer is, it depends from company to company. The common thread is that a civil rights audit should start with a clear goal or set of goals. For business professionals, this step is akin to drafting a strategic plan before defining key performance indicators. Clearly defining the goals of an audit will help shape its scope: which internal and external stakeholders are consulted, the impact of those interviews on the risk-based analysis, which internal and external documents are reviewed, which datasets are examined (e.g., disaggregated datasets), which types of experts are needed (e.g., statisticians to review perceived wage disparities) and a timeline for the audit. A critical component of a civil rights audit is the identification of risk and a plan moving forward. This component is tricky because the details of a plan to mitigate risk should be confidential. Ensuring confidentiality requires vigilance from the beginning of the audit. For example, to assert the attorney-client privilege, one purpose of the audit should be to prepare for litigation. Further, attorneys should appropriately label documents and communications (i.e., “attorney-client communication” or “attorney work product”). Also, attorneys should manage the audit and avoid mixing legal and business advice in the same communication. These steps will help preserve the confidential nature of the risk assessment.

In addition to the confidential risk assessment, there should be a public-facing report identifying civil rights areas of concern, the steps taken by the company to date and the steps the company will take in the future.

In conclusion, there are business- and litigation-related reasons companies should consider civil rights audits. And each audit should be uniquely tailored to the business at issue. Importantly, civil rights audits require a meticulous approach from the outset to ensure confidentiality where appropriate. As regulators at the state and federal level turn their attention to these issues in both enforcement and rulemaking areas, companies should weigh the benefits of conducting a civil rights audit against the risks of failing to do so.

1 The state attorneys general of Arizona, California, Colorado, the District of Columbia, Florida, Massachusetts, New Jersey, New York and Virginia are examples of offices that have dedicated civil rights units.

2 See e.g., the Civil Rights Act of 1964 (often referred to as a “1981 claim” because it is codified in 42 U.S.C. § 1981), the Age Discrimination Act, the Fair Housing Act, the Americans with Disabilities Act, Section 504 of the Rehabilitation Act, and the Equal Pay Act.

This document is intended to provide you with general information regarding civil rights audits. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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