New York has put pressure on regulated insurance companies throughout the state to ensure their leadership positions are filled by a diverse group of people based on race, gender, and ethnicity.
The New York Department of Financial Services sent a message last month to all domestic and foreign insurance companies regulated by the state telling them to “make diversity of their leadership a business priority and a key element of their corporate governance.” The DFS added that they would be collecting and publicizing the race, gender, and ethnicity makeup of the companies’ leadership for “transparency,” which really means they will open them up to mob shaming for not hiring enough non-white people.
“DFS has evaluated different regulatory approaches to promote DEI in the insurance industry, including the imposition of quotas and the collection and disclosure of diversity data on a company-by-company basis … . Based on our research and outreach, we have determined that the best way for DFS to support the insurance industry’s DEI efforts is by collecting and publishing data relating to the diversity of corporate boards and management. Data collection is essential to identify areas for improvement, set goals and measure progress toward those goals. Given the limited availability of insurance-specific diversity data, making that information public will allow companies to assess where they stand compared to their peers and, we hope, raise the bar for the entire industry. Transparency is a powerful catalyst for change,” DFS wrote.
Hans Bader, an attorney well versed in constitutional law, wrote at Liberty Unyielding that the directive from DFS “raises potential constitutional problems, because government agencies are not supposed to pressure regulated firms to use race or gender in hiring decisions.”
“In 1998, an appeals court struck down an FCC regulation that prodded companies to try to achieve diversity goals in hiring, by auditing them if they failed to achieve those goals,” Bader added. The FCC also took a court loss in 1992 when a court rejected its plan to consider gender when awarding broadcast licenses in an effort it said would promote diverse perspectives.
Because of these and other similar court rulings, Bader argued, the New York DFS should not be able to similarly force businesses to consider qualities such as gender or race even if they are doing it to promote “diverse perspectives to problem-solving.”
More from Bader:
Hiring based on race or gender can be quite harmful. Whether or not naturally-occurring “diversity” helps employers perform better, coerced hiring based on gender or race does not. Pressure to hire based on race or gender can damage a company’s performance by resulting in less qualified hires. After Norway adopted gender diversity rules for corporate boards — requiring companies to have boards of directors comprised of at least 40 percent women — unqualified people ended up as corporate directors. “A study by the University of Michigan found that this led to large numbers of inexperienced women being appointed to boards, and that this has seriously damaged those firms’ performance.”
Even on government boards, where representing society at large can be more important than paper qualifications, judges have said that gender quotas and set-asides are unconstitutional. Courts have struck down gender-balance requirements for boards and commissions in cases such as Back v. Carter (1996), rejecting the argument that setting aside seats for women and minorities promotes “inclusion” and “diversity.”