This Seyfarth memo summarizes the guidance contained in the two documents and identifies several specific areas of potential concern, including diverse interview slate policies, employee resource groups with membership restrictions, segregated training and programming, and mentoring or networking programs limited to members of protected classes.
It also notes that the EEOC guidance emphasized that no general business interest in diversity will justify race-motivated employment actions, and also clarified the EEOC’s position on how Title VII applies to other aspects of workplace DEI initiatives and practices. Here’s what the memo has to say about the EEOC’s positions on “reverse discrimination” and mixed motives:
Broad Application of Title VII and Rejection of the Concept of “Reverse” Discrimination: The EEOC’s technical assistance confirms the well-understood principle that Title VII’s protections “apply equally to all workers” and that “different treatment based on race, sex, or another protected characteristic can be unlawful discrimination, no matter which employees or applicants are harmed.” The EEOC rejects the concept of ‘reverse discrimination,’ stating that “there is no such thing as ‘reverse’ discrimination; there is only discrimination.”
Mixed Motive: The EEOC’s technical assistance confirms its position that the mixed-motive standard under Title VII applies fully to DEI-related employment decisions. The document states plainly: “An employment action still is unlawful even if race, sex, or another Title VII protected characteristic was just one factor among other factors contributing to the employer’s decision or action.” It explicitly rejects the argument that discrimination occurs only when protected characteristics are the “but-for” or deciding factor, making clear its position that even partial consideration of race, sex, or other protected characteristics in DEI initiatives can create Title VII liability.
The memo says that the EEOC’s guidance likely foreshadows its upcoming enforcement initiatives, and recommends that companies whose current or recent DEI practices may run afoul of this guidance should consider conducting privileged reviews of those initiatives.
Hey gang, our colleague Meaghan Nelson continues to blog up a storm over on “The Mentor Blog,” which is available to members of TheCorporateCounsel.net. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply clicking the link on the left side of the blog and entering their email address. Here are some of Meaghan’s recent entries:
You’ll love Meaghan’s stuff – she brings a unique perspective to our team and is confronting many of the same challenges a lot of our members face in juggling a career in corporate law with the responsibilities of a young family. She’s also very funny. I don’t usually pat myself on my back for my brilliant ideas (okay, that’s a lie), but I’m particularly pleased with myself for deciding to resurrect The Mentor Blog and to put Meaghan at its helm. It’s never been better!
One of the things that’s differentiated the AI boom from the dotcom extravaganza of the 1990s is the fact that most of what’s been going on in AI has been taking place in large, well-established public companies like NVIDIA. So far, we haven’t seen startup AI players try to tap the public capital markets through IPOs, but CoreWeave’s recent Form S-1 filing suggests that may be about to change.
CoreWeave is a cloud-computing company based in Livingston, New Jersey, that specializes in providing cloud-based graphics processing unit (GPU) infrastructure to artificial intelligence developers (okay, so I lifted that verbatim from Wikipedia – it’s a lot less fizzy than what’s in the S-1 and I can almost understand it). Anyway, the company is one of the fastest growing AI cloud infrastructure providers, and over the past three years, its revenue has risen from less than $16 million to nearly $2 billion. CoreWeave’s losses have grown even more impressively over that period, rising from $31 million in 2022 to $937 million in 2024 – which, with apologies to Gilbert & Sullivan, makes it the very model of a modern IPO candidate.
Staggering losses aside, this IPO filing is a lot less silly than what we’re accustomed to seeing from the previous generation of Unicorns. There’s no goofy mission statement or founder’s letter or unintentionally hilarious (see 2nd blog) related party transactions disclosure. Instead, as befits something new under the sun, the prospectus kicks off with four pages of “Selected Definitions” designed to acquaint investors with the jargon-rich world of AI cloud computing and includes nearly 60 pages of “Risk Factors.” While most of what’s in the Risk Factors section is pretty much what you’d expect, this one on negative publicity caught my eye because of the way they hit the whole “hypothetical risk factor” issue head on in the language I’ve highlighted below:
If negative publicity arises with respect to us, our employees, our third-party suppliers, service providers, or our partners, our business, operating results, financial condition, and future prospects could be adversely affected, regardless of whether the negative publicity is true.
Negative publicity about our company or our platform, solutions, or services, even if inaccurate or untrue, could adversely affect our reputation and the confidence in our platform, solutions, or services, which could harm our business, operating results, financial condition, and future prospects. Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners, consultants, suppliers, and outsourced service providers. Additionally, negative publicity with respect to our partners or service providers could also affect our business, operating results, financial condition, and future prospects to the extent that we rely on these partners or if our customers or prospective customers associate our company with these partners.
Another thing about the offering that’s worth noting – it doesn’t look like multi-class structures are going the way of the Dodo anytime soon. CoreWeave has Class A, Class B, and Class C shares, and another high-profile IPO filing from last week, StubHub, has Class A & Class B shares. Finally, these filings include a bit of good news for embattled Delaware – both of these companies are incorporated there.
Woodruff Sawyer recently blogged about how the burgeoning use of AI technology is influencing the market for property & casualty, cyber and D&O insurance. Here’s what the blog has to say about AI’s implications for D&O coverage:
AI’s impact on D&O insurance is multifaceted. The rapid growth and hype around AI have led to inflated valuations for some AI companies, raising concerns about potential securities class actions if these companies fail to deliver on their promises. New laws and regulatory scrutiny around AI—like what has been seen with privacy regulations—could lead to fines and penalties, further increasing D&O risk.
Given these dynamics, companies should reassess their D&O coverage, particularly the limits and scope of coverage for derivative claims. These claims, often filed when directors are accused of failing in their oversight roles and causing significant financial harm to the company, can result in substantial settlements. In most states, including Delaware, companies cannot indemnify directors for settlement in derivative cases—if adequate D&O coverage is not in place, the directors would be responsible for paying the settlement out of pocket.
The blog says that D&O underwriters will scrutinize the board’s oversight of AI risk and whether the company uses AI in a thoughtful manner. AI disclosures will also be front and center in the underwriting process, due to concerns about companies’ “AI-washing” to pump their stock market valuation.
Interested in more on AI risk management and compliance issues? Check out our free AI Counsel Blog, where we highlight useful resources and share guidance on best practices for front-line risk management and compliance professionals who are dealing with the challenges of artificial intelligence, cyber, and other emerging technologies. Be sure to click on the “subscribe now” button to ensure that you receive our latest blogs in your inbox!
Earlier this month, the American Bar Association issued a statement on actions by the Trump administration that the ABA believes have undermined the rule of law and the legal profession. Here are the concluding paragraphs of that statement:
We reject efforts to undermine the courts and the profession. We will not stay silent in the face of efforts to remake the legal profession into something that rewards those who agree with the government and punishes those who do not. Words and actions matter. And the intimidating words and actions we have heard must end. They are designed to cow our country’s judges, our country’s courts and our legal profession. Consistent with the chief justice’s report, these efforts cannot be sanctioned or normalized.
There are clear choices facing our profession. We can choose to remain silent and allow these acts to continue or we can stand for the rule of law and the values we hold dear. We call upon the entire profession, including lawyers who serve in elected positions, to speak out against intimidation. We acknowledge that there are risks to standing up and addressing these important issues. But if the ABA and lawyers do not speak, who will speak for the organized bar? Who will speak for the judiciary? Who will protect our system of justice? If we don’t speak now, when will we speak?
The American Bar Association has chosen to stand and speak. Now is the time for all of us to speak with one voice. We invite you to stand with us.
I’m in the twilight of my career and no longer face the pressures associated with practicing in a law firm or corporate law department, so my taking a stand on this issue is pretty far from courageous. Still, for what it’s worth, I believe the administration’s actions are inconsistent with the Constitution and the laws of the United States that I took an oath to support when I became a lawyer, and I’m adding my name to those much braver members of the profession who have already endorsed the ABA’s statement.
Yesterday, Corp Fin issued a “Staff Statement on Meme Coins” in which it said that it did not view so-called “meme coins” as securities for purposes of the federal securities laws. The Statement defined meme coins as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading.” It went on to analogize meme coins to collectibles, because they are usually purchased for “entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation.”
The Statement then analyzed the legal status of meme coins under the federal securities laws and concluded that they were not “securities” under the Howey Test . This excerpt summarizes the basis for that conclusion:
The offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
The Staff cautioned that meme coins that don’t fit the description outlined in the statement may be securities and will be evaluated based on the economic realities of a particular transaction.
The problem of director notetaking during board meetings is a persistent one, and the bad news is that, as Ralph Ward highlighted in a recent issue of The Boardroom Insider, it’s becoming even more challenging to address as AI tools find their way into the boardroom. This excerpt provides some examples:
In a thoughtful client alert, Robins, Kaplan partner Anne Lockner cites the true-life story of an online board meeting with a member who was logged in, but not actually participating. Instead, he had an online AI assistant sit in to prepare a summary for later review (and later circulation to all participants). While there’s “nothing to prevent participants from taking their own notes, using AI to summarize would be hard to stop,” she says. Still, this situation creates multiple legal nightmares, such as whether the director is actually “attending,” fiduciary duty, and confidentiality of the notes.
Another note-taking tech headache – what if the director is indeed present and participating, but using one of the many transcription tools to take his own minutes/notes of the meeting? While most online meeting platforms give the moderator power to record the session or not (and to prevent participants doing so), using such a capture widget on your own computer (or even on your smart phone) to transcribe would be simple. Of course, this creates an alternate version of the meeting minutes. If preserved, it would be fair game for any legal discovery demand down the road, and could tell a very different tale from that of the approved minutes.
It’s enough to send a shiver down your spine, isn’t it? Anyway, I think every lawyer who has ever counseled a board has a horror story about director notes. Mine involves a director who wrote a speech opposing a proposed merger that he planned to deliver at the board meeting held to consider it. He ultimately supported the deal, so the speech went undelivered, but he kept it, and it ended up in the plaintiff’s hands. The plaintiff’s lawyer had a very good time with the speech during the director’s 11 hour deposition – the director, well, not so much.
In addition to their typically higher profile, public companies may also have heightened security concerns for their executives since they are often required by Regulation FD to disclose their executives’ involvement in certain public events, so it’s common for high-profile public companies to engage and pay for personal security services for their CEOs and other senior executives. Some public companies also require their executives to use company aircraft for personal travel due to security concerns.
The December 2024 shooting of the CEO of UnitedHealthcare has caused public companies to reassess — and sometimes enhance — their security arrangements and other measures they take to protect the safety of their executives. We’ve recently posted a new “Checklist: Executive Security” that addresses the following topics — all of which boards and management teams should be aware of as they consider changes to executive security programs:
– Recent trends in personal security spending by public companies
– Additional steps companies are now considering to minimize risks to their management teams
– Board fiduciary duty considerations
– SEC disclosure requirements
– Institutional investor and proxy advisor positions
– Tax and benefit implications of personal security arrangements
Last December, a group of prominent law professors came together to form a group they call “The Shadow SEC,” whose stated purpose is to “provide, encourage, facilitate, and distribute policy discussions and debates relating to the federal securities laws” and the SEC. In response to the Trump administration’s Executive Order asserting presidential control over independent agencies like the SEC, the members of this group penned a spirited defense of the SEC’s independence on the CLS Blue Sky Blog. Here’s what they argue are some of the consequences if the agency loses its independent status:
What would happen if the SEC in fact loses its independence? Concentrated interest groups can be expected to pressure each new administration to change regulation in ways that might not be in the interest of investors and the public and that might not enhance capital formation. Entrenched companies could seek to have the SEC build regulatory moats to prevent competition. Parties seeking to avoid the rigors of the SEC’s disclosure regime may succeed in having that regime diluted and subject to expanded exceptions, making share prices less accurate and eroding the efficiency of the pricing of capital and distorting the manner in which U.S. firms are operated.
What this defense doesn’t address is the proverbial “elephant in the room” – the Trump administration’s embrace of the “unitary executive theory” and what a judicial endorsement of that theory would mean for independent agencies. This theory essentially says that the President possesses sole authority over the Executive Branch, including the ability to remove any subordinate officials at will. In other words, truly “independent” agencies aren’t a thing that the Constitution contemplates.
As Meredith pointed out in her recent blog on the Executive Order, the SCOTUS held in a New Deal Era case called Humphrey’s Executor v. US that the President didn’t have the authority to fire the head of an independent agency. Justice Scalia questioned Congressional efforts to limit executive power in this fashion in his dissent from the SCOTUS’s 1988 decision in Morrison v. Olson(“Article II, § 1, cl. 1, of the Constitution provides: “The executive Power shall be vested in a President of the United States”. . . [T]his does not mean some of the executive power, but all of the executive power.”).
Scalia was the lone dissenter in that case, but more recently, the Humphrey’s Executor decision and cases following it have been criticized by a growing chorus of conservative scholars and practitioners. Many expect that the current SCOTUS will be open to revisiting and ultimately overruling it – and a high court showdown certainly seems to be where all this is heading.
The unitary executive theory has plenty of conservative champions, but it’s worth noting that even in this deeply partisan era, not all conservative scholars are on-board. For example, here’s what George Mason law professor Ilya Somin wrote about the risks of reviving the unitary executive theory in a 2018 Cato Institute publication:
Federal agencies now regulate almost every aspect of American life. If the president has near-total control over them, he or she has much greater power than originally granted — more than can safely be entrusted to any one person. So long as the executive wields authority far beyond the original meaning, Congress should be allowed to insulate some of it from total presidential control to prevent excessive concentration of power.
As I read The Shadow SEC’s defense of the SEC’s status as an independent agency, it occurred to me that in today’s politically fraught environment, it’s hard for the SEC or any agency to be truly independent, whether the President can replace its leadership at will or not. For example, just look at what’s transpired at the SEC over the past month or so.
On his way out the door, former SEC Chair Gary Gensler gave a steroid shot to his crypto enforcement team in an effort to ensure that the crypto crackdown continued after his departure. Then, during the final week of Biden’s presidency, the SEC decided to file an enforcement action against Elon Musk for alleged Section 13(d) violations.
I’m firmly in the camp of those who believe that Elon Musk thinks he’s above the law and should be held to account, but the optics of an 11th hour decision like this couldn’t be worse. In fact, Bloomberg Law is reporting that this decision looked so bad that it prompted Commissioner Uyeda to take the extraordinary step of asking Enforcement staffers if they were willing to sign off on a statement that their recommendation to pursue an action against Musk was not politically motivated. (That’s not a great look either.)
After Trump’s inauguration, the SEC immediately put the kibosh on the climate change rules and responded to Gary Gensler’s efforts to install a “dead hand pill” for his crypto crackdown by replacing the agency’s existing crypto & cyber unit and, more notably, exiling its top crypto litigator to Siberia. Of course, all of this came on the heels of years of Commission actions in which we’ve usually been able to count on important policy issues being decided by a 3-2 party line vote.
After an extended period of this kind of partisan tug of war at the SEC, it’s a little hard not to raise an eyebrow when members of The Shadow SEC say things like if the SEC wasn’t independent, “[c]oncentrated interest groups can be expected to pressure each new administration to change regulation in ways that might not be in the interest of investors and the public and that might not enhance capital formation.” C’mon – seriously? I mean, have these folks been paying attention to anything that’s happened at the SEC over the past decade or so?
I think the basic problem isn’t the leadership at the SEC or other independent agencies, it’s that Congress’s sclerotic legislative process has put these people in an untenable position. As I’ve previously blogged, the simple truth is that Congress can’t get its legislative act together, so whatever party controls the White House will continue to push the people running federal agencies to accomplish what really should be legislative objectives. Until that’s addressed, a lot of agency actions are going to look highly partisan and pretty far from anyone’s idea of “independent.”