Making Full Use Of The Maturing Workforce 
By: Marian Stoltz-Loike, PhD
With David Madison, PhD

Supreme Court Rulings on Race and Retribution:
Implications for the Workplace
by Peter Hillman with David Madison, Ph.D.  

The following article is based on Mr. Hillman's address to the Employment Roundtable. For a description of this organization, its mission statement and roster of membership, see the end of this article.
 
With thousands listening in on April 1, 2003 the Supreme Court heard the arguments in Gratz vs. Bollinger and Grutter vs. Bollinger, suits challenging the race-conscious admissions policy of the University of Michigan and its law school. For only the second time in its history, the Court even allowed audio recording of the arguments, because of heightened public interest (the Bush vs. Gore case to settle the 2000 election was the first time). The recording was released within an hour of the dramatic confrontation, and even now is readily available on the Internet.

 The University of Michigan found itself the target of lawsuits, and subsequently the focus of national attention, because of its policy of using race as a factor in weighing applications for admission. There were actually two separate cases before the Court because the policies of the undergraduate school and the law school differed. The undergraduate school used a point system that prompted one justice to observe, “If nothing else, this is a thinly disguised quota.” Points were awarded, for example, for high GPAs and SAT scores, serving in leadership roles, and for being African-American, Hispanic or Native American.

 The law school, in contrast, welcomed minorities without using points, quotas or explicit goals. While it avoided a numbers game, it didn’t hide the fact that it sought a critical mass of diverse people: if two applicants had equal qualifications, it would favor the African-American, Hispanic or Native American if it felt to do so would help maintain minority representation and balance.

Affirmative Action: Now Deeply Rooted
 These admissions policies—obviously forged with the very best intentions—almost inevitably forced the issue of reverse discrimination, prompting the suits against the undergraduate school and law school. The issue in these cases was racial preference. The plaintiffs in both cases were women (actually a man and a woman in the undergraduate case), but discrimination because of gender was not a factor. In fact, there are now more women than men in law school (51 percent to 49 percent).

Discrimination because of gender was not a factor.
In fact, there are now more women than men
in law school.

   Affirmative action has been the subject of debate since the concept was born several decades ago, and these 2003 cases represented an opportunity for the Supreme Court to weigh in again on the topic—with potentially far-reaching consequences. The first famous case challenging affirmative action was that of Allan Bakke, a white man who sued the University of California for its race-conscious admissions policy. But the 1978 Supreme Court ruling in the Bakke case—even though Bakke won and was admitted to the medical school—had helped the cause of affirmative action because of Justice Powell's opinion (with the majority of the court agreeing) that race can be used as a plus factor in evaluating admissions. The EEOC, the Department of Labor and Office of Contract Compliance, among many others, have used Powell's 1978 opinion as a guideline.

 The University of Michigan had other grounds as well for assuming that its race-conscious admissions policy had the blessings of government and law. Anyone who does business with the Federal government knows the importance of Executive Order 11246, issued in September 1965 by President Johnson. The essence of this order is that anyone who sells products or services to the Federal government, at more than a token level, must take ‘affirmative action’ to employ and promote women, minorities and the disabled. And the government doesn’t just take it on faith that companies are doing their best. They must develop affirmative action plans and be audited. Furthermore, the Civil Rights Act of 1964 provides that, in cases where a jury has found intentional discrimination, the adoption of an affirmative action plan is deemed a remedy.

 Title Six applies specifically to higher education, and stipulates that schools that receive Federal monies must implement affirmative action plans. This has had far-ranging impact because so many schools do get Federal funds. Over the years many states have followed the example of the Federal legislation, adopting parallel statutes in support of affirmative action. Many companies, valuing diversity as part of their corporate cultures—and simply wanting to be good citizens—have voluntarily put affirmative action policies into place.

Companies have recognized that individuals from diverse backgrounds bring valuable differences in
perspective and experience to all aspects of corporate decision-making.

Input from the Business Community
 One measure of the keen interest in the University of Michigan cases was the volume of amici curiae or ‘friend of the court’ briefs (more than 200) submitted to the Supreme Court by parties wanting to throw their support to—and marshal arguments on behalf of—one side or the other. And a measure of the degree to which affirmative action has become entrenched in American life and in the way we do business is the stature of the friends of the court who stepped forward to support the University of Michigan—or who at least didn’t want to see affirmative action appreciably damaged or diminished. 

 For example, the highly respected Equal Employment Advisory Council, a consortium of industry leaders, weighed in with a brief that included eloquent arguments in favor of diversity—testifying to an enormous shift from the climate of the business world that prevailed at the time of the Bakke case a quarter century ago:

 American corporations today operate in an extraordinarily diverse environment. Internally, that diversity is reflected in employee populations that consist increasingly of individuals drawn from widely varied backgrounds, reflecting the growing diversity of the nation as a whole. Externally, that diversity is reflected in diverse consumers often spread across global marketplaces. To be successful, American companies must be able to operate effectively in such an environment. This will occur only if the corporate leaders of tomorrow are themselves diverse and are comfortable living and working with individuals having different backgrounds and experiences.
 The ‘business case for diversity’ is strong and well-documented. Its basis is three-fold.
 First, changing national demographics will require companies increasingly to fill key management positions with diverse candidates, both to communicate with potential customers and to manage effectively a workforce composed of employees of differing backgrounds.
 Second, U.S. companies increasingly are entering the global marketplace, creating a need for employees at all levels who are skilled in dealing with the culture of each customer country.
 Third, companies have recognized that individuals from diverse backgrounds bring valuable differences in perspective and experience to all aspects of corporate decisionmaking, from operations to marketing to communications to human resources. For all these reasons, cultivating a diverse workforce leads to a demonstrable increase in the ‘bottom line’….

Input from Military Leaders
 Perhaps the most compelling and intriguing brief in support of the University of Michigan was filed by senior (retired) representatives of the nation's military, including Generals Wesley Clark, Norman Schwarzkopf and Hugh Shelton, among many others. Their statement noted that, at the end of the Vietnam War, only three percent of Army officers were African-American. Today 19 percent are minority (African-American, Hispanic, Asian and Native American), and this realignment was accomplished only because of race-conscious recruiting practices, which, they argued, must be kept in place. The brief included the following points:

Thomas Jefferson did not mean what we mean by ‘all men are created equal.’ Men meant male and white.  But we can see the
implications of the words even if he could not have.

At present, the military cannot achieve an officer corps that is both highly qualified and racially diverse unless the service academies and the ROTC use limited race-conscious recruiting and admissions policies.
 The military has made substantial progress towards its goal of a fully integrated, highly qualified officer corps. It cannot maintain the diversity it has achieved or make further progress unless it retains its ability to recruit and educate a diverse officer corps. This court and others have recognized that in certain contexts, the government may take race-conscious action not only to remedy past discrimination, but to further other compelling government interests…the military must be permitted to train and educate a diverse officer corps to further our compelling government interest in an effective military.
 In full accord with Bakke and with the Department of Defense Affirmative Action Program, the service academies and the ROTC have set goals for minority officer candidates and worked hard to achieve those goals. They use financial and tutorial assistance, as well as recruiting programs, to expand the pool of highly-qualified minority candidates in a variety of explicitly race-conscious ways. They also use race as a factor in recruiting and admissions policies and decisions.
 Today, there is no race-neutral alternative that will fulfill the military’s, and thus the nation’s, compelling national security need for a cohesive military led by a diverse officer corps of the highest quality to serve and protect the country.

The military cannot
maintain the diversity it has achieved unless it retains its ability to recruit and educate a diverse
officer corps.

What Would
George Washington Do?
 The nation’s top brass even reached back to words of our first commander-in-chief, George Washington, for a quote in favor of diversity. In a letter to Alexander Hamilton in 1796, Washington had reflected on the positive impact of having an army drawn from many parts of the country:

 The Juvenal period of life, when friendships are formed, & habits established that will stick by one; the Youth, or young men from different parts of the United States would be assembled together, & would by degrees discover that there was not that cause for those jealousies & prejudices which one part of the nation had imbibed against another part…What, but the mixing of people from different parts of the United States during the War rubbed off these impressions? A century in the ordinary intercourse, would not have accomplished what the Seven years association in Arms did.

Leaders sent a message to the high court:
don’t do anything that will set back the clock on
affirmative action.

 This argument might sound like a stretch to some, since Washington would not have had multi-racial exposure in mind. And Thomas Jefferson did not mean what we mean by ‘all men are created equal.’ Jefferson meant men as in male, and, for him, all men meant all white men. But we can see the implications of words written by Washington and Jefferson even if they could not have.

 It is clear from these two amici curiae that important business and military leaders were attempting to send a message to the high court: whatever you decide to do with the University of Michigan, don’t do anything that’s going to set back the clock on affirmative action and diversity—both are too important: America’s competitive edge and national security will be in jeopardy if either are weakened.

The Supreme Court has given the green light to schools—and by extension businesses—to use less
subtle ways than a point system to take race into account.

The Justices Speak: Clarifying Rules for Affirmative Action
 A majority of the justices relied heavily on the two briefs quoted above, and seem to have heard the message loud and clear. On June 23, 2003 the Court issued its rulings in the two University of Michigan cases. A 5-4 majority, with Justice O’Connor regarded as the swing vote, upheld the law school’s program (the Grutter case), which considers race as a factor in admissions but does not assign specific weight to it, i.e., it does not give a numerical value to race or otherwise strive for a rigid quota. That policy was narrowly held not to be a violation of the equal protection clause of the Fourteenth Amendment. That is, the preference program does not unconstitutionally discriminate against white students. But, a broader majority (6-3) overturned the undergraduate school’s program (the Gratz case) that gave some minority students an automatic 20-point bonus on a 150-point evaluation scale. The program upheld in Grutter was found to be ‘narrowly tailored’ “…to further a compelling interest in obtaining the educational benefits that flow from a diverse student body.” The Court declared that a broad social value may be gained from diversity in the classroom. The stricken program in Gratz, in contrast, was not ‘narrowly tailored.’

  Thus the Supreme Court has given the green light to schools—and by extension businesses—to use less subtle ways than a point system to take race into account in admissions and employment decisions. The critical caveat is that schools and businesses must structure these programs the right way. On August 28, the University of Michigan announced that a new policy was being implemented:

“It will be a much more individualized review,” university spokeswoman Julie Peterson said Wednesday. “And clearly with the volume of applications, we’re going to have to add staff, which we’ve said from the beginning that we’re ready to do.” A new application for prospective students also was to be available beginning Thursday, according to the school’s website. Peterson said the new admissions process has been developed during the past several weeks to comply with the Supreme Court’s ruling. University President Mary Sue Coleman has said the rulings provided ‘a reasonable and moderate pathway to fair and equal educational access.’ She also has said the new policy will continue to factor in race. (Associated Press, as quoted on www.CNN.com)

The Supreme Court on Punitive Damages: Impact on the Employment Practices
 The high court also ruled this year in another case that has implications for the workplace. Employers don’t just have to worry about discrimination in hiring; they also have to deal with issues such as racial, ethnic and gender bias on the job. Any employer who is attempting to resolve discrimination cases will find that punitive damages is an area of the law fraught with danger—and spectacular cases of excess and abuse have become notorious and common. Although the Supreme Court has shown a reluctance to enter arenas that it doesn’t have to, when lower courts indulge in egregious rulings, it will take cases that offer opportunities to address imbalances.

Employers don’t just have to worry about discrimination in hiring, but also with racial, ethnic and gender bias on the job.

 The issue at hand is the desire for fair balance or ratio between compensatory and punitive damages. Put most simply, if a court awards you compensatory damages following an auto crash in which your car was totaled, you get money equal to the value of your car and other out-of-pocket losses: you are compensated for your loss.

 Punitive damages are much broader in scope, and are usually meant to serve two purposes:

 (1) Deterrence, the theory being that a heavy fine is likely to make people think twice about doing harm or damage to someone else. Attorneys who plead with juries for punitive damage awards have been known to aim for the highly dramatic, e.g., “I want you, ladies and gentlemen of the jury, to send a message. What you decide here will be heard by all Fortune 500 companies. The sound of shattering glass [as in a glass ceiling being broken] will be heard throughout Wall Street.” One lawyer, making this point, even broke a glass.

Excessive punitive damage awards can themselves cause damage and work against justice and fairness.

 (2) Retribution or punishment. That is, someone who has committed a wrong with intended malice should be punished. Juries can be highly sympathetic to plaintiffs whom they feel have been treated unfairly with malicious intent by an employer. In the employment litigation arena, few things seem to count for more than the violation of fair play. Juries seem to relish the opportunity to strike back. The presumed wealth of the defendant also becomes a factor when juries
consider punishment. Self-styled ‘country lawyer’ Gerry Spence has won huge cash awards for his clients using variations on his famous ‘this is peanuts’ formula: “Here’s the annual statement of the company. Its profit last year was $500 million. All my client is asking for is one percent of that—this is peanuts.”

 This has introduced what might be called ‘the lottery factor’ into the legitimate business of redressing employment grievances—which puts businesses and their representatives at genuine risk. Companies and lawyers may be reluctant to take very defensible employment cases to full trial if the prospect exists for runaway punitive damages. It’s so hard to predict, let alone control, what a jury will do behind closed doors. The alarm bells go off particularly with claims of sexual harassment—especially when physical touching or verbal abuse is involved—or when the charge is egregious race, gender or sexual orientation bias. In 2003, Leona Helmsley lost her case against Charles Bell, who had claimed he was fired as a Helmsley hotel manager because he is gay. The jury awarded Bell $1.17 million in compensatory damages and $10 million in punitive damages. After a flurry of post-trial motions, the judge substantially reduced the awards, and appeals have ensued. But most people remember only the initial headlines. Clearly the judge and many others who worry about the long-term impact of such actions might agree with Mrs. Helmsley’s attorney that the punitive award was “irrational.”

 Excessive punitive damage awards can themselves cause damage and work against justice and fairness. We all end up paying for excessive damage awards when our homeowner or auto insurance premiums go up—and when doctors go on strike or opt out of the profession altogether because they can’t afford malpractice insurance rates. The issue is not punitive damage itself, but runaway awards. There often are legal caps on punitive damages, depending on the applicable laws, jurisdiction and nature of the violation, but matters can still appear to be a free-for-all. A federal or state cap has no bearing if a suit is based on a local statute; the Helmsley case, for example, was based on a New York City law with no caps.

We all end up paying for excessive damage awards when our homeowner or auto insurance premiums go up—and when doctors go on strike or opt out of the profession altogether because they can’t afford malpractice insurance rates. 

The Justices Look for Balance
 The Supreme Court decided to take a case where the runaway award for punitive damages appeared to exceed all standards of common sense and logic. In April 2003 it handed down its decision in the case of State Farm vs. Campbell, which involved a punitive damage judgment by a lower court of $145 million against State Farm, in comparison to $2.6 million in compensatory damages. This represented a ratio of about 56 to 1, which the Court considered enormously out of line, favoring a ratio of 1 to 1 instead. Even a worst-case scenario ratio, the court felt, would be 9 to 1.  

 Although the State Farm case has many aspects and nuances that limit its applicability to many other cases (e.g., Campbell had not suffered physical injury at the hands of State Farm), American business in general has been much comforted by this decision—especially since the Court has already sent cases involving huge dollar judgments against Ford Motors back to lower courts for review and analysis in light of the State Farm ruling.

 The State Farm ruling appears to make the future a little brighter for employers eager and willing to defend themselves fully against discrimination suits, where state or local laws place no caps on punitive damages. For example, in an age discrimination suit involving a highly paid senior executive, compensatory damages might conceivably reach $2.6 million (the State Farm amount), if a company is required to compensate for back pay, lost benefits, pain and suffering caused, etc. Since the Supreme Court considered the 9 to 1 ratio ‘the worst case scenario,’ punitive damages could probably be held at a low single digit ratio.

Members of
The Employment Roundtable

Stephen Atamanchuk, VP, Resource Planning and Development, Sithe Energies
Richard Bayer, Ph.D., Chief Operating Officer, The Five O’Clock Club  
Jean Broom (Co-Chair), SVP, Human Resources & General Affairs, Itochu International, Inc.
Michael L. Dolfman, Ph.D, Regional Commissioner, Bureau of Labor Statistics
Michel Franck, AIA, Principal,
 Owen and Mandolfo, Inc.
Gayle George, VP, Human Resources,
 Fried, Frank, Harris, Shriver & Jacobson 
William E. Hartman, Senior Director
 Cushman & Wakefield, Inc.
Peter Hillmam, Practice Head,
 Chadbourne & Parke
Diane Kenney, SVP, Human Resources, Random House Publishing 
Martin Kohli, Senior Economist, U.S. Bureau of Labor Statistics
George Lumsby, Managing Director, 
 GNL & Associates (executive search)
  Executive Search
Patrick Oden, Managing Advisor, Healthcare
Alan Richter (Co-Chair),
 Founding Partner, QED Consulting 
Marian Stoltz-Loike, CEO, SeniorThinking
Wendy Alfus Rothman, Managing Partner,  The Wenroth Group, a Human Capital   Consultancy
Marilyn Shea, Regional Director
 US DOL, Employment & Training    Administration
William R. Sheridan
 National Foreign Trade Council, Inc.
Frank Thoelen (Co-Chair),
 CFO, JAD Corp of America 
Kate Wendleton,
 President, The Five O’Clock Club 
David Madison, Consultant to Roundtable,
 The Five O’Clock Club l

The Employment Roundtable
is a group of leaders from business,
government and think tanks,
who review and comment on the
central employment issues as
they present themselves today