Shareholders Demand Pfizer Scrap Race-Conscious Policies in the Wake of Civil Rights Lawsuit

Policies endanger company’s entire financing structure, shareholders say

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September 27, 2022

That didn’t take long. Less than a week after Pfizer was hit with a lawsuit over a fellowship program that excludes whites and Asians, shareholders are demanding that the company scrap a spate of race-conscious policies that they say put it at risk of further litigation.

The lawsuit, filed Sept. 15, argues that Pfizer is violating federal law by excluding white and Asian applicants from its prestigious "Breakthrough Fellowship." In an open letter to Pfizer executives last week, shareholders allege that the program is just one of several policies that invite a "pandora’s box" of civil rights complaints.

Beyond the fellowship, they point to an apparent requirement that a fourth of Pfizer directors "identify as ethnically diverse," according to the company’s ESG reports and corporate governance principles. The pharmaceutical giant has also linked executive pay to the diversity of its employees, with hard targets set for the number of African Americans and Hispanics in management positions.

The letter, filed by the public interest law firm the American Civil Rights Project on behalf of shareholders, is the latest example of corporate investors taking action to challenge reverse discrimination. Over the past year, shareholders in Coca-Cola, JP Morgan, McDonalds, and Lowe’s have threatened to sue executives at each company who’ve implemented race-conscious policies, which they argue invite costly litigation that threatens their interests as stockholders.

The threats persuaded Lowe’s and Coca-Cola to drop a variety of racial quotas. When Starbucks executives ignored similar demands, one nonprofit, the National Center for Public Policy Research, used its stock in the company to file a lawsuit against the coffee giant’s top brass. The center also owns stock in Pfizer, and is one of the shareholders that signed on to the demand letter.

The letter offers a preview of how shareholder activism and traditional civil rights lawsuits can complement each other. It cites the Sept. 15 complaint as evidence that Pfizer’s policies have created a "standing invitation to federal litigation" that could prove "catastrophic" for shareholders, especially in light of the company’s financing structure.

Pfizer hasn’t just set diversity targets for its employees, but integrated those targets into its credit agreements with banks—a move the American Civil Rights Project says could "cut off the company from vital working funds" in the event of a lawsuit. If Pfizer cannot hit the targets without race-conscious programs, the letter argues—and if a judge orders Pfizer to stop considering race in its hiring process—the resulting loss of diversity could mean a loss of capital under the terms of the company’s credit facility.

"Even if some of the Policies were colorably legal," the American Civil Rights Project says, "no reasonable person would have bet Pfizer’s ongoing access to working capital on every judge uniformly agreeing across every inevitable proceeding challenging the Policies."

Pfizer did not respond to a request for comment.

At least one legal challenge to Pfizer’s race-conscious governance is all but certain to succeed: The Breakthrough Fellowship, five civil rights experts told the Washington Free Beacon, is an unambiguous violation of the 1866 Civil Rights Act, which prohibits race discrimination in contracting, and Title VII of the 1964 Civil Rights Act, which prohibits race discrimination in employment. The program includes multiple internships, a fully funded masters degree, and several years of guaranteed employment with the pharmaceutical giant.

Pfizer also appears to be discriminating in its rank-and-file internship programs. A company ESG report issued in 2021 states that Pfizer set out to award 50 percent of summer internships to non-Asian minorities—a group that makes up only 36.2 percent of the U.S. population. Pfizer ultimately exceeded that goal by massive margins, with 72 percent of summer interns coming from an "underrepresented group or disadvantaged background." By "doubling their ‘representation’ in the general population," the shareholders say, Pfizer prioritized non-Asian minorities "to the detriment of all other applicants."

Even if these policies don’t put the company’s bottom line at risk, Delaware, where Pfizer is incorporated, still holds corporate officers liable for "knowing violation[s] of the law." With the delivery of their letter, the shareholders say, Pfizer has been "put on notice."