Diversity Crisis: How Firms Manage Discrimination Lawsuits
“Diversity Crisis: How Firms Manage Discrimination Lawsuits,” by Erika Hayes James and Lynn Perry Wooten, identifies firm strategies for handling different types of class-action discrimination lawsuits, including race, sex, disability, religion, and sexual harassment. Because of the detrimental effects of class-action lawsuits on firms, and the increasing diversity represented in today’s organizations, the authors focus on this particular threat. When an organization’s reputation is attacked by multiple allegations of discrimination, the implications can be financial, strategic, and procedural. Specifically, a company will have substantial legal expenses, public relations difficulties, and possibly organizational restructuring as a result of such a lawsuit.
As one prominent example, in 1994 Texaco was faced with a discrimination lawsuit filed by six Black employees, who claimed that White employees were hired or promoted at a higher rate. Texaco executives denied the allegations, and the case lingered for two years. However, the media took notice when the plaintiffs’ attorneys released transcripts of executives denigrating Black employees and, at the same time, federal prosecutors began a criminal investigation into whether executives had shredded evidence. In light of the public scrutiny, Texaco’s CEO immediately shifted from denial rhetoric to a public apology. The company began working toward a resolution by setting aside funds for raises, restructuring human resources policies, and consulting Black leaders.
By looking at this and 76 other examples of how firms react to discrimination lawsuits, the researchers identify factors that influence crisis response strategies and build a model of organizational responses to these types of crises. In most cases, companies tend to behave defensively in threatening situations; for example, Texaco initially denied the accusations of race discrimination. However, because, firms are often susceptible to pressure from stakeholders, this pressure can influence how firms ultimately respond. Because of the publicity in the Texaco case, and its consequences, the company changed its reaction from defensiveness to accountability.
Other behavioral responses by firms include retaliation, settlement, and change efforts. The researchers found that retaliation against the accusers is more common in sexual harassment lawsuits than in any other form of discrimination. In other words, firms were more likely to “blame the alleged victims” when the discrimination was based on sexual harassment, and least likely to do so in cases of race discrimination. In the few race cases in which a company initially retaliates, external pressure from civil rights groups and others eventually influence the firm to change its response strategy from denial to acknowledgement and move toward a settlement. When stakeholders mobilize against the firm, and engage in public demonstrations, the company often chooses to seek a financial resolution and is more inclined to adopt changes to its human resources policies and procedures. Stakeholder mobilization activity from civil rights groups or other invested parties is most likely to accompany racial discrimination suits. In addition, organizational change efforts intended to deal with the allegations are primarily initiated in race-based lawsuits, less so in sex-based lawsuits, and rarely in all other forms of discrimination lawsuits. These changes can include sweeping cultural and policy changes as well as outreach to diversity specialists.
The authors identified four distinct paths of response to discrimination lawsuits:
- Path #1 encompasses gender, religion, age, and disability discrimination lawsuits. These cases are resolved typically by legal settlements.
- Path #2 depicts sexual harassment lawsuits. These cases are characterized by retaliatory behavior directed toward the firm’s accusers and is followed by financial resolution.
- Path #3 illustrates racial discrimination cases. In these cases the response is non-retaliatory and involves change efforts as well as settlement.
- Path #4 includes a subset of race discrimination suits in which firms do not deny allegations initially, and implement change efforts early in the crisis resolution process.
Overall, defensive strategies that include denial rhetoric are common in responding to discrimination lawsuits. As stakeholders and the public become involved in the process, the firm loses some control in the outcomes of the case. When this happens, firms are more likely to adopt accommodative rhetoric and organizational change strategies. Finally, the longer a company delays a resolution, the more time and resources are diverted away from running the business.
To request a copy of the full journal article as posted in the Academy of Management Journal, please contact Erika at
www.erikahayesjames.com/contact/.
June 26th, 2009 at 12:27 pm
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