- A highly visible campaign against DEI is underway against companies like Costco.
- Political pressure is putting execs into a delicate balancing act over how to run their businesses.
- Experts say diversity and inclusion are more baked into corporate culture than ever.
Costco has found itself in the political crosshairs over diversity, equity, and inclusion, and now some corporate leaders are wondering who could be next.
In the meantime, some are choosing to make tweaks or changes to their DEI policies.
On Tuesday, Disney's HR chief told employees the company was rebranding its DEI metrics and programs and changing the language of some content advisories.
And last week Google linked changes to its DEI initiatives to concerns about compliance with laws and executive orders, as the tech giant is a federal contractor.
Though many lawsuits and shareholder proposals against DEI have failed, experts told Business Insider that the highly publicized challenges, including executive orders from the White House, could still have a chilling effect.
Companies don't want to get into legal hot water, but they likely don't want to be seen as retreating from values they've espoused for years.
The experts — two lawyers and a business researcher — said that, at the same time, the growing pressure on CEOs to eliminate their DEI practices might amount to little practical change in some workplaces.
While some companies, most notably Costco, are digging in their heels in defense of DEI, others, like McDonald's, are taking a more conciliatory approach to the issue.
DEI policies get a facelift
Michael Thomas, a California attorney specializing in corporate diversity practices at the law firm Jackson Lewis, said companies' main changes would most likely involve how they communicate about their policies, both internally and externally.
Thomas said his firm had seen an increase in requests to review DEI initiatives for legal risks from clients who are also concerned about how employees and customers perceive them.
He said a major piece of the firm's legal review is examining how companies communicate about their policies and practices on websites and in reports and other filings.
Indeed, some of the changes at Disney appear to be about how the company talks about DEI.
"What won't change is our commitment to fostering a company culture where everyone belongs and everyone can excel," Disney's chief HR officer, Sonia Coleman, said in a memo obtained by BI.
Emphasizing style more than substance could suggest a likely path forward for companies that see diversity and inclusion as beneficial to their business.
"Even Walmart and McDonald's have conceded less than meets the eye," Jeffrey Sonnenfeld, a professor at the Yale School of Management, told BI. "They're keeping the same principles and objectives. It's just a question of nomenclature, metrics, and bureaucracies."
McDonald's, for example, said in its memo to franchisees that it was retiring "aspirational representation goals," swapping a broad vendor DEI pledge for direct discussions with suppliers about inclusion, and changing the name of its diversity team to the global inclusion team.
Sonnenfeld pointed to the way terms like sustainability, climate change, and pollution abatement have cycled through the corporate lingo while generally sharing an objective of protecting the environment.
In many cases, diversity and inclusion have been around long enough that they're deeply embedded in corporate cultures, making them significantly harder to regulate, he said.
"It's impossible to the point of insanity to try to ferret that out," he added. "So the less modular it is, the less vulnerable they are."
Some companies may pull back
Still, the anti-DEI pressure could have other companies shifting more drastically, said Jon Solorzano, a partner at the law firm Vinson & Elkins who advises public and private companies on areas related to ESG and risk management.
He said that under the new administration, companies that may have been on the fence about DEI could decide to pull back some programs.
"Different companies view this differently," he said. "Those that are probably in the more consumer-facing world are particularly sensitive to the reputational risks on both sides."
Most of the major companies that BI has identified as retreating on DEI over the past year follow a pattern: ending representation goals that could be construed as quotas for hiring or sourcing, halting participation in rankings and surveys, and reassigning DEI-focused staff and resources.
BI recently reported that while Amazon changed language about DEI on its websites, a senior Amazon Web Services executive told employees in her division that there'd be "no changes" to key DEI-related benefits, including one for transgender employees.
In December, Amazon's vice president of inclusive experiences, Candi Castleberry, said in a memo shared with BI that while the company was ending some "outdated" programs, it was part of an "evolution to 'built in' and 'born inclusive,' instead of 'bolted on.'"
Rebranding alone isn't an option at federal agencies under President Donald Trump's rules, which require a deeper review of a program's history. Private companies aren't subject to that level of government scrutiny — for now, at least.
Last Wednesday, the newly sworn-in US attorney general, Pam Bondi, said the Justice Department intended to "investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector."
Companies "really need to balance those risks," Solorzano said. "What's more risky, the reputational harm of dealing with one of these investigations or having a mutiny of their employees?"
Business leaders make a case for diversity
Like Costco, JPMorgan has also defended DEI and is now the target of political and activist pressure.
At the World Economic Forum in Davos, Switzerland, CEO Jamie Dimon shrugged off an investor group's opposition to JPMorgan's DEI policies. In 2020 the bank started tracking executives' progress toward DEI goals, which affects their compensation, though it doesn't disclose the proportion of executive pay linked to DEI work.
Solorzano said he believes there's likely to be a "bifurcation" of companies over DEI. While many companies in recent years have adopted DEI programs, he said, "I also don't know that for every organization it was really core to their strategy."
"For places like Costco, it actually may be," he added.
In a December statement to shareholders, Costco's board said diversity helped "bring originality and creativity" to its offerings, leading to greater satisfaction for its increasingly diverse customer base.
A group of 19 Republican state attorneys general last month wrote a letter to Costco's CEO, Ron Vachris, expressing concerns about the company's compliance with state and federal laws, though they didn't identify any specific allegations of illegal practices.
Solorzano said the scrutiny Costco is facing — and how Costco responds — is "definitely being watched by all other major consumer branded companies right now."