Proactive Risk Management in an Anti-DEI Climate

Under the new Trump administration, anti-DEI (diversity, equity, and inclusion) shareholder activism is expected to gain significant traction. Since the administration’s initial week, a number of anti-DEI executive orders have already begun upending the DEI landscape. While the executive orders do not change existing federal or state laws, they have been creating an atmosphere of heightened scrutiny for DEI initiatives. Activist investors and conservative groups are likely to intensify efforts to pressure companies into scaling back or dismantling DEI programs. This shift presents challenges for organizations committed to fostering inclusive workplaces that drive innovation and business success.

Strategies for Companies

To withstand anti-DEI pressure while maintaining inclusive workplaces, companies should consider the following actions:

1. DEI audit and ongoing legal compliance: Consult with legal counsel to conduct a thorough review of all DEI policies and programs to ensure compliance across all jurisdictions where the company operates. Regularly monitor legal developments, including potential conflicts between, for example, federal and state laws, and adjust DEI strategies accordingly.
2. Risk assessment: Regularly evaluate the company’s values and actions against its risk tolerance for potential legal challenges.
3. Documentation: Meticulously document DEI initiatives, including their purpose, design, implementation, and outcomes. This includes tracking leading indicators, like workforce demographics, employee sentiment, promotion rates, and retention across demographics. This documentation will be crucial in refining initiatives and defending against legal challenges. Continuously monitor DEI programs for effectiveness and adjust as needed to ensure they achieve their intended goals without discriminatory impact.
4. Merit-based practices: Ensure that performance evaluations, hiring practices, third-party contracting, and advancement opportunities are based on individual merit, skills, and performance rather than achieving diversity targets, which could be perceived as impermissible quotas. Avoid incentive plans that include bonuses or other benefits for meeting diversity targets. Improve recruiting strategies to expand applicant pools.
5. Expanded definition of diversity: Recognize that diversity extends beyond protected classes. Include factors such as experience, education, interests, and neurodiversity in your initiatives.
6. Employee resources: Implement mentoring, training, and leadership initiatives that are open to all employees, regardless of their background.
7. Inclusive trainings: Continue providing training on bias, antidiscrimination, and cultural competency, but avoid mandatory sessions that single out specific groups as responsible for inequities. Review training materials to ensure they are lawful, effective, and consistent with company values without being unnecessarily divisive or political.
8. Equitable complaint resolutions: Investigate all discrimination complaints thoroughly, including those brought by individuals who may not belong to historically underrepresented populations.
9. Employee morale: When making changes to DEI programs, consider the potential impact on employee morale and engagement. Consider communicating the company’s commitment to lawful DEI initiatives and the legality of its programs to employees, along with the reasons for this stance.
10. Stakeholder engagement: Engage with stakeholders to gather feedback and ensure that DEI initiatives are aligned with the company’s values and goals. Craft consistent messaging around DEI goals that emphasizes inclusivity as a driver of innovation and business success. Communicate the business case by linking DEI to measurable outcomes like innovation, employee retention, and market growth. Engage legal counsel for sensitive communications.
11. Public relations: Develop a communication strategy to both quickly address potential public and media inquiries regarding changes to DEI initiatives and emphasize compliance with applicable laws.
12. Disclosure: Assess whether to publicly disclose that DEI matters present risks, such as potential litigation costs associated with challenges to DEI initiatives, as well as reputational risks with regard to stakeholders who have differing views regarding the company’s DEI activities. Public companies should evaluate risks associated with discussions in Securities and Exchange Commission (SEC) filings and other public filings, including when addressing relevant shareholder proposals for inclusion in a proxy statement.

Global Considerations

For multinational corporations, the anti-DEI rhetoric in the U.S. may contrast with global trends and requirements in foreign jurisdictions. Certain countries are advancing regulations around gender or ethnicity pay gap reporting, board diversity, harassment training, and disclosure on the social, operational, and financial risks of lacking DEI in business. Companies should think about their global strategies alongside local legal and cultural contexts.

Remain Vigilant

As anti-DEI activism gains momentum under the new administration, companies must remain vigilant if continuing to prioritize diversity as a business imperative. By proactively managing risks, organizations can withstand external pressures while creating workplaces that drive innovation and reflect societal values.