The incoming Trump administration could put new pressure on companies to drop race- and gender-based employment programs, a coalition of money managers stated in a warning to America’s largest companies.
Last week, 58 conservative asset managers, state treasurers, and nonprofit groups issued an open letter to more than 1,000 U.S. corporate CEOs demanding that they disclose to shareholders the extent to which they impose diversity, equity, and inclusion (DEI) policies on employees and contractors. Such programs, the authors say, could harm staff, sales, and stock prices, and create legal liabilities if they are found to violate civil rights laws.
“It’s important that these companies recognize and understand that the DEI-ESG regime is coming to an end,” OJ Oleka, CEO of the State Financial Officers Foundation and a signer of the letter, said, referring also to environmental, social, and governance (ESG) principles.
“DEI, the regime that it offers, is simply un-American,” he said. “It’s not good for the values that we stand for as a country ... that this is a nation of meritocracy, that societies need to function because of the rule of law.”
DEI programs took a significant hit when the U.S. Supreme Court ruled in the 2023 case of Students for Fair Admissions v. Harvard that publicly funded schools could not discriminate on the basis of race or gender, and justices wrote in their majority opinion that “eliminating racial discrimination means eliminating all of it.”
Legal analysts say that America’s civil rights laws also apply to private companies, and they expect the incoming Trump administration to take a harder line in enforcing these laws.
“The election results are really a jumping off point, I think, to truly winding down and bringing to an end DEI programs and practices inside of corporate America,” said Jeremy Tedesco, senior vice president of corporate engagement for the Alliance Defending Freedom (ADF). “The Trump administration is going to most likely create serious legal and reputational consequences for companies that continue down that path.”
Most Companies Have Race-Based Programs
According to an ADF study cited in the letter, 91 percent of companies it surveyed incorporated critical race theory concepts in their employee-training programs, and 58 percent imposed DEI requirements on their vendors.According to Title VII of America’s Civil Rights Act, however, private companies are barred from discriminating against employees or customers on the basis of race, color, religion, sex, and national origin. The U.S. Federal Trade Commission states that “Title VII protection covers the full spectrum of employment decisions, including recruitment, selections, terminations, and other decisions concerning terms and conditions of employment.”
While the Biden administration refrained from pursuing potential Title VII violations, many states threatened to take action. In July 2023, attorneys general from 13 states penned a letter to the CEOs of Fortune 100 companies citing their “obligations as [employers] under federal and state law to refrain from discriminating on the basis of race, whether under the label of ‘diversity, equity, and inclusion’ or otherwise.”
President-elect Donald Trump won both the Electoral College and the popular vote after pledging, among other things, to reverse the Biden administration’s “government-wide initiative to advance diversity, equity, inclusion, and accessibility in all parts of the federal workforce.” Now, conservative shareholders are asking corporate leaders to clarify where they stand on this issue.
“We’re calling on corporate leaders to provide needed transparency to their shareholders,” said Jerry Bowyer, president of Bowyer Research, who signed the letter. “Do these executives intend to continue the very same harmful and divisive policy prescriptions that voters have now rejected at the ballot box?”
In addition to implementing DEI programs throughout the federal government and the military, the Biden administration also encouraged private corporations to get on board with the social-justice agenda, attempting to implement race-based subsidies for farmers and changing the Employee Retirement Income Security Act criteria to allow private pensions to include ESG among the investment criteria for retirees savings. Trump had barred this latter practice during his first term, requiring pension managers to invest solely to maximize returns, and may reinstate his ban on politicized investing during his second term.
Corporate adherence to progressive causes has also proven financially costly in many cases. The Walt Disney Company, for example, waded into a costly year-long battle in 2022 with Florida Gov. Ron DeSantis, who canceled the beneficial status of the Disney World resort after it publicly fought the state’s parents’ rights law, which barred teachers from discussing sexual topics with schoolchildren in third grade or younger.
Similarly, Target and Anheuser-Busch InBev, brewer of Bud Light beer, also faced a consumer backlash for taking on progressive causes. A Harvard Business Review study of Bud Light’s transgender promotional campaign found that “in the three months following the controversy, Bud Light sales and purchase incidence were about 28 percent lower than the same time period in prior years,” with sales declining across both Republican and Democratic counties.
Ultimately, shareholders were the ones who paid the price as stock prices tumbled.
Some Companies Cancel DEI Programs
Consequently, many companies are rethinking their commitments to progressive causes. The list of companies that announced this year that they would either revisit or cancel their DEI programs includes Ford, Tractor Supply, John Deere, Harley-Davidson, Polaris, Indian Motorcycle, Lowe’s, Toyota, and Molson Coors.“It’s time for business leaders to show they truly respect the views of all Americans—not just some of them,” Bowyer said. “For too long, business leaders have settled for a counterfeit version of ‘inclusion’ that ends up excluding more than half the country.”
The ESG movement was launched in 2004, stemming from a United Nations initiative to get private corporations on board with the U.N.’s 17 Sustainable Development Goals. This agenda included racial, gender, and economic equity, as well as climate goals such as the reduction of the use of fossil fuels.
It found support in studies such as those from McKinsey, a consulting company, titled “Why Diversity Matters,” “Delivering Through Diversity,” “Diversity Wins,” and “Diversity Matters Even More,” which claimed that companies that employed more women or were more racially diverse were “significantly more likely to financially outperform.” These reports were cited not only by corporations but also by the Biden administration as justification for implementing race- and gender-based programs for their employees.
However, a study published in March by Econ Journal Watch tracked the performance of companies in the S&P 500 Index and found no statistically significant relationship between companies’ racial diversity and their sales, profits, or equity performance. The report, written by accounting professors Jeremiah Green at Texas A&M and John Hand at the University of North Carolina, concluded that the methodology used by McKinsey was “erroneous [and] should not be relied on to support the view that U.S. publicly traded firms can expect to deliver improved financial performance if they increase the racial/ethnic diversity of their executives.”
Regarding the climate action agenda, many of the world’s largest banks, insurance companies, and asset managers joined U.N.-sponsored organizations such as the Net Zero Banking Alliance, the Net Zero Insurance Alliance, and the Net Zero Asset Managers Initiative, in which they pledged to use their influence as shareholders and financiers to compel companies to get on board with progressive causes.
Red state attorneys general have suggested they might take action against these alliances for violating U.S. anti-trust laws. The Net Zero Insurance Alliance disbanded in April, after more than half of their members dropped out, ostensibly over legal risks.
