Anti-diversity, equity and inclusion campaigners in the US had already claimed a string of victories before the start of this year, with major companies rolling back commitments in 2024 and a rise in litigation against alleged discrimination.
Now, this cause has been given a major boost by the new administration in Washington, DC, with President Donald Trump, following his inauguration, issuing an executive order revoking a series of preceding ones on DE&I, as well as essentially eradicating DE&I programmes in government departments and agencies.
The private sector is also under scrutiny. Trump directed the US attorney general and other administration officials to issue a report by 21 May “containing recommendations for enforcing federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DE&I”.
Agencies were also directed to provide a list of up to nine public companies, large non-profits, foundations, endowments and other organisations that could be investigated.
‘Illegal discrimination’
The exact limits of what will constitute “illegal discrimination” are not yet clear, making compliance difficult, US lawyers told Responsible Investor this week.
Craig Leen, partner at K&L Gates and former director of the Office of Federal Contract Compliance Programs, said it likely concerns Title 7 of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, colour, religion, sex, or national origin.
These are therefore “things companies should not be doing anyway”, he added. “And I think that, although well-intentioned, some companies were doing this. However, in general a lot of what companies have been doing they can, and need to, continue.”
Corporate actions that might be in breach of Title 7 and Trump’s executive order include linking remuneration to hiring goals for underrepresented groups, although this is allowed for veterans and people with disabilities.
Other actions that might fall foul of this are setting up employee resource groups for people in the workplace that exclude some employees, or having a promotion pipeline programme that offers university courses or mentorship programmes for one group only, Leen adds.
Corporate response
In response to the increased scrutiny, many companies are expected to review their DE&I programmes or roll back on previous commitments.
“Companies aren’t going to have a lot of room, either as government contractors or purely in the private sector, to explain what they’re doing,” a US-based lawyer told RI. “If you have anything that remotely looks like or is called DE&I you become an automatic target even if what you’re doing was never illegal or impermissible under existing rules. Either way, there’s no business as usual”.
Michael Littenberg, global head of Ropes & Gray’s ESG, CSR and business and human rights compliance practice, said most businesses are “just trying to do what they believe is the right thing in a legally compliant manner, while flying under the radar”.
“I’ve been advising corporates to assess their existing programmes, policies and messaging against their culture, values and goals,” he said. “Are the former consistent with the latter and fit for purpose, or do they need to be adjusted?”
Karl Racine, partner at Hogan Lovells and former Washington, DC attorney general, agreed that a company that seeks to stay out of the political crosshairs of US elected officials “may reasonably decide to reframe its DE&I messaging even as the company continues to its investment in all of its talent”.
“What looks like DE&I-hushing could actually be continued investment in their people without use of an acronym that has been successfully vilified,” he added.
Similarly, Leen said he has been suggesting that corporates consider changing anything named or titled DE&I to inclusion or equal opportunity programme, “given how the acronym has become so politicised”.
Programme ‘recalibrations’
Reflecting on action taken so far, Littenberg believes that reports of the wholesale jettisoning of DE&I programmes “are in most cases overblown and are more accurately characterised as programmatic recalibrations”.
At the same time, he noted, some companies are concluding that, although well-intentioned, some of their initiatives aren’t working, in that they haven’t enhanced diversity or workforce experience.
“A silver lining is that anti-DE&I scrutiny is resulting in many companies taking a harder look at their DE&I initiatives and better aligning them with their culture, values and goals,” he said.
Another US lawyer expects corporate responses to fall into four boxes – companies who stick to their guns and loudly say “we’re here for DE&I, come get us”, companies who publicly drop commitments and end programmes, companies who carry on quietly and those that quietly end DE&I efforts.
Some corporates have also publicly doubled down on their efforts. Major firms including Costco, Apple and JPMorgan have said they stand by DE&I or opposed anti-DE&I shareholder resolutions.
International concerns
The pushback is also a concern for international firms operating in the US and is getting the attention of senior executives.
Speaking at an Investment Association conference in London last week, Jon Symonds, chair of pharma giant GSK, said: “We have US federal contracts and if we have DE&I policies in place we will not get federal contracts. I’m not saying any of it is right, I think in substance we won’t do anything differently – in fact, I know we won’t do anything differently – but I think there’s going to be fragmentation in the near term.”
For global firms based outside the US, Littenberg agreed that they are struggling: “They aren’t sure how to apply their global diversity strategy and goals in the US and whether their current approach creates risk.”
Racine expects some European companies – those that are legally required to comply with gender-balance directives related to their board makeup, for example – to become the target of US regulators.
However, the US-based lawyer noted that global firms with existing DE&I programmes will have already dealt with jurisdictions where LGBT+ rights were not legally protected, and some of those learnings may now be applicable in the US.
Litigation and enforcement
Anti-DE&I litigation has been increasing for some time now, particularly since the Supreme Court’s ruling in Students for Fair Admissions v Harvard in June 2023, which struck down race-based affirmative action in higher education.
This was reinforced in September by the move by the Fearless Fund to close its grant programme for Black women business owners as part of a settlement with the right-wing American Alliance for Equal Rights.
Littenberg also pointed to an increase in “reverse discrimination” claims, such as white men alleging they have been discriminated against in hiring and promotion decisions.
Unsurprisingly, the expectation is that these types of legal actions will continue to increase.
Leen is aware of more than 100 lawsuits on the topic, he said, most of which will likely focus on Title 7 and 42USC 1981, the provision under which the Fearless Fund case was sued.
However, legal actions are not expected to come only from the political right. Leen said the executive order itself will likely be challenged, and the US lawyer expects lawsuits down the line from employees who are fired because they had alleged been hired on a DE&I basis.
This could result in “a mess” and a “massive wave” of litigation on both sides, they added.
Racine noted that this presents significant risks for firms. These include “reputational harm, cost of defending an investigation, cost of litigation and damages that might ensue if a court rules against your company, notwithstanding the weak legal arguments on which DE&I opponents rely”, he said.
Turning to the investment industry, Littenberg said the playbook is likely to follow that of the anti-ESG movement more generally – meaning red state information requests, hearings, statutory prohibitions, investment policies and guidelines, certification requests and blacklists.
“There will be an extended period of uncertainty before expectations and market practices settle,” he said.
Similarly, he expects that, when it comes to engaging with investees, many institutional investors “will give them more latitude to approach diversity in a way that the investee company feels is fit for purpose”.
Long-term view
While the immediate future looks bleak for the cause of DE&I, a UK-based corporate lawyer said it is important for corporates to remember that “a presidential administration is four years – it’s not a lifetime”.
“A particular policy is going to create waves in the business environment, but it shouldn’t be the thing that drives a business’s behaviour,” the UK lawyer added.
They also recommend boards to be consistent in the way they implement their strategy.
“We see the US issue as highly relevant, but it is not permanent. If you run your business in a completely reactive way, you’ll end up coming a-cropper, so we are seeing clients wanting to believe in the strategy they have set and follow that through and not be distracted by influences that are short-term.”
The US lawyer also warns that consumers have long memories. If a company drops its DE&I commitments it will be difficult to pick them back up again without anyone noticing, they noted.
“Companies aren’t altruistic. It made sense from a human capital and financial perspective to do it. None of those factors has changed.”
