DEI Under Pressure: What Boards Need to Know

If it’s not lawsuits alleging that DEI commitments were misleading or unfulfilled, it’s legal challenges questioning whether those programs are even permissible.

Government scrutiny is adding to the pressure, with reports that federal agencies are stalling mergers and acquisitions (M&As) unless DEI programs are rolled back.

Boards have a heavy lift in this environment as they attempt to support a management team that must chart a path that works for their particular business circumstances. No one wants to fall prey to the Scylla of illegal racial and gender discrimination, or get sucked into the Charybdis of illegal race- or gender-based quotas.

With careful planning, however, management and boards can navigate a middle course between these two perils.

Part of the middle ground is occupied by companies that have chosen to have no DEI programs at all. This is, of course, an appropriate business decision for companies whose boards and management see no strategic business benefit to these programs.

Part of the middle ground is also occupied by companies that affirmatively want to retain their DEI programs. Many of these programs are the result of years of deliberate effort aligned with business goals.

Boards that want to retain these programs will want to ensure that the programs further business priorities and are also legally defensible, well-governed, and thoughtfully communicated.

Two-Front War?

Corporate DEI initiatives have long existed. The business rationale for their implementation is typically that the programs are in service of long-term business strategies for talent acquisition and retention, broadening customer reach, and mitigating legal risks.

A board and management team might decide that the best way to recruit a lot of top-tier talent is to deliberately widen the hiring funnel by recruiting through affinity organizations to reach groups of people who do not typically work for the company or in the industry.

These companies might also conclude that properly conceived employee resource groups (ERGs) are a good way to retain employees who have voiced interest in them through surveys and other feedback.

The year 2020 was a pivotal year for DEI after major sociopolitical events catalyzed corporate action. Increased pressure from employees, consumers, and investors led to a cultural shift in how companies approached DEI.

At that time, many companies amplified the marketing of their existing DEI programs, and some companies put in place new and more novel DEI initiatives. At the same time, however, corporations faced challenges to their DEI programs. Since then, it’s been a two-front war.

One theater of battle has been prosecuted by claimants who assert corporations have not done enough with respect to their DEI programs. For instance, several high-profile companies were taken to court over allegations that their DEI commitments were misleading or unfulfilled.

Some examples include:

• Cisco Systems, Inc. Shareholders sued Cisco for allegedly misrepresenting its commitment to diversity. The case was dismissed when the court found that the board had conducted a reasonable investigation into shareholder demands.
• Oracle and The Gap Inc. are among others that have faced legal action over diversity commitments, either through shareholder derivative suits or broader public pressure to improve diversity in leadership. These cases, however, were dismissed for various reasons.

The second theater of battle has been prosecuted by claimants attacking the decision to implement DEI programs in the first place.

For example, Starbucks faced a lawsuit that challenged the legality of its DEI initiatives. This case was dismissed.

Another avenue has been efforts by shareholder activists to mount proxy campaigns such as the one Costco experienced in early 2025. The shareholder proposal was for Costco to “report on the risks of maintaining DEI efforts.” 

The Costco board did not support this proposal, and 98% of its shareholders ultimately agreed with the Costco board. 

This is not to say that all consumer and shareholder activist efforts to end or scale back DEI efforts have been failures, however. Indeed, many companies have done so voluntarily. 

Government Pressure in Real Time

DEI is also an area of focus for the current federal administration, beginning with Executive Order 13985 issued on January 20, 2025. The order includes a mandate by federal agencies to work to terminate DEI programs that may fall within the ambit of each agency’s jurisdiction.

As an example, the posture of the Federal Communications Commission (FCC) is instructive.

Chair Brendan Carr has been clear: Companies seeking FCC approval for major transactions should not expect a green light if they continue to “promote invidious forms of DEI.”

Given the current landscape, boards that want to retain DEI programs may find themselves having to navigate a mix of legal, political, and reputational pressures, all while trying to execute on priorities like M&A. Corporate leaders will want to take an approach to DEI that is not reactive, but one that instead balances compliance, risk management, and long-term business goals.

A Practical Framework for Corporate DEI Strategy

A structured approach to DEI will help companies reduce exposure to legal and regulatory pitfalls. Such an approach is also likely to be fairly resilient to changes in the political climate. Here are some tips.