Sidley Discusses the Evolving Corporate Diversity, Equity, and Inclusion Landscape

Over the past few years, the legal landscape surrounding diversity, equity and inclusion (“DEI”) has undergone significant changes.  The landmark SFFA v. Harvard decision prohibiting the use of race‑based considerations in college admissions has contributed to the emergence of a vocal anti-DEI movement.  More recently, companies are facing challenges in light of executive orders and anti-DEI campaigns by shareholder proponents and activists that have cast doubt over the future of DEI.  In order to navigate this evolving landscape, companies must understand the implications of these events and how to address them.

Historically, DEI programs and policies aimed to eliminate racial discrimination following the 1960s and the Civil Rights Movement.  Over time, DEI became viewed as a business imperative, associated with the understanding that an array of backgrounds and experiences can help companies be seen as a more attractive place to work, assist in casting a wider net for employee talent, and lead to better outcomes for companies and their stakeholders.  Organizations such as Catalyst, Mckinsey, and others have supported the business case with data showcasing how “diverse organizations are more successful at recruiting and retaining talent” and “diversity is associated with improved financial performance.”[1]

However, the underlying view of the rising anti-DEI movement is that by focusing on demographic identity, DEI policies and programs ignore meritocracy and serve as a guise for racial and gender‑based preferences.  Recent executive orders have furthered this view, including, but not limited to, the January 21, 2025 Executive Order: “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which among other things, seeks to “encourage the private sector to end illegal discrimination and preferences, including DEI.”[2]  Specific requirements placed federal DEI staff on paid leave, directed federal agencies to “identify up to nine potential civil compliance investigations of publicly traded corporations” and other large corporations and associations, and tasked the Attorney General with preparation of a report within 120 days on recommendations for enforcing Federal civil-rights laws.[3]  While uncertainty remains how these executive orders will be interpreted and enforced, it is clear that both the public and private sectors alike need to be conscious of policies and programs that may be deemed discriminatory under current law.

In a similar vein, shareholder proponents and activists have utilized proposals and social media to dismantle policies and programs at notable, large-cap companies.  Example proposals include requests for companies to abolish their DEI programs, policies, departments and goals based on the underlying argument that DEI poses litigation, reputational and financial risks to companies.[4]  External commentary has also centered around a stance of moving companies away from social issues and reducing divisiveness in corporate America.[5]

In a rapidly changing environment, all companies need the understand the implications of these recent events in light of their programs and practices, particularly as it relates to their businesses and key stakeholders.  Below are a list of considerations to aid in this iterative process.

Assess Your Risk Appetite

There should be an understanding of the company’s risk profile and its tolerance to support its current and future policies and programs.  While some companies may prefer to be a leader in this area, other companies prefer to monitor potential risks and proceed with caution.  Others may prefer to adopt a risk level on par with peer companies – this can allow companies to follow an approach that has been shown to work well for others and avoid individualized attention.  Regardless of where the company wants to position itself, understanding the company’s risk appetite assists in providing clarity on what policies and programs the company may be willing to adopt in the current environment and helps board and management teams get on the same page about what is deemed acceptable risk.

Examine Your Existing Policies and Practices

A comprehensive audit / review, with the assistance of counsel, can help the company better understand its opportunities and risks.  For example:

• What has the business invested in?
• How have those efforts been received?
• What changes has the company observed as a result of those practices?
• Are any of these practices now associated with a higher level of risk due to recent legal developments?

Understanding the full scope of the company’s current practices and its impact enables management to ensure compliance with law and, in consultation with the board, make strategic decisions about what is working for the business and what should be changed.

Tie Policies and Practices to Business Rationale

A frequent criticism of DEI policies and practices is companies’ inability to demonstrate measurable outcomes.  It is important that companies highlight the various ways that their programs and policies directly support business objectives.

For example, business objectives may include ensuring that:

• The company is viewed as an attractive place to work.
• The widest, unbiased, net is cast for employee talent.
• Employees feel comfortable sharing different viewpoints.
• The company understands and reflects its consumer base and other key stakeholders.
• The company benefits from varied perspectives in its decision-making.

Communicate the business objectives by answering the “what” and the “why” of your practices to internal and external stakeholders.  The “what” is the initiatives the company is conducting.  The “why” is the reasoning for those initiatives.

Key questions to consider include:

• Can the company plainly state what initiatives it has?
• Why will these initiatives enhance the company’s performance?
• How do the company’s stakeholders benefit from these initiatives?

Tying company efforts to specific business objectives helps focus key stakeholders’ attention on the strategic benefits of these decisions, while simultaneously addressing how these decisions are founded upon a business rationale.

Understand the Perspectives of Your Key Stakeholders

Knowledge of key stakeholders’ perspectives can help the company better tailor its approach.  Additionally, if the company decides to move in a different direction, understanding the perspectives of those it works with will allow the company to better anticipate and address concerns about any changes.

Gaining a better understanding of stakeholders can be effective in various forms:

• Employee and consumer surveys.
• Individual or group listening sessions.
• Town-hall style meetings.

Regardless of the format, seek to understand stakeholders’ thoughts regarding the company’s approach to DEI, what they believe has worked well, what could be improved, and any concerns they have.

Maintain a Tone at the Top

A clear tone at the top helps companies convey unified messaging with one voice.  It is critical to craft an authentic narrative that is true to your core values and obtain feedback and buy-in from the board and management team. Designate who, when, and how the company will proactively and reactively respond to arguments that may be posed against the company for its policy perspectives and practices.  Consistency in messaging helps prevent confusion about your efforts and showcases to your stakeholders that careful consideration has gone into the company’s approach and strategic direction.

Assemble Your Response Team

Develop a plan and a prepared response in the event the company’s initiatives are questioned.  With a pre-established plan in place, the company can react quickly, reclaim its narrative, and remind its key stakeholders that its initiatives, like any of its strategic decisions, support the best interests of the company and its stakeholders.

PRACTICAL GUIDANCE

As noted above, for companies to navigate the challenges they are facing in the current environment, they must assess their risk appetite, examine their existing practices, tie their policies and programs to business rationale, understand the perspectives of their key stakeholders, maintain a tone at the top, and assemble a response team.  To that end:

• Evaluate with counsel the extent to the which the company is subject to executive orders and any other legal or regulatory changes that could relate to the company’s current approach to DEI.
• Audit / review DEI-related programs and related policies to ensure compliance with any relevant executive order, and any other relevant law or regulation, including anti‑discrimination laws. Include a review of contractual obligations with respect to DEI.
• Take any prudent corrective action.
• With respect to lawful voluntary activities, determine business priorities (and risk tolerance) and ensure that the approach to DEI-related matters are well grounded in business rationale and can be well articulated should you receive inquiries.
• Continue to monitor regulatory guidance and best practices as it evolves.
• Benchmark policies and practices against peer companies to understand where the company sits and what, if any, changes the company may want to make.
• Understand that depending on the topic, a company need not respond to all commentary that arises, particularly if the commentary is not relevant to the company’s core business or values.
• Pre-emptively engage advisors who can help identify vulnerabilities, map out responses to potential scenarios, and prepare holding statements to be released quickly if the company faces scrutiny.

The legal landscape surrounding these issues will continue to evolve and change.  Understanding the current environment, with guidance from counsel, will allow companies to stay abreast of new developments, remain in compliance with applicable law, and maintain focus on how to best serve the company and its stakeholders.

ENDNOTES

[1] https://www.catalyst.org/insights/2020/why-diversity-and-inclusion-matter#easy-footnote-bottom-36-6361.

[2] https://www.whitehouse.gov/presidential-actions/2025/01/ending-illegal-discrimination-and-restoring-merit-based-opportunity/.

[3] https://www.whitehouse.gov/presidential-actions/2025/01/ending-illegal-discrimination-and-restoring-merit-based-opportunity/.

[4] https://www.reuters.com/sustainability/boards-policy-regulation/apples-board-recommends-shareholders-vote-against-proposal-eliminate-diversity-2025-01-12/.

[5] https://www.cnn.com/2024/08/28/business/dei-john-deere-harley-davidson-robby-starbuck/index.html.

This post was originally featured on the Columbia Law School Blue Sky Blog on February 19, 2025.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.