By Cathy Becker, Responsible Finance Campaign Director
Last June, Tractor Supply made headlines when it announced it would eliminate jobs and goals focused on diversity, equity, and inclusion (DEI), as well as stop sponsoring Pride festivals and submitting data to the LGBTQ advocacy group Human Rights Campaign.
Soon following were similar announcements from John Deere, Harley-Davidson, Brown-Forman (maker of Jack Daniel’s), Lowe’s, Ford, and Molson-Coors.
Many of these companies had started or increased DEI programs and goals following the murder of George Floyd and Black Lives Matter protests in 2020. But in the wake of the Supreme Court decision to overturn affirmative action in college admissions – as well as pressure from conservative crusaders like Robby Starbuck and the climate-change denying National Center for Public Policy Research – they began to backtrack in 2024.
Starbuck began by targeting companies that rely on rural or conservative customers, but recently expanded to mainstream companies like Meta, McDonald’s, and Target.
Among those companies was Walmart, which in November announced it would end racial equity training, phase out supplier diversity programs, review funding of Pride events, stop participating in the Human Rights Campaign survey, and close its Center for Racial Equity, a $100 million philanthropic initiative to address gaps in outcomes for African Americans in education, health, criminal justice, and other areas.
Investors push back
All these shifts in company diversity, equity, and inclusion programs have not gone unnoticed by investors – some of whom have started to push back.
As the season for corporate annual general meetings heats up, several investor groups have submitted shareholder resolutions related to DEI changes:
- As You Sow is asking Tractor Supply to issue a report describing the research and analysis it did before making changes to its DEI policies and practices.
- Amalgamated Bank and As You Sow are asking John Deere to issue a report on the effectiveness of its efforts to create a meritocratic workplace.
- As You Sow is asking Harley-Davidson to issue a report describing the research and analysis it did before making changes to its DEI policies and practices.
- Mercy Investments and As You Sow are asking Ford Motor Co. to issue a report describing the research and analysis it did before making changes to its DEI policies and practices.
Shareholders are also issuing letters and statements. This year Whistle Stop Capital organized its third Investor Statement Reaffirming the Need for Companies to Ensure Meritocratic Workplaces asking companies to:
- Make clear their ongoing commitment to ensuring diverse, equitable, and inclusive workplaces.
- Have clear executive management and board level oversight of workplace culture.
- Publish quantitative data showing the diversity of their workforce alongside their hiring, promotion, and retention rates of employees by diversity characteristics.
The statement is “a show of support from investors who are paying diligent attention to these issues,” said Jaylen Spann, senior associate at Whistle Stop Capital. “We have the intention of sharing this with companies so they can hear from shareholders just how much of a focus there is on these issues outside of what’s happening in politics.”
Similarly, Mercy Investments and the Interfaith Center on Corporate Responsibility also organized a joint investor letter to Walmart, signed by 31 organizations managing $266 billion in assets, including Green America, Natural Investments, and Oxfam America.
“There’s a coalition of faith and values investors that have been engaging Walmart for decades on equity issues, diversity, and things that fall in the larger bucket of DEI,” said Caroline Boden, director of shareholder advocacy at Mercy Investments. “When we saw the announcement that they were rolling back many of their commitments and programs, we collectively felt this immense sense of disappointment.”
Additionally, as the largest private employer in the United States, Walmart’s decision to bow to anti-DEI campaigns has a far-reaching impact on the corporate landscape beyond their own day-to-day operations.
“They have an outsized impact whether they want to acknowledge that or not. The decisions they make, including on these issues, have a ripple effect in the market,” Boden said.
The investor letter to Walmart got results when company executives agreed to meet with representatives of the investor groups. Investors brought several questions to that meeting such as: What was the business case for rolling back DEI commitments? What conversations did Walmart have with anti-DEI activists? Did they talk with any other stakeholders? What role did the board play?
Making the Business Case
Investors’ support of DEI programs isn’t just a moral stance; it’s also based on years of studies pointing to how DEI is good for business. The fourth edition of McKinsey’s long-running diversity report finds that companies whose executive teams have the highest representation of women and most ethnic diversity are 39% more likely to outperform financially than companies whose executive teams have the lowest representation of women and least ethnic diversity.
JUST Capital’s 2024 Index Concepts finds that Russell 1000 companies ranking in the top fifth for worker issues, workforce advancement, and a living wage enjoy cumulative returns of 24.57%, 25.35%, and 24.31% respectively, compared to an average index return of 8.31%. These companies are significantly more likely to disclose pay gaps, tie ESG performance to executive compensation, and have a human rights policy.
Another report, Capturing the Diversity Benefit by As You Sow and Whistle Stop Capital, uses the EEO-1 forms, or reports that companies with 100 employees or more are required to file with the Equal Employment Opportunity Commission and Department of Labor each year, of 1,641 companies in 11 sectors to analyze the relationship between workforce diversity and financial performance from 2016 through 2022.
The report finds higher percentages of BIPOC management are positively correlated with a series of financial performance indicators such as enterprise value growth rate, income after tax, and return on equity. The relationship was strongest in the Communications Services, Consumer Discretionary, Consumer Staples, Financials, Health Care, and Information Technology sectors, and weakest in Energy, Materials, and Real Estate. Large-cap companies had the clearest positive relationship with diverse management.
“Companies do have the opportunity to outperform financially when they have more diversity within their management and executive leadership teams,” Spann said. “This means they are paying greater attention to the talent they source, the talent they retain, and the people they are advancing in their organization.”
Standing Up for DEI
Not every company is retreating in the face of attacks on DEI programs. When the National Center for Public Policy Research put an anti-DEI resolution on its proxy ballot, Costco pointedly advised shareholders to vote against it.
“Our Board has considered this proposal and believes that our commitment to an enterprise rooted in respect and inclusion is appropriate and necessary,” Costco wrote. “The report requested by this proposal would not provide meaningful additional information to our shareholders.”
Costco shareholders voted down the resolution by over 98% at its annual meeting on January 23. Apple shareholders also rejected an anti-DEI resolution by 97.3% on February 25.
Cosmetics producer e.l.f. Beauty, is also standing by its diversity programs, which CEO Tarang Amin credits for its success. The company has a young diverse following, with a workforce that is 75% women and 40% people of color. Sales have increased 75% in the past five years.
Even if other companies are not openly stating support for DEI, they are also not abandoning it. A 2024 report by Paradigm found that although companies were distancing themselves from terms like DEI, they are still doing the work: 60% of companies have a DEI strategy, 66% have a DEI budget, and 73% have DEI commitments.
“For many investors who have been in ongoing engagements with publicly traded companies for years, what we are hearing is that the narrative might be shifting, but the work is staying the same,” said Anandi Somasundaram, program lead for Racial Justice Investing. “It might look like shying away from their DEI commitments ... but coalition participants are noticing that what’s actually changing in practice is close to nothing.”
Other experts point out the risks of rolling back DEI commitments. For example, the National Institute for Workers’ Rights finds that a retreat from diversity, equity, and inclusion programs could be used as evidence against companies in discrimination lawsuits over a hostile work environment and disparate treatment.
“They can’t get rid of the Civil Rights Act of 1964, which says companies can’t discriminate based on sex, race, national origin,” said Nadira Narine, senior program director at Interfaith Center on Corporate Responsibility. “So if companies give in to the right-wing agenda around DEI, what do they face on the other side? They face litigation, they face consumer backlash, they face workforce backlash. They really need to account for all the things that could come at them if they don’t abide by basic civil rights law.”
What can you do?
While investors can push back on DEI roll backs through shareholder resolutions and letters to management, consumers can also take action:
- Use your dollars to support companies that support you. You can search for diversely owned sustainable businesses in our Green Business Network.
- Examine your own portfolio, including retirement and college funds, and reach out to companies that are either rolling back or sticking up for DEI programs.
- Push any institutions you are part of that have investments to vote on shareholder resolutions and contact companies to make their views known.
Together we can show companies the value of DEI programs and the risks of rolling them back.
