DEI: Impacts of changes to US law for companies and responsible investors

“As long as we are not living in our full humanity, we cannot create a world for humanity” – Tarana Burke, founder #MeToo

At its heart, Diversity, Equity & Inclusion (DEI) seeks to create an inclusive environment where everyone, regardless of their background, has equal opportunities to succeed, feel valued and contribute meaningfully to their organisation and society.

President Trump’s fifth executive order was titled “Ending Radical And Wasteful Government DEI Programs And Preferencing”.¹ His 27^th executive order was titled “Ending Illegal Discrimination And Restoring Merit-Based Opportunity”.²

This article looks at Diversity, Equity and Inclusion (DEI), its history and the new orders’ potential impact on companies and responsible investors.

History of DEI

The roots of diversity, equity and inclusion are ancient. Aristotle taught the principle of proportional justice – that it is unjust to treat equals unequally, and it is similarly unjust to treat unequals equally.³ A just society, he argued, exists not just for economic survival, but to help all citizens flourish. To achieve this required all members of society to have fair access to material, social and moral resources.

Early action on DEI involved measures to eliminate discrimination on the basis of race or gender. In the US, the 1964 Civil Rights Act banned discrimination on the basis of race, colour, religion, sex or national origin.⁴  In Australia, the Racial Discrimination Act was passed in 1975 and the Sex Discrimination Act was passed in 1984.⁵

Figure 1 Australia’s first Sex Discrimination Commissioner Pam O’Neil with Prime Minister Bob Hawke, 1984.

Affirmative action policies were first introduced in the 1960s. President John F. Kennedy issued Executive Order 10925 in 1961, which required government contractors to take “affirmative action” to ensure applicants were treated fairly, regardless of race, colour, religion or national origin.⁶

American colleges and universities were early adopters of affirmative action with Harvard Medical School introducing its first affirmative action initiative in 1969, which included a measure to enrol at least 15 minority students.⁷

Figure 2 Doctor Alvin Poussaint who was hired by Harvard Medical School in 1969 to support and mentor minority students.

The corporate world began adopting affirmative action in the 1970s with Xerox noted as an early adopter when it established the first Employee Resource Group (ERG) to support Black employees. After allegations of gender and racial discrimination, AT&T entered into an agreement with the US Equal Employment and Opportunity Commission (EEOC) to pay back wages to women and minorities, set diversity hiring and promotion targets, and support these efforts through training and development.⁸

In Australia, Telstra, Qantas and the Commonwealth Bank introduced affirmative action programs in 1988, aimed at increasing the representation of women and minorities in the workforce through targeted recruitment and training programs.⁹

In the 2000s, DEI was increasingly tied to the concept of social licence to operate.¹⁰ Diversity training programs emerged in workplaces focused on sexual harassment, unconscious bias and sensitivity to differences. It was not until the 2010s that businesses began to realise that diversity could result in competitive advantage. Businesses recognised the need to mirror the diversity of society within their workforce to remain competitive and successful.¹¹

Figure 3 Still from Coca Cola’s ‘America is Beautiful’ advertisement aired during the 2014 Superbowl.

In more recent years DEI has been impacted by social movements including #MeToo and #BlackLivesMatter. According to Indiana University Professor Julie Kratz, DEI adopted a focus on social injustices and bringing discussion of these issues into the professional world. Organisations embraced DEI holistically, aiming to promote diversity in representation, ensure equitable access to opportunities, and foster an inclusive environment where everyone feels valued and can fully participate.¹²

The DEI Backlash

The current backlash against DEI can trace its origins back to the post-civil war segregationist movement and conservative writers like lawyer R. Carter Pittman and journalist and editor James J. Kilpatrick.

Figure 4 James J Kilpatrick, an early opponent of affirmative action

An early legal challenge to affirmative action came in 1978 when former Marine officer Allan Bakke, sued the University of California Davis Medical School on the basis it had accepted black candidates with lower Medical College Admission Test (MCAT) scores. Bakke argued the school’s affirmative action program violated the constitutional rights of white applicants. The US Supreme Court upheld the right of UC Davis to consider race in a holistic admissions process, but ruled that racial quotas were unconstitutional.¹³

In the U.S., the backlash against DEI evolved into a coordinated, well-resourced conservative campaign. Groups like the America First Legal Foundation (AFL) sought opportunities to litigate against corporations with DEI policies.¹⁴ US companies reacted by scaling back diversity-focused programs due to the risk of reverse discrimination lawsuits.¹⁵ The phrases ‘colour-blind’ or ‘merit-based’ recruitment came into common use.

In Australia, DEI backlash has been led by voices like the Institute of Public Affairs, which has stated that Australia should follow the Trump administration in shutting down all DEI programs and dismissing all government workers employed in DEI roles.¹⁶

DEI efforts in the US faced a major setback with the Supreme Court’s ruling in Students for Fair Admissions v. Harvard (Students v.), which found that any race-conscious admission process violated the Equal Protection Clause of the 14^th Amendment.¹⁷ Around the same time, Republican-led states passed legislation banning DEI-related activities and dismantling DEI offices in state agencies, including Florida’s 2022 “Stop WOKE Act”.¹⁸ President Trump’s Executive Order 14173 later applied these measures at a federal level.

The impact

The impact of Students v. and President Trump’s two DEI-related executive orders has been substantial change across the business world and broader society. Most major companies in the , from Disney to Major League Baseball, have removed references to DEI from their websites, arguing the need to comply with the changes in federal law.

Proxy voting advice firm ISS announced it would no longer consider diversity in recommending how shareholders should vote on the appointment of directors to US company boards.¹⁹ US-based investment managers including BlackRock, State Street and Vanguard have updated proxy voting policies to remove quantitative requirements for board diversification.²⁰ Goldman Sachs said it would drop a requirement that a company it takes public must have at least two diverse members on its board, one of which had to be a woman.²¹

The dismantling of DEI is likely to be high risk and counterproductive. Richard O’Connor, founder of recruitment firm Aspiring to Include, lists the hidden costs of dismantling DEI programmes as including:²²

• Increased legal risks – companies that do not train staff on racial and sexual discrimination are at greater risk of legal action.
• Talent exodus – organisations that abandon DEI commitments risk losing diverse talent. This is particularly the case among younger generation employees.
• Innovation deficit – research consistently shows that diverse teams generate more creative solutions. By dismantling DEI programs, organisations risk stifling innovation and limiting their problem-solving capabilities.
• Hostile work environment – the absence of DEI initiatives can create an unwelcoming work environment for women and minorities leading to decreased productivity, increased stress and higher turnover rates.
• Damage to reputation and competitive advantage – retreating from DEI commitments can alienate customers, directly impacting bottom-line results and market position.

Worth preserving

While Executive Order 14173 primarily targets federal agencies and contractors, the order does direct federal agencies to combat private-sector DEI practices deemed discriminatory. Despite this, some companies have pushed back, reaffirming their commitment to DEI including:

• Costco – over 98 percent of Costco shareholders voted against a proposed anti-DEI initiative. The board stated, “our commitment to an enterprise rooted in respect and inclusion is appropriate and necessary.”²³
• Apple – the company reaffirmed its commitment to DEI after the National Center for Public Policy, a conservative pressure group, argued that DEI posed “litigation, reputation, and financial risks” following Trump’s executive order. Apple responded stating that its DEI programs were integral to creating a “culture of belonging”. The company has also kept its ‘Inclusion & Diversity’ webpage up, which states it is “continuing to create a culture of inclusion, increasing representation across teams, and holding ourselves accountable at every level”.²⁴
• Coca-Cola – in a recent annual report, Coca-Cola affirmed its commitment to DEI, saying that its “diverse, high-performing global employee base helps drive a culture of inclusion, innovation and growth”. However, in a recent interview with Bloomberg, Chief Financial Officer John Murphy said Coca-Cola the company would “follow any change in regulations at the national level”. This likely means a continuation of DEI policies in a more covert and coded way.²⁵

To the extent that consumers value diversification, it is possible preferences will shift away from US companies dismantling DEI programs to the benefit of competitors. The consumer backlash against Tesla, following CEO Elon Musk’s involvement with the Trump administration, has been well covered in the media. Similarly, advocacy groups are pushing for boycotts of companies like Amazon, Target and Walmart, following their rollback of DEI initiatives.²⁶

Historically, equality as a legal principle has been closely tied to the principle of proportionality – that justice requires consideration of both equity and equality. The US Supreme Court’s decision in Students v., and President Trump’s Executive Order 14173, represent major departures from that legal precedence.

In a dissenting opinion to the majority in Students v. Supreme Court Associate Justice Ketanji Brown Jackson wrote:

“With let-them-eat-cake obliviousness, today, the majority pulls the ripcord and announces ‘colour blindness for all’ by legal fiat. But deeming race irrelevant in law does not make it so in life.”

In the real world we are not all treated equally. For good or ill, we are the product of all that has gone before. Maximising the wealth of a society means striving to realise Socrates’ vision of a world in which all people can flourish financially, intellectually, morally and culturally. For companies and investors in the US that value diversity, the current administration and composition of the Supreme Court creates substantial, but not insurmountable, challenges to acting on those principles.

1. https://www.federalregister.gov/documents/2025/01/29/2025-01953/ending-radical-and-wasteful-government-dei-programs-and-preferencing

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

3. https://en.wikipedia.org/wiki/Nicomachean_Ethics

4. https://www.archives.gov/milestone-documents/civil-rights-act

5. https://www.ag.gov.au/rights-and-protections/human-rights-and-anti-discrimination/australias-anti-discrimination-law

6. https://politicaljar.com/history/civil-rights/civil-rights-articles/affirmative-action-policies-of-the-1960s-and-1970s/

7. https://perspectivesofchange.hms.harvard.edu/node/18

8. https://www.eeoc.gov/history/eeoc-history-1970-1979

9. Beyond the Rhetoric: The Practice of Affirmative Action in Australia, A.J. Sheridan, G.R. Richard, University of New England Research, 1988

10. https://www.investopedia.com/terms/s/social-license-slo.asp

11. https://www.insurance.ca.gov/diversity/41-ISDGBD/GBDExternal/upload/McKinseyDivmatters-201501.pdf

12. https://www.forbes.com/sites/juliekratz/2024/12/29/history-of-dei-why-it-matters-for-the-future/

13. https://www.reuters.com/legal/government/ibm-must-face-white-workers-lawsuit-over-diversity-goals-2025-03-26

14. https://www.reuters.com/legal/government/ibm-must-face-white-workers-lawsuit-over-diversity-goals-2025-03-26

15. https://www.flastergreenberg.com/experience-Former_Philadelphia_School_District_Employees_Win_2_96_Million_Reverse_Race_Discrimination_Verdict.html

16. https://www.skynews.com.au/opinion/andrew-bolt/peter-dutton-should-get-rid-of-all-government-dei-workers-wild/video/b504a7d6463dc469245c75502975cbed

17. https://en.wikipedia.org/wiki/Students_for_Fair_Admissions_v._Harvard

18. https://en.wikipedia.org/wiki/Stop_WOKE_Act

19. https://insights.issgovernance.com/posts/statement-regarding-consideration-of-diversity-factors-in-u-s-director-election-assessments/

20. https://www.cov.com/en/news-and-insights/insights/2025/02/proxy-advisory-firms-and-large-institutional-investors-revisit-their-board-diversity-voting-guidelines

21. https://www.reuters.com/business/finance/goldman-sachs-ends-ipo-diversity-pledge-2025-02-11/#:~:text=Feb%2011%20(Reuters)%20%2D%20Goldman,from%20U.S.%20President%20Donald%20Trump.

22. https://www.aspiringtoinclude.com/the-dangers-of-dismantling-dei-programmes-in-the-workplace/

23. https://www.advocate.com/news/companies-keeping-dei#rebelltitem10

24. https://www.apple.com/diversity/

25. https://www.coca-colacompany.com/social/diversity-and-inclusion

26. https://news.wttw.com/2025/03/26/some-consumers-are-boycotting-large-corporations-over-dei-rollbacks-here-s-what-know