CS Insights: Tackling DEI

If you’ve paid attention to the business news in the past year, there’s a good chance you’ve seen an article or social media post about a company “rolling back” or “abandoning” a DEI initiative.

The discourse accelerated when Republican-controlled states began to push institutional investors like Blackrock on the issue. Then came boycott threats against a few high-profile organizations from conservative advocacy groups. As soon as a few companies began to adjust programs, the narrative became the fight against “woke Corporate America.”  Commentators wondered: “which company will be next?”

The media attention has substantially increased since President Trump was inaugurated in January, with the number of news articles referencing corporate DEI initiatives jumping by approximately 70 percent in the 30 days following compared to the prior period, according to a Collected Strategies’ analysis.

Companies love to follow the crowd. Standing out, for better or worse, is often viewed as “bad.” This is why many corporate websites referencing DEI initiatives all sound the same. They extoll the benefits of a diverse workforce or reference how fostering an inclusive work environment is good for the organization, but rarely do they explain how those initiatives deliver more measurable impacts on the bottom line through Net Promoter scores, employee turnover rates, engagement scores or a litany of other metrics companies track.

Now, with a number of Executive Orders seeking to eliminate anything that remotely resembles diversity or inclusion in the Federal Government, as well as organizations that receive federal funding, the panic has set in.

Clients frequently ask us, “Should we scrub our website?” or “Should we stop promoting employee resource groups?” “What happens if an ideological organization threatens to boycott our company?”

Target and Costco represent two recent case studies for how companies responded to the perceived pressure.

Target, which had been a vocal supporter of LGBTQ+ initiatives and had been perceived as an ally to this community, came under fire when it publicly walked back and eliminated a number of its DEI initiatives in a January press release.  The backlash was particularly strong from the LGTBQ+ community, with consumers on Reddit and other social media platforms calling out the company for “profiting off LGBT and pride month” and “rainbow capitalism.” The community felt betrayed.

Costco, meanwhile, took the opposite approach. After facing pressure from Republican attorneys general in 19 states and a shareholder proposal at its Annual Meeting, the Costco Board of Directors reiterated its commitment to DEI initiatives and the proposal was overwhelmingly rejected by 98% of shareholders voting. No boycott against Costco has emerged since. In fact, online commentary and news articles seem to indicate advocacy groups and shoppers are actually pushing to support the company for taking a stance. This is backed up by foot traffic data according to Retailbrew.

Target, meanwhile, is still dealing with issues more than six weeks later, with foot traffic declining according to Retailbrew and prominent advocacy groups calling for a larger boycott of stores.

So is the lesson that Costco is right and Target wrong? We’d argue it’s not even the right question to be asking. To us, the real point is why each company made the decision and how they communicated the programs and benefits. And did they understand what would happen?

When we counsel clients on these issues, the first question we like to ask is, “Why are you considering making a change?” and “What sort of data do you have on this issue from customers and employees so we can understand what the impact will be?” Often times, the answer is murky or they haven’t fully assessed the numbers.  

To us, that’s a warning sign that a company is likely responding to panic vs. carefully evaluating an issue, like investors would expect them to. Shareholders want companies to articulate which initiatives truly and measurably impact value. And that includes how a company should communicate these points in disclosures on websites and in annual SEC filings.

The result of these discussions often means taking a pause (and a deep breath) before making any quick decisions. There’s no such thing as “quietly removing DEI” language when every corporate website is archived so it’s better to do what’s right than rush.

When companies take the time to study the issue, we find the end result is often not abandoning an initiative but improving how it’s communicated. There’s rarely a bad outcome when you communicate succinctly, with supporting data and real-world examples.

Roger Goodell, the commissioner of the NFL, recently demonstrated the benefits of this approach. In advance of the Super Bowl, he was asked whether the NFL would follow corporate America and abandon diversity initiatives (these initiatives have led to a substantial increase in the hiring of high-ranking officials of color in both football and business operations roles).

Mr. Goodell answered quite clearly:

“We got into diversity efforts because we felt it was the right thing for the National Football League. And we’re going to continue those efforts, because we’ve not only convinced ourselves, we’ve proven it to ourselves — it does make the NFL better. We’re not in this because it’s a trend to get into it or a trend to get out of it. Our efforts are fundamental in trying to attract the best possible talent into the National Football League, both on and off the field.”

It’s hard to argue that the NFL doesn’t have a perspective on the topic when you respond like that as it leaves no ambiguity as to where the organization stands. And notably, his response didn’t cause a backlash or consumer boycott.