Many U.S. companies have announced they are discontinuing or reframing policies, programs and goals to promote diversity, equity and inclusion (DEI) relating to employees, vendors and external partnerships resulting from the recent issuance of White House executive orders (EOs) to end DEI policies and programs within the federal government. These orders also require federal contractors to certify that they are not operating “unlawful” DEI programs. Legal battles will likely continue, as in February a federal judge temporarily blocked the enforcement of the EOs before the U.S. Department of Justice filed a notice of appeal three days later.
While the EOs have accelerated market movement in this space, it is important to acknowledge that some companies had already started reviewing and discontinuing aspects of their DEI programs in the summer of 2023, before the presidential election.
At that time, the U.S. Supreme Court had struck down race-based affirmative action programs in SFFA v. Harvard. Meanwhile, at the time this article is being written, a few notable companies have reaffirmed their commitment to DEI, arguing that it is material to their business and talent strategies. These companies also have gained the support of their shareholders when they put their DEI programs to a shareholder vote.
Well-designed DEI programs and policies are meant to promote a culture of inclusion and belonging so that all employees can thrive in advancing the company’s business strategy, fostering innovation, deepening competitive advantage and enhancing company performance. Well-implemented DEI programs and policies focus on fair and “barrier-free” talent practices regardless of background. These programs also establish a clear link to how a business creates sustainable value to its stakeholders.
In the current environment, it is a matter of practicality that most U.S. companies have sought to review and de-risk their DEI programs and policies. Certain practices, such as the explicit measurement of representation goals in workforce or in leadership, will likely be subject to heightened prosecutorial risks. In general, DEI programs, policies and goals will be subject to greater scrutiny regardless of whether they are “illegal” or “discriminatory” in nature. However, this presents a dilemma for global companies, as these DEI sensitivities have not extended to other regions such as Europe. In fact, some large global companies have explicitly indicated a bifurcation in their approach to DEI – a reframing or de-emphasis in the U.S. while staying course in Europe and other markets.
According to WTW research, DEI metrics are some of the most common executive incentive metrics among S&P 500 companies (57% of S&P 500 companies, based on proxy filings up to August 2024). Prevalence slightly declined (-1% vs. same time last year) after the SFFA v. Harvard decision (Figure 1 and Table 1). Also, six additional companies prospectively disclosed the removal of DEI metrics in the following year.
Column 1 is Environmental: 44%. Column 2 is people and HR: 54%. Column 3 is diversity and inclusion: 57%. Column 4 is Employee health and safety: 26%. Column 5 is customer service: 32%. Column 6 is governance: 45%."
| Prevalence (among those with DEI metrics) | |||
|---|---|---|---|
| Total sample | Quantitative goals | Qualitative goals | |
| Closing pay gap | 3% | 1% | 2% |
| Management representation | 31% | 11% | 20% |
| Workforce representation | 38% | 15% | 23% |
| Workforce training | 11% | 4% | 7% |
| Other (e.g., supplier, ERGs, interview panels) | 65% | 17% | 48% |
| Not disclosed | 14% | 3% | 11% |
While it is still early to conclude trends from the 2025 proxy season, prevalence of DEI metrics will likely drop from 2024 levels as more companies consider removing or reframing their DEI approach (and measurement). While investors in principle prefer quantitative and results-based metrics, explicit quantitative representation goals will likely be removed from executive incentive plans due to increased legal risk.
Companies that decide to reframe DEI priorities have started dropping the “D” and “E” from the language and objectives in their programs. Instead, they are pivoting to inclusiveness for all, sense of belonging, and underscoring the importance of a healthy and distinct culture and values.
We will likely see a greater focus on inclusive culture, employee engagement and a more qualitative-assessment approach to measure progress. Companies with a European presence should be mindful of regional regulatory. Consider, for example, the pay gap/equity requirements reflected in the EU Pay Transparency Directive, similar regulations in other markets, and emerging broader DEI-related regulations around the world.
The bottom line is that companies need to evaluate the risks between (1) backlash from their stakeholders (e.g., customers, employees, non-U.S. parties) by reframing or backtracking on DEI and (2) the reputational and litigation risks from continuing their DEI programs. It is a delicate balance that will look different for companies across industries and with different target customer segment(s). Additionally, those that fail to make a strong case for how DEI policies and programs advance their business strategy and drive sustainable value creation will be exposed to the greatest risks.
Employers should understand that not every DEI metric has the same level of risk depending on how it is measured. While higher risks are associated with quantitative representation goals, investors may push back on qualitative, judgment-based DEI metrics that may be perceived negatively due to the lack of objective measurement criteria especially when payout is higher than what financial results would otherwise provide (Figure 2).
From low to high, the items listed include 1. DEI achievements as a bundle of ESG metrics (qualitative assessment) 2. Management modeling of DEI behavior as part of individual performance (qualitative assessment) 3. DEI enablement programs, e.g., employee resource groups (qualitative assessment) 4. Engagement scores of underrepresented groups (quantitative assessment) 5. Succession bench to top management positions with broad definition of diversity (quantitative assessment) 6. Representation in top management positions (e.g., % of Black and Latinx) (quantitative assessment)"
Finally, here are a few principles that may help you see through the noise and sensitivities:
01
Evaluate business impact, legality and reputational risk of DEI programs/metrics consistent with other business risk factors.
02
Consider other impactful ways (see Figure 2) to measure DEI progress linked to business performance beyond leadership and workforce representation.
03
Review recruiting and talent practices (e.g., performance management, career decisions, talent development) to ensure robust governance and documentation.
04
Be mindful about reactions and regulatory ramifications in other markets when reacting to sensitivities in the U.S.
05
Communicate DEI in terms of company values and business case; address nuances by tailoring messaging to each stakeholder group.
A version of this article appeared in Workspan on Mar. 20, 2025. All rights reserved, reprinted with permission.
