The board of directors may want to actively participate with management in decisions regarding the company’s continued approach to Diversity, Equity and Inclusion (“DEI”) policies under the new Trump administration. While there’s always a concern with engaging in micromanagement, such an active role would be consistent with the board’s oversight obligations for workforce culture and risk oversight.
As is well known, the new Trump Administration is expected to express broad-based opposition to many DEI-related initiatives. For example, it’s likely to re-issue a September 2020 ban on federal contractors promoting “divisive” DEI training, that had been subsequently revoked by President Biden. Additional projections for the Trump 2.0 agenda include steps to abolish DEI initiatives within the federal government, and challenging organizational measures that allegedly promote “racial classifications and quotas” as well as “DEI trainings that promote critical race theory”.
It’s an agenda that’s likely to have material influence on how companies – and their constituents – continue to perceive DEI.
Adding to this tension are the dueling public positions on the legality of DEI initiatives, adopted by various groupings of state attorneys general. These positions, which fall along political party lines, have at times included warnings to companies with respect to the status of their DEI activities. More generally, they reflect an inconsistent approach on a state-by-state basis to the sustainability of DEI programs.
Against this collective backdrop, many companies have begun to re-assess their organizational commitment to DEI. Indeed, in recent weeks, a number of major U.S. corporations across industry sectors have announced their respective intentions to relax or otherwise reduce those commitments, especially as they may incorporate projected objectives for executive team composition, and encourage corporate vendors and suppliers to develop or expand their own DEI programming.
One thing’s for sure – there’s currently no unequivocal “right way or wrong way” under the law with respect to determining the sustainability of DEI initiatives of private companies.
All of this is to suggest that there’s much at stake as corporate leadership teams convene to reconsider the status of their own DEI programming. But the board needs to have a seat at the table here – for at least two reasons.
From a general governance perspective, this decision should fall within the scope of the board’s basic risk oversight responsibilities. Given the current turbulent DEI environment, there’s much at stake in terms of the liability exposure and reputation of the company and its officers and directors should the company make an uninformed or purposely controversial decision.
More specifically, there’s been a growing recognition that corporate boards have a fiduciary responsibility to preserve positive workforce culture as an asset of the company. In particular, The National Association of Corporate Directors notes that workforce culture extends to topics such as employee morale, prevention of sexual discrimination and harassment, and – importantly – promotion of gender equality and inclusion in the workforce. Effective engagement with employees on these and similar issues is perceived as means of communicating and demonstrating organizational values and behaviors.
With these concepts in mind, there’s real value in the board and management partnering to confirm the organization’s approach to DEI. It’s a partnering that should be grounded in a shared awareness of current organizational DEI programs. It should also consider the range of DEI issues being discussed in the public milieu, as they may range from questions of fairness and equity to threats of litigation.
The conversation will certainly want to consider the perspectives of its shareholders as well as its workforce. Other valuable perspectives to consider will be those of the company’s consumers, vendors, and communities in which it operates.
One thing is for certain-DEI and similar initiatives currently exist within an increasingly volatile environment. We’re anticipating substantive changes in the law and in consumer preferences, and likely changes in presidential administration policies. Thus for companies concerned about their investment and participation in DEI efforts, it makes sense to re-assess their own programming.
It’s just that the board should be directly involved in that reassessment, rather than simply reacting to management’s decision on it.