In the current political climate, many companies have chosen to roll back their DEI programs due to pressure from the board, clients, customers or sponsors. However, a study by nonprofit Catalyst and New York University School of Law's Meltzer Center found that the decision to scale back these programs could have a downside for the business. For example, 77% of C-suite leaders said DEI programs are positively correlated with improved financial performance and 81% saw a positive correlation with stronger customer loyalty. In addition, 83% of C-suite leaders and 88% of legal leaders said that maintaining or expanding DEI programs is essential to mitigating key legal risks. As companies consider whether to retreat from or rebrand an organization-wide DEI program, they to assess their risk in four key areas.
Attracting and retaining top talent: Generation Z and Millennials are more likely to seek out employers with visible commitment to inclusion and equity. This cannot be dismissed as a niche concern—according to the Bureau of Labor Statistics, these two groups will make up more than two-thirds of the labor force within the next few years. According to the report from Catalyst and NYU, 86% of members of Generation Z are more likely to stay with a company that supports DEI. Further, 61% of Generation Z employees said they would never even apply to a company that does not support DEI.
Discrimination, harassment and other legal risks: Many legal experts say companies reducing or eliminating DEI initiatives are at a greater risk of litigation, particularly traditional discrimination claims brought by employees who identify as women, people of color and LGBTQIA+. “Opting out of DEI is not a neutral act—it is a choice with consequences,” said Christine Joseph, project director of the Meltzer Center’s Advancing DEI Initiative. “That is because these programs help root out harmful policies that especially affect marginalized groups.”
Regardless of whether an organization has a DEI program, it is important to note that nondiscrimination laws have not changed, even if executive orders and state DEI bans make it seem like they have. “You still have to protect your employees from workplace discrimination,” said Nance Schick, employment attorney specializing in DEI at Third Ear Conflict Resolution. “Since Ames v. Ohio Department of Youth Services was decided in June [which removed the heightened evidentiary burden for members of a majority class to bring discrimination claims], that includes employees perceived to be in the majority classes.”
Reputation damage and loss of trust: Depending on the individual consumer, a company having a DEI program can be seen as a positive or a negative. Given these varied sentiments and the notable politicization of the terminology, 78% of C-suite leaders said they are rebranding DEI efforts under new terms like “employee engagement,” “workplace culture,” “belonging” and “fairness.” However, they maintain that the commitment to the principles behind DEI remain the same.
“Organizations do not need to retreat—they need to recalibrate,” said Tara Van Bommel, head of research at Catalyst. “That means understanding what ‘DEI’ really means to their employees and their customers and ensuring they are still reflecting and communicating those values.”
Target is the perfect example of what can happen if organizations do not fully understand customer values, according to Schick. “Its profits and success with other key metrics increased after 2020, when it made public commitments to increase opportunities for Black employees and vendors,” she said. “It was quick to withdraw its commitment when the political climate changed. Target’s failure to find compliant ways to further their initiatives has made it look like they were simply performative measures to increase profits. Now, customers and employees are leaving in significant numbers because they no longer trust Target to honor its word, including stated values, policies and procedures.”
Loss of business and other financial risks: In the study from Catalyst and NYU, 69% of respondents said they are more likely to buy from companies that actively support DEI, a figure that increases to 78% of Generation Z and 74% among women. Additionally, more than a third of respondents said they would stop buying from a company that eliminated or reduced its DEI efforts. “There will almost always be another business happy to take your customers and employees,” Schick said. “Without them, you’ll have to find new ones in crowded spaces.”
Risk Mitigation Tips for Organizations
Scaling back or rebranding any organizational program will have its risks, but DEI programs are a particularly sensitive topic in the current U.S. political climate. According to the report from Catalyst and NYU, these tips can help organizations before, during and after potential changes to DEI programs:
- Conduct a full DEI risk assessment. The assessment should include the legal, reputation and workforce impacts of retreating from a DEI program the impacts of maintaining or expanding a program. For example, a legal risk of expanding a DEI program could be lawsuits from majority-group plaintiffs or action by the current administration, such as investigations, executive order or loss of federal contracts.
- Make any necessary changes to a DEI program to balance risk on all sides. These changes could include renaming existing DEI initiatives and adjusting the way the organization communicates its goals to other stakeholders or interested parties. The decision to modify a DEI program should be made based on the program’s impact. A program that is achieving tangible success in alignment with organizational values and business goals may be able to accept higher legal risk. On the other hand, a high-risk but low-impact program may not be worth retaining, at least in its current form.
- Train everyone within the organization on non-discrimination best practices. Ensure that training is applied and consistently reinforced in the workplace and that disputes are resolved as humanely, quickly and completely as possible under their unique circumstances.
- Match actions to purported diversity and inclusion values. According to the report, it is critical to clearly and consistently articulate what your organization is doing internally to address perception gaps between leadership intent and employee experience. Organizations can achieve this by ensuring DEI considerations are embedded into everyday workplace practices such as recruitment, mentorship, work assignment, performance evaluation and promotion processes. They can also make sure budgets and personnel for DEI are in line with leaders’ purported investment and commitment to the work and not shutter or substantially reconfigure existing DEI programs unless there is a compelling reason to do so based on a risk assessment.
- Maintain a DEI program while continuing to evaluate and adjust it. Organizations should take a long-term and global view of their DEI program to balance what is sustainable for the business and considers global trends and attitudes. This includes making modifications as necessary but does not include getting rid of a program altogether.
“Successful leaders understand that even in times of pressure and polarization, it is important to resist knee-jerk reactions and quick fixes and instead lead on decades of research-based solutions and practices that drive results,” said Jennifer McCollum, president and CEO or Catalyst. “Organizations that stay true to their values will emerge stronger as we evolve through these uncertain times.”