Fiduciary Responsibility On The DEI Battlefield

The political and legal landscapes on DEI programs are shifting rapidly. Presidential edicts and threats of government enforcement have driven some companies that once bragged about their diversity initiatives to now renounce them. Litigation risks, employee demands, shareholder concerns, and public outrage from all sides have left much of corporate America spinning. But in all the coverage of the twists and perils in the DEI war, there is little discussion about fiduciary duty. Pundits and academics may debate the nature of fairness and justice, but boardrooms face a more practical calculation. In a capitalist system aimed at profit, how is a fiduciary to shareholders supposed to navigate this moment?

Corporate success has long been associated with innovation, understanding the market, and investment in the future. In the past, before the term “DEI” was coined, corporate strategists talked about expanding market share, attracting and retaining talent, and evolving to match the younger consumer base. While liberals pushed for equal opportunity and reparative justice, corporate America has always been most responsive to its bottom line.

Indeed, it is the “business case” that likely accounts for the rapid rise of diversity initiatives in the last decade. Most notably, McKinsey’s 2015 report, “Why diversity Matters,” revealed a strong link between diversity and financial performance.[1] Based on an analysis of proprietary data from 366 public companies across a range of industries in Canada, Latin America, the United Kingdom, and the United States, McKinsey found that companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians. The study found a linear relationship between racial and ethnic diversity and better financial performance in the U.S.: every 10 percent increase in racial and ethnic diversity on the senior-executive team, resulted in an 0.8 percent rise in earnings before interest and taxes (EBIT).

In 2018, Deloitte published a study showing similar results.[2] That study examined the financial turnaround at Quantas from an AUD$2.8 billion loss in 2013 to an AUD$850 million profit in 2017 with shareholder returns in the top quartile of its global airline peers and the ASX100. CEO Alan Joyce attributed the success to the investment in “a very diverse environment and a very inclusive culture” which “got us through the tough times… diversity generated better strategy, better risk management, better debates and better outcomes.” The Deloitte study also debunked the myth that diversity and inclusion hinders cohesion within teams. To the contrary, it found higher levels of collaboration and cohesiveness.

In the early 2020s, many U.S. companies publicly touted their diversity and inclusion initiatives, including Target, Cisco, Microsoft and UnitedHealth Group. In 2020, Target became one of America’s most forceful supporters of DEI, pledging to increase its Black workforce by 20% over three years and take other steps to “advance racial equity,” including establishing an executive Racial Equity Action and Change committee to “focus specifically on how we can drive lasting impact” for Black employees and customers. The company vowed to spend more than $2 billion with Black-owned businesses by the end of 2025, including adding more products from 500 Black-owned vendors to stores, and pledging $100 million to support Black-led nonprofits and provide scholarships to students attending HBCUs. Target stores were redesigned with designated areas promoting “Pride” products, Black history month, and partnerships with sellers of color.

But on the eve of Trump’s return to office, Target’s leadership dramatically reversed course, ending all efforts to increase diversity in its workforce, disbanding its executive racial equity committee, and changing its “supplier diversity” team to a “supplier engagement” team. It also stopped participating in external diversity-focused surveys. Target was not alone. Similar dismantling occurred at Boeing, Brown-Forman,Walmart, Google, and Meta.

Consumer backlash was fierce. Various advocacy groups condemned the policy reversals and called for boycotts. The People’s Union USA designated February 28th for “economic blackout,” calling on consumers to refrain from buying goods from major offending retailers for 24 hours. On March 6th, Rev. Jamal Bryant from Atlanta and other faith and civil rights leaders, organized the “Target Fast” to begin the first day of Lent. The boycott was described as “a spiritual act of resistance.” Walmart, Whole Foods, and Amazon also faced calls for economic restraint by consumers.

The economic fallout was immediate. Foot traffic in Target fell for nine consecutive weeks. Target’s stock plummeted by approximately $27.27 per share within the month of February, erasing $12.4 billion in market value. Walmart also saw foot traffic fall and over 20% drop in share price between mid-February and mid-March.

In contrast, Costco had a shareholder vote on whether to review the risks of maintaining its DEI initiatives, and over 98% of the shareholders rejected the proposal. The board followed with a statement that it “believes that our commitment to an enterprise rooted in respect and inclusion is appropriate and necessary.” And consumers are now seemingly rewarding the move with their dollars. Costco saw an increase of 7.7 million visits and its stock hit an all-time high in February 2025.

Costco also was not alone. Apple’s board similarly urged shareholders to reject a similar proposal. Delta Airlines told reporters on a Jan. 10 earning call that it is not reevaluating DEI or sustainability policies because “they are actually critical to our business,” stating DEI is “about talent and that’s been our focus.” Deutsche Bank CEO Christian Sewing announced that the company stands “firmly behind” its “integral” DEI programs because “Deutsche Bank has benefited from it.” NFL Commissioner Roger Goodell, in advance of a record-breaking Super Bowl LIX in terms of viewership and profit, defended the NFL’s practice of considering diverse candidates for head coach, general manager and coordinator positions “we’ve proven … that it does make the NFL better.”

The companies that have remained committed to DEI are facing pressure and threats from state AGs and federal agencies. In January, 19 states AGs collectively sent Costco a letter warning the company “end all unlawful discrimination imposed by the company through diversity, equity, and inclusion (“DEI”) policies.” Similarly, the Federal Communications Commission has opened investigations into Verizon, Comcast and Disney “to ensure that every entity the FCC regulates complies with the civil rights protections enshrined in the Communications Act… including by shutting down any programs that promote invidious forms of DEI.”

Conservative groups have been active in bringing lawsuits that frame Target’s plummeting stock price as evidence of price inflation due to alleged misrepresentations about the benefits of DEI. Three related lawsuits are now pending in Florida against Target for securities fraud on this theory.

But significant litigation risk exists in the other direction too. Most obviously, public statements about abandoning “diversity,” “equity,” and “inclusion” can run a company head-first into claims of violations of Title 7 and the American with Disabilities Act claims. And there exists a counterpoint to the securities lawsuits too. Those with a legal obligation to act in the best interest of shareholders can be held responsible for rash action leading to destruction of market value. While corporate directors and officers are typically protected by the “business judgment rule” from liability for business decisions that prove detrimental or unsuccessful, that protection is limited to decisions made in good faith, with reasonable care, and in the best interests of the corporation. Failure to examine the impact of DEI on corporate profit, growth, and consumer loyalty could be viewed as careless, reckless, and a breach of duty to the company and its shareholders. Some companies have already recognized the financial implications. Coca-Cola warned in its most recent annual filing that abandoning DEI could hurt business, because its diverse employee base “helps drive a culture of inclusion, innovation and growth,” and if the company’s employees do not reflect the “broad range of consumers and markets we serve around the world, our business could be negatively affected.”

In any event, the Target case study is a cautionary tale against sudden reversals of corporate commitments based on the whims of the current Administration. As corporate leaders navigate the waters of the Administration’s war against DEI, a plaintiffs’ bar ready to pounce in both directions, and consumers that are fired up to vote with their wallets, failure to consider the full economic impact of DEI exposes fiduciaries to liability for breach of their duty.

[1] Vivian Hunt, Dennis Layton and Sara Prince, McKinsey Study: Diversity Matters, (February 2, 2015).

[2] Juliet Bourke and Bernadette Dillon, Deloitte Review, The Diversity and Inclusion Revolution: Eight Powerful Truths, (January 2018).

To read more from Karen R. King or Catherine M. Foti, please visit www.maglaw.com.

Stephane Clare, a staff attorney at the firm, assisted in the preparation of this article.