As we look to the US and see Diversity, Equity and Inclusion (DEI) commitments being pulled by big brands, investors should pause for thought. Morals aside, it’s hard to think of a business that would benefit financially from less, not more, diversity of thought and experience. Whether it’s consumer goods firms that need to appeal across demographics, or tech firms seeking innovative new opportunities, a diverse workforce is almost always a welcome benefit.
I would argue investors in US companies should be proactively engaging on this topic. Yet we’ve heard from our friends on the other side of the pond that it can be harder for institutional investors to engage with US businesses, compared to the UK and European markets, particularly those at the larger end of the market capitalisation spectrum.
Instead of firing off an email to the investor relations team requesting further information or a meeting, as we would do here in the UK, US investors often turn to shareholder resolutions. From a UK perspective, this seems like the nuclear option, but we are told that investors often have no choice as other methods of engagement are not particularly effective.
The battle on the ballot
Shareholder resolutions are proposals put forward by an individual or group of shareholders asking the business to take action on a particular topic. These resolutions appear on the ballot and are voted on by shareholders at a company’s AGM. If a majority of shareholders support it, the resolution is passed and the company is required to respond accordingly. There’s a minimum shareholding requirement, to prevent campaigners buying a token number of shares simply to access the company’s AGM proceedings.
The debate around DEI in the US is supercharged at the moment due to the Trump Executive Order banning such programmes in federal government. Interestingly, AGM data shows this sentiment has been building for some time. Morningstar research shows that over the past few years, shareholder resolutions have been used by investors on both sides of the DEI debate as a vehicle to voice their arguments.
Specifically, in each of the past three years, there have been over 60 shareholder resolutions per annum addressing DEI at US companies. The majority take a pro-DEI stance, requesting information on things like racial pay gaps, discrimination risks and the diversity composition of the board. However, a growing minority, up from 16% in 2022 to 35% in 2024, take the opposite view and seek support to have companies remove DEI programmes and targets.
Even though the volume of anti-DEI resolutions is on the rise, the level of support has remained low – usually around 2%. This should offer hope to progressive investors that can see the value of workforce diversity.
The year ahead
Emboldened by the current political climate, 2025 is set to be a bumper year for anti-DEI resolutions. It’ll be interesting to see how company boards respond and the picture seems more mixed than the negative headlines would suggest. In January for example, 98% of Costco shareholders voted against an anti-DEI resolution, an outcome that the board had openly advocated for. Apple’s board has also called for shareholders to vote against a proposal to stop all DEI activity at its upcoming AGM in late February.
A number of well-known brands, with AGMs scheduled for the spring, are currently trying to block anti-DEI resolutions from appearing on the ballot in the first place, citing inaccuracies and misrepresentations in the resolutions’ wording. At the time of writing, American Express and Coca-Cola are both in this camp. Taking the resolution off the ballot is a convenient outcome for companies as it negates the need for the board to make a public statement on its DEI activity.
As I reach the end of this article, where I planned to reflect on how quickly we’ve seen this landscape change and how shocking the regression has been, I have just received notification from the proxy voting provider, Institutional Shareholder Services (ISS).
ISS is widely used by institutional investors to inform their view on AGM voting and, in light of the increased political scrutiny on DEI-related practices, has taken the decision to “indefinitely halt” its analysis on board diversity – no longer including gender, race and ethnic diversity considerations in its voting recommendations on US companies.
This follows political pressure against ISS, when the company was warned in 2023 by 21 Republican state attorney generals that its support for DEI and climate-related issues at companies could be seen as being in violation of their duties to consider their clients’ financial interests.
We await the AGM season with anticipation. With Donald Trump at the helm there may be more turbulent developments yet to come.
