Studies from McKinsey and others have consistently shown that diverse teams drive innovation, enhance risk mitigation, improve decision-making, and ultimately deliver stronger revenue and profits. Indeed, according to McKinsey, companies in the top quartile for gender or ethnic diversity on executive teams are 39% more likely to outperform their peers financially compared to those in the bottom quartile, while those that rank in the top quartile for both are, on average, 9% more likely to outperform their peers. Conversely, companies in the bottom quartile for both are 66% less likely to achieve above-average profitability.
In other words, diversity = profits.
Investors recognize this. DEI metrics have become essential components of environmental, social, and governance investing. Institutional investors are scrutinizing board and workforce diversity, pay equity, and inclusion initiatives as indicators of long-term sustainability and profitability. Companies that lead on DEI are often rewarded with stronger investor confidence and better access to capital.
But as political rhetoric intensifies, some companies are rethinking—or outright abandoning—their DEI commitments. See, e.g., Verizon. That may score points with certain audiences, but from a governance and legal standpoint, it could be a serious misstep.
Directors and officers of public companies owe fiduciary duties of care and loyalty to the corporation and its shareholders. If DEI contributes to long-term value creation—and the data says it does—then walking away from it without a sound business rationale could expose leaders to claims of breach of fiduciary duty, especially as investor expectations around DEI transparency and accountability grow more intense.
This isn't theoretical. For example, investor coalitions such as the Racial Justice Investing Coalition and the Thirty Percent Coalition have been vocal in demanding that companies not only maintain but strengthen their DEI initiatives.
Abandoning DEI initiatives isn't just a culture war statement—it's a business risk. Companies that dismantle these programs without a clear, documented rationale may find themselves vulnerable to shareholder scrutiny and potential legal exposure.
Boards and executives must treat DEI like any other strategic priority: with careful analysis, stakeholder input, and accountability mechanisms. The fiduciary duties of care and loyalty don't pause for politics. If you're going to change course, be ready to prove it's in your company's best interest. Otherwise, the next knock on the door might be a process server.
Investors recognize this. DEI metrics have become essential components of environmental, social, and governance investing. Institutional investors are scrutinizing board and workforce diversity, pay equity, and inclusion initiatives as indicators of long-term sustainability and profitability. Companies that lead on DEI are often rewarded with stronger investor confidence and better access to capital.
But as political rhetoric intensifies, some companies are rethinking—or outright abandoning—their DEI commitments. See, e.g., Verizon. That may score points with certain audiences, but from a governance and legal standpoint, it could be a serious misstep.
Directors and officers of public companies owe fiduciary duties of care and loyalty to the corporation and its shareholders. If DEI contributes to long-term value creation—and the data says it does—then walking away from it without a sound business rationale could expose leaders to claims of breach of fiduciary duty, especially as investor expectations around DEI transparency and accountability grow more intense.
This isn't theoretical. For example, investor coalitions such as the Racial Justice Investing Coalition and the Thirty Percent Coalition have been vocal in demanding that companies not only maintain but strengthen their DEI initiatives.
Abandoning DEI initiatives isn't just a culture war statement—it's a business risk. Companies that dismantle these programs without a clear, documented rationale may find themselves vulnerable to shareholder scrutiny and potential legal exposure.
Boards and executives must treat DEI like any other strategic priority: with careful analysis, stakeholder input, and accountability mechanisms. The fiduciary duties of care and loyalty don't pause for politics. If you're going to change course, be ready to prove it's in your company's best interest. Otherwise, the next knock on the door might be a process server.