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Costco’s (COST+2.58%) Board of Trustees is standing firm as many of the biggest companies in the U.S. scale back or scrap their diversity, equity, and inclusion (DEI) initiatives.
The company has urged shareholders to reject a proposal from the National Center for Public Policy Research, which calls for an end to Costco’s DEI programs. The proposal argues that these initiatives are discriminatory and financially risky.
“It’s clear that DEI holds litigation, reputational and financial risks to the Company, and therefore financial risks to shareholders,” the conservative think tank said in its statement of support.
The think tank argues that Costco is sticking to a “discriminatory” DEI program, despite the broader trend of companies cutting back on such initiatives. They note that Costco recently rebranded its DEI program to “People and Communities,” but they believe this just a “new label” for the same practices — including hiring and promoting based on race and sex, and selecting suppliers for similar reasons.
Meanwhile, Costco’s Board of Directors is firmly against the proposal. They argue that their DEI efforts are not only good for business, but also reflect the company’s core values of inclusion and respect.
Costco insists that its DEI program helps attract and retain talented employees, fosters innovation, and strengthens relationships with customers and suppliers. Additionally, the company says that its DEI policies fully comply with the law, including recent Supreme Court rulings.
In a unanimous vote, the Board urges shareholders to reject the proposal. Shareholders will vote on it at the Annual Meeting on Jan. 23.
“We welcome members from all walks of life,” Costco’s Board of Directors said. “As our membership diversifies, we believe that having a diverse team improves satisfaction. A diverse workforce brings creativity to our products, better understands customer preferences, and reflects the diverse backgrounds of the members we serve.”
The National Center for Public Policy Research’s proposal cites the recent SFFA v. Harvard Supreme Court ruling, which struck down race-based admissions policies, suggesting it could jeopardize the legality of corporate DEI programs that factor in race and gender for hiring, promotions, and supplier selections. Since the ruling, several companies have faced lawsuits over their DEI practices, including Starbucks (SBUX+0.33%), which was hit with a $25 million lawsuit for discriminating against a white employee.
Proponents of the Costco proposal warn that the company could be vulnerable to similar legal challenges, especially since its DEI program emphasizes “equity” and includes a Chief Diversity Officer.
The timing of this proposal is notable. As DEI comes under increasing scrutiny across the corporate world, many large companies have started rolling back their commitments. Companies like Google (GOOGL-0.83%), Meta (META+1.62%), Microsoft, Walmart, and Zoom have all reduced their DEI staffing and/or programs. Companies including John Deere and Tractor Supply (TSCO+0.48%) have publicly scaled back their DEI initiatives, saying they are reassessing their strategies.
As DEI policies face mounting scrutiny, this shareholder proposal is just the latest example of the ongoing going debate over the future of diversity programs in corporate America.
Shareholders will vote on whether to support the proposal at Costco’s Annual Meeting. If it passes, Costco will be required to conduct the requested evaluation. However, if the Board’s recommendation to vote against it prevails, the company will continue with its DEI policies as they are. The outcome could serve as a bellwether, signaling whether other companies will follow Costco’s lead or continue the trend of scaling back their DEI commitments.