On January 21, 2025, President Trump signed Executive Order 14173, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Order”), which, among other actions,[1] directs all executive departments and agencies “to combat illegal private-sector [diversity, equity, and inclusion (DEI)] preferences, mandates, policies, programs and activities.”

The Order requires the heads of all agencies, assisted by the U.S. Attorney General (USAG), to “take all appropriate action with respect to the operations of their agencies, to advance in the private sector the policy of individual initiative, excellence and hard work.” The Order also directs the USAG, in consultation with the heads of relevant agencies and in coordination with the Director of the Office of Management and Budget, to submit a report within 120 days of the Order, including a proposed strategic enforcement plan identifying “(i) key sectors of concern” within the jurisdiction of each agency, (ii) the “most egregious and discriminatory DEI practitioners” in each sector, (iii) a plan to deter DEI programs or principles that “constitute illegal discrimination or preferences,” (iv) strategies to encourage the private sector to end such discrimination or preferences, (v) potential litigation, and (vi) potential regulatory action and guidance.

Of particular importance to public companies is the directive that, as part of the deterrence plan (described in clause (iii) above), and so as to “further inform and advise [the President] so that [his] Administration may formulate appropriate and effective civil-rights policy,” each agency “shall identify to up to nine potential civil compliance investigations of publicly traded corporations,” as well as large nonprofit organizations and foundations, state and local bar and medical associations, and higher-education institutions with endowments in excess of $1 billion.

As of the date of this publication, the Order remains in effect but is subject to a lawsuit brought by the City of Baltimore and other plaintiffs seeking a declaratory judgment that the Order is unlawful and unconstitutional and a preliminary and permanent injunction against its enforcement.[2]

Aligned with the Order: The New USAG Memorandum on DEI

In a February 5, 2025, memorandum issued to all employees of the Department of Justice (DOJ) (the “Memorandum”), the USAG warned that public companies could face criminal investigations relating to DEI programs or policies. The Memorandum, consistent with the Order, directs the Civil Rights Division and the Office of Legal Policy to jointly submit a report by March 1, 2025, to the Associate Attorney General with recommendations for enforcing federal civil rights laws and taking other “appropriate measures to encourage the private sector to end illegal discrimination and preferences,” including policies relating to DEI and diversity, equity, inclusion, and accessibility (DEIA). The Memorandum states that the report should identify:

• “key sectors of concern” within DOJ’s jurisdiction;
• the most “egregious and discriminatory” DEI and DEIA practitioners in each such sector;
• a plan with specific steps or measures to “deter the use of DEI and DEIA programs or principles that constitute illegal discrimination or preferences, including proposals for criminal investigations and for up to nine potential civil compliance investigations” of the entities meeting the criteria enumerated in section 4(b)((iii) of the Order (which includes publicly traded corporations);
• additional potential litigation activities, regulatory actions, and sub-regulatory guidance; and
• “other strategies to end illegal DEI and DEIA discrimination and preferences and to comply with all federal civil-rights laws.”

The Potential Impact of the Order

While the Order may be enjoined temporarily or permanently, it has—in the three weeks since its signing—had a significant impact on the DEI initiatives and programs of well-known public companies. Meta Platforms, Inc. (Facebook’s parent) and Alphabet Inc.’s Google have reportedly ended their goals of hiring employees from historically underrepresented groups, and Target Corporation has stated that it would end its DEI initiatives this year.[3] Bloomberg reported that a number of other public companies, including Sirius XM Holdings Inc. and Paypal, have revised or removed references to DEI initiatives in their annual reports filed with the Securities and Exchange Commission since the Order was signed.[4]

Even if the Order is enjoined or struck down, public companies may nevertheless continue to be targets of a wide array of investigations, enforcement actions, and litigation relating to their DEI initiatives or programs, such as:

• civil compliance investigations regarding alleged violations of existing anti-discrimination laws launched by DOJ or other federal agencies, which may include issuing Civil Investigative Demands that require the production of documents and responses to written interrogatories and/or oral testimony;
• investigations and lawsuits instituted by state attorneys general alleging violations of state anti-discrimination laws;
• shareholder litigation, including class actions, alleging violations of securities laws, including alleged false or misleading statements in public companies’ annual and quarterly reports or proxy statements relating to risks associated with DEI initiatives;
• EEOC Commissioner Charges for alleged violations of Title VII of the Civil Rights Act of 1964 (“Title VII”); and
• individual lawsuits, class actions, and whistleblower complaints filed by current or former employees for alleged violations of federal or state laws prohibiting unlawful discrimination and retaliation.

Challenges to Public Companies’ DEI Initiatives

Two recent examples show that public companies may continue to be targeted for their DEI initiatives even if the Order is struck down. On January 27, 2025, a group of 19 state attorneys general, led by Kansas Attorney General Kris Kobach and Iowa Attorney General Brenna Bird, issued a letter to Costco Wholesale Corporation urging it to “end all unlawful discrimination imposed by the company” through its DEI policies and giving Costco 30 days to respond. Although these state attorneys general mention the Order in their letter, they cite recent U.S. Supreme Court decisions as authority for their efforts to stop unlawful discriminatory practices.[5] Only a few days later, on January 31, 2025, a proposed shareholder class action was filed against Target Corporation and its directors, alleging that the company violated securities laws, including by failing to disclose material risks of consumer boycotts in response to the company’s environmental, social, and governance (ESG) and DEI mandates and its 2023 Pride Campaign.[6]

On the same day that the complaint against Target was brought, U.S. Steel Corporation filed its 2024 annual report on Form 10-K with an expanded ESG risk factor referring to the Order and acknowledging the current negative perception of, and increased focus on, DEI initiatives:

In addition, in recent years, “anti-ESG” sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted “anti-ESG” policies, legislation, or initiatives or issued related legal opinions, and the President having recently issued an executive order opposing diversity equity and inclusion (“DEI”) initiatives in the private sector. Such anti-ESG and anti-DEI-related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in U.S. Steel facing additional compliance obligations, becoming the subject of investigations and enforcement actions, or sustaining reputational harm.

What Public Companies Should Do Now

Public Disclosures

With the beginning of the 2025 proxy season, public companies should:

• carefully review disclosures in their annual reports on Form 10-K that address, directly or indirectly, DEI initiatives, programs, policies, or objectives and:
  • refine required disclosures regarding human capital management, which may refer to employee recruitment, engagement, retention, training, and turnover, and
  • consider adding a new (or updating an existing) risk factor addressing DEI, including the risk of potential enforcement or litigation resulting from the Order and the Memorandum;
• review and refine disclosures in their proxy statements that may touch upon DEI, including:
  • ESG initiatives and objectives;
  • diversity of directors and director nominees, including reference to any policy of the Board or the nominating committee with regard to the consideration of diversity in identifying director nominees;
  • executive compensation with performance metrics linked to DEI or ESG metrics; and
  • shareholder proposals relating to DEI or ESG matters;
• monitor proxy voting guidelines from proxy advisory firms and mutual fund managers for changes with respect to guidance addressing the diversity of board members and other relevant topics;[7]
• review other disclosures regarding DEI on their websites, in social media, and in communications with employees and candidates; and
• monitor developments in the litigation to set the Order aside, as well as enforcement actions and litigation targeting DEI initiatives, and revise risk factors relating to DEI to reflect “material changes” in upcoming quarterly reports on Form 10-Q.

Compliance Review and Risk Assessment

Like other private-sector employers, public companies should undertake a thorough review and risk assessment of their DEI plans, programs, policies, and initiatives. During this process, public companies should:

• promptly review any DEI plans, programs, and policies to determine whether they contain any aspect that could be deemed unlawful under Title VII[8] or any other federal, state, or local civil rights laws, and consider whether to take any action to modify such plans, programs, or policies, including the names of such plans, programs, or policies, in consultation with employment counsel;
• extend such review to include:
  • programs for employee inclusion;
  • programs for talent management and leadership training, including initiatives to increase representation of particular groups in management;
  • hiring and recruitment practices that include DEI considerations;
  • compensation programs and policies utilizing metrics based on DEI factors;
  • codes of business conduct;
  • supplier diversity policies; and
  • federal contracting affirmative action programs (for further guidance on reviewing and winding down affirmative action programs for federal government contractors, please refer to our prior Insight titled “DEI and Affirmative Action Programs Blitzed, While Executive Order 11246 Is Revoked”);
• evaluate the risks and impact of changes in DEI-related initiatives and activities going forward on various stakeholders (including employees and customers), as well as business and financial objectives and strategies;
• consider the Board’s role in overseeing the compliance review and risk assessment of DEI plans, programs, policies, and initiatives and whether the Board (or a committee of the Board) should receive a report on the status of the review and risk assessment at the next meeting;
• ensure that Human Resources (HR) and Compliance teams are familiar with procedures for handling and investigating whistleblower complaints and closely monitor hotlines and emails for DEI-related complaints or reports; and
• ensure that Legal, HR, Compliance, and Investor Relations teams are prepared to handle inquiries, complaints, and potential investigations involving DEI-related matters.

As noted above, developments relating to the Order and reactions to it are evolving quickly, and the guidance in this Insight is provided with the caveat that events may occur soon after publication that may impact it. We will update you as related litigation moves forward and further developments unfold.
 

ENDNOTES

[1] For information regarding other actions under the Order, see the Epstein Becker Green Insight titled “DEI and Affirmative Action Programs Blitzed, While Executive Order 11246 Is Revoked” (Jan. 28, 2025).

[2] See National Association of Diversity Officers in Higher Education v. Donald J. Trump, Civil Action No. Case1:25-cv-00333-ABA (D. Md. filed Feb. 3, 2025).

[3] See Miles Kruppa, Google Kills Diversity Hiring Targets, Wall Street Journal (Feb. 5, 2025, 3:48 p.m. ET), https://www.wsj.com/tech/google-kills-diversity-hiring-targets-04433d7c; Jonathan Stempel and Marguerita Choy, Target is sued for defrauding shareholders about DEI, Reuters Legal (Feb. 3, 2025).

[4] See Clara Hudson, David Hood and Andrew Ramonas, Netflix, McCormick Uphold DEI to Investors After Trump Directive, Bloomberg Law (Jan. 30, 2025, 1:39 p.m. EST); Clara Hudson, Paypal Cuts Diversity Language in New Report to Shareholders, Bloomberg Law (Feb. 5, 2025, 3:18 p.m. EST).

[5] See Letter from B. Bird, Att’y General of Iowa, and K. Kobach, Att’y General of Kansas, et al. to R. Vachris, President and Chief Executive Officer of Costco Wholesale Corporation.

[6] See City of Riviera Beach Police Pension Fund v. Target Corporation, Civil Action No. 2:25-cv-00085 (M.D. Fla. filed Jan. 31, 2025).

[7] See, e.g., The Vanguard Group, Inc.’s Proxy voting policy for U.S. portfolio companies effective February 2024, which has revised some of its prior guidance for U.S. companies relating to women and minority directors.

[8] Title VII remains the law of the land. Under Title VII, all employment decisions should continue to be made without consideration of race, color, religion, sex, or national origin, as well as other factors protected by federal, state, and local law. (42 U.S.C. § 2000e).