Are companies abandoning DEI?

Hello, and welcome to this week’s edition of Straight Talk. Inside, we discuss:

• Rethinking DEI
• Consumer warning signs
• Tariffs boost imports
• Labor peace in the ports

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I had the chance to host two experts from McKinsey this past week to discuss the transformative impact potential of GenAI on supply chain management. Knut Alicke and Julian Fischer led the way, discussing how GenAI is being incorporated into advanced planning systems, digitization efforts and risk management to name a few. Coupa sponsored the webinar. You can listen to it here.

Rethinking DEI

In case you haven’t heard, the tide has turned and DEI is now dead in the U.S. But, what if it isn’t? While many major companies such as Google, Target, Walmart, Pepsi, Bank of America and others have cut or scaled back their DEI programs, not all companies are following suit.

This past week, Apple shareholders rejected a proposal to dismiss its DEI initiatives. John Deere shareholders rejected a proposal that would have required it to report on its hiring data. Although Deere did roll back some of its DEI program in mid-summer 2024, the latest proposal received a resounding 98.7% rejection rate. Apple shareholders voted 97.7% against.

Costco has been the bellwether for DEI advocates. Shareholders resoundingly rejected anti-DEI platforms, drawing the ire of conservatives. Interestingly, foot traffic into Costco stores, as tracked by Placer.ai, increased 4.6% during the week of Feb. 10. A small sample size, of course, but that same week saw foot traffic drop 3.9% at Target and 1.4% at Walmart.

Are companies ditching DEI?

A C-suite survey from law firm Littler Mendelson found some interesting insights on DEI. Its second annual Inclusion, Equity and Diversity Report (the firm noted that is its internal name—I’ll keep using DEI for conformity sake), it found that 49% of respondents post-inauguration plan no changes in their DEI program. Only 8% are seriously considering changes, while about 60% said they are awaiting further details, particularly around enforcement, before making any modifications to programs. (The full report can be found here)

“While many companies do not appear to be abandoning their [DEI] programs overnight, they are very aware of the threats. Approximately half (55%) are more worried post-inauguration about the risk of [DEI]-related lawsuits, government enforcement actions, and shareholder proposals. Fears are even more widespread among federal contractors and public companies that are highly visible targets for regulators. A similar share expect to see this challenging environment take a toll in the coming months: 53% surveyed post-inauguration say that anti-[DEI] policies and/or rhetoric under the Trump administration will likely lead organizations to decrease their [DEI] commitments over the next year—up from 38% who said the same pre-inauguration,” the executive summary of the report noted. The survey was conducted both before inauguration day and after inauguration day, giving Littler a sense of what has changed with Trump taking office. The biggest change? Companies are less willing to talk about any DEI programs. More than 6 in 10 (61% to exact) said their biggest change will be removing references to DEI-related language from websites, proxy statements and other communications.

DEI shareholder proposals growing

As reported by Axios, the number of anti-DEI shareholder proposals are growing, more than doubling last year. Still, that resulted in only 13 proposals. Richard Edelman, CEO of communications firm Edelman, told Axios he doesn’t see a major change taking place. “I think the work on diversity will go on,” he said. “It may be going on under a different name, but it will go on.”

The Littler survey indicated that businesses are not in a major hurry to make significant changes. “We are observing the changes that are unfurling and taking time to analyze before we make any rash decisions with long-term consequences for our employees, our company, and our reputation,” one unnamed executive told Littler.

Despite the threats (lawsuits, government enforcement actions, etc.) of hosting DEI programs, noted by 55% of respondents to the Littler survey, 76% of respondents said they have maintained or even increased their DEI commitments in 2024, citing “employee expectations for ongoing [DEI] commitments played a role, suggesting that [DEI] remains an important talent retention and recruitment strategy for many employers even as the environment around those efforts becomes more hostile,” the report noted.

Was DEI was a PR push?

Steven A. Melnyk, a professor of Supply Chain Management (retired/Emeritus) at Michigan State University, and Jim Roberts, president & CEO of Jim Roberts Enterprises, have penned an article in the upcoming March/April issue of Supply Chain Management Review that argues that true DEI efforts have been ongoing for many years, and the current DEI awareness has been more about marketing than actually changing the approach of organizations.

I’m not going to dive deep into their argument, but if you are a subscriber to SCMR, please read through the entire article before forming an opinion as I think it is a compelling case for why the underlying approaches to DEI remain an important part of business success. (If you are not a subscriber, you can do so here) But, I do want to highlight a few of their conclusions.

One of the main points is that by using quotas, many companies are simply using “DEI as PR” as a way to show they are diverse. They cited the examples to back this up, but noted that te real bottom line of DEI is to “increase profit; it is to enhance shareholder value. Quotas and reverse discrimination are inconsistent with these objectives.”

Following the George Floyd murder, companies raced to put out DEI statements and show how diverse they were becoming. The authors argued that is the epitome of DEI as PR and undermines the underlying good that programs can have in enhancing a business’ reputation and driving revenue.

So, what comes next?

Melnyk and Roberts suggest several steps businesses can take, starting with ditching the term DEI, which is “now cloaked with strong negative connotations. Many companies have chosen to distance themselves from the term DEI while still pursuing the goals and objectives of DEI. A good starting point is to use a different title,” they wrote.

Recognizing that DEI represents the competitiveness of the firm—for business environment, for employees, and for resilience—companies should adopt a change management plan. That, Melnyk and Roberts suggest, is the root of a DEI program. It is a change management program. The first part is determining that change is needed, and the second part is presenting a compelling, data-driven case for why change will bring about the expected result.

“Achieving DEI should be treated as a business process and a business decision—it must make sense for everyone involved. It must identify a clear future state and a path from the current state to the future state,” the authors noted.

Costco’s efforts to beat back the shareholder proposal was due in part to its ability to show how DEI programs have helped it “attract and retain a wide range of employees and improved the mix of merchandise and services offered in the stores. In other words, voting against DEI adversely affects the ability of Costco to compete,” Melnyk and Roberts noted.

Ultimately, DEI programs are built on three pillars, the authors said: relationships, communication and commitment. “When you look at these [pillars] and you compare them to what a firm must do to be viewed as a good customer, you find that many of the things that you do to help DEI succeed are the same things you do to develop and maintain good buyer/supplier relationships,” they wrote. “It is our view that effective DEI draws on many of the same practices that you use to become a more effective supply chain manager.”

In the Littler survey, when asked “to what extent has your organization’s [DEI] commitment and level of activity changed, if at all, since this time one year ago? The answers suggest the major shift being portrayed in the media today may not be as prominent as we think.

The number of firms saying their commitment has decreased significantly rose from 1% to 5%. Those who said it has decreased moderately increased from 1% to 6%; and those who said it has decreased slightly rose from 4% to 13%. But, 46% said the commitment has remained the same, up from 36% a year ago. Those which are increasing their commitment has slowed, but overall, 76% of respondents are not decreasing their commitment to DEI.

Maybe, DEI was just a marketing ploy to attract attention in our attention span-challenged TikTok society today, but the underlying concepts of DEI programs have always been good business, and continue to be, according to the survey of 350 C-suite executives that are actually running businesses. It remains an important part of their operations, regardless of what you call it.

Red flag warnings

Consumer data released last week is showing some definite cracks in the economy. The Conference Board’s report on Tuesday showed consumer confidence fell? 7 points, dropping from 105.3 in January to 98.3 in February. That is the largest one-month decline since August 2021. The Conference Board said survey respondents increasingly cited tariff concerns and inflation as worries. Additionally, the survey found that short-term expectations for income, business and the job market declined 9.3 points to 72.9. Any reading under 80 signals a potential recession. The survey followed January retail sales, which fell 0.9% from December, the largest decline in a year, following a strong November-December time period. Indications are growing that the economy is slowing, and Americans’ outlook, at the moment, is not rosy.

Tariffs drive imports

The continued threat of tariffs is pushing retailers and other industries to frontload merchandise. The Port of Los Angeles reported record volumes for January, saying it moved 952,733 twenty-foot-equivalent units in January. That represents a 41.4% increase from January 2024. Imports were up 45% while exports increased 14%. “It’s encouraging to start off the year so strongly. We will continue to focus on enhancing both our competitiveness and sustainability, no matter the uncertainties in the supply chain,” Mario Cordero, Port of Long Beach chief executive, said in a release. The question with the increased import activity is what will happen downstream. Warehouse space remains tight in the U.S., and retailers will need to store these goods somewhere. Could we see a repeat of what occurred coming out of the pandemic when retailers stocked up on goods fearing potential shortages?

What I read this week

Gartner is predicting that more global supply chains will adopt Customer Effort Scores to support revenue growth. … Andrew Klein, CEO of Rand Technology, joined Rosemary Coates on the Frictionless Supply Chain Podcast to discuss her career, and the changes she has observed in the business over her 30 years. … Transportation and warehouse workers are injured at a higher rate than any other occupation in the U.S., according to new data from the Bureau of Labor Statistics. … Apple has announced a $500 billion investment in the U.S. that will see it build new facilities and hire over 20,000 workers. … The contract negotiated by the International Longshoremen’s Association and the United States Maritime Alliance has officially been ratified, bringing labor peace to U.S. East Coast and Gulf Coast ports for the next six years. … Drug maker Eli Lilly said it will build four new U.S. plants, spending $27 billion for the new facilities.

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Thank you for reading,

Brian