Impact of DEI-Related Executive Orders on Disclosures in Recent Public Company Annual Reports

President Trump’s executive orders aimed at Diversity, Equity and Inclusion (DEI) programs and policies, including the executive order titled “Ending Illegal Discrimination and Restoring Merit Based Opportunity” (Executive Order 14173), are impacting the way publicly traded companies approach their DEI-related disclosures.  Although enforcement of the executive orders was recently temporarily halted (as we wrote about here), as calendar year end public companies begin to file their Form 10-K Annual Reports for the fiscal year ended December 31, 2024, we have seen, and expect to continue to see, a shift in new DEI disclosures as compared to prior years.  Companies are paying consideration to whether they want to include such disclosures, how comprehensive such disclosures should be, and what language should be employed to strike an appropriate balance.  

Private Sector

Although it is currently subject to a legal challenge, Executive Order 14173 includes measures to encourage compliance within the private sector, such as instructing the Attorney General, 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 identifying key sectors of concern within each agency’s jurisdiction (this directive is not subject to the recent preliminary injunction), the identification of up to nine potential civil compliance investigations of certain large institutions, including publicly traded companies (this directive is currently part of the injunction), and “litigation that would be potentially appropriate for federal lawsuits, intervention or statements of interest” (also not subject to the injunction).  In light of such heightened scrutiny, companies in the private sector have taken a range of approaches in their discussion of DEI practices in their recently filed Form 10-K Annual Reports.

Some companies have started to move away from language that could easily be flagged as relating to DEI, including by avoiding the use of the phrase “diversity, equity and inclusion,” changing phrases such as “identify as female” to “are female,” and not using the word “diversity” within their filing in contrast to prior years.  Companies that in recent years have described their DEI programs in their human capital disclosures in a subsection titled “Diversity, Equity and Inclusion” are now using titles less likely to implicate the executive order such as “Inclusion,” “Building a Diverse and Inclusive Workplace,” or “Culture and Inclusivity.”  

Another shift seen in filings has been the removal of references or detail related to the DEI specific programs the company implements or actions the company is taking, although the company still references the importance of inclusivity to their company culture.  Some companies opted, unlike in prior years, not to include a breakdown of their workforce by race, gender and ethnicity, or omitted any reference to where that information could be found on their website.  Some companies that did include such demographic information altered the language, including by referring to “workforce statistics” or “workforce composition” rather than to “diversity statistics.”  

Government Contractors

Executive Order 14173 calls for the Office of Federal Contract Compliance Programs within the Department of Labor to, among other things, immediately cease “promoting ‘diversity’” and “allowing or encouraging federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”  In response to the executive order, publicly traded companies that are government contractors may be more sensitive than their private sector counterparts to how they are perceived by the administration.  Our review found that these companies were more likely to expunge references to the word “diversity” and were more conservative in their inclusion of DEI related practices, whereas other private sector companies had more range of detail in their disclosures.

Risk Disclosure

In recent years, a growing number of companies have been reporting DEI efforts as a risk factor, and the recent increased attention on DEI is impacting these disclosures.  For some companies, this is resulting in the recharacterizing of risks, such as disclosing the risk of DEI initiatives being perceived as either insufficient or too extreme by different factions of the public, whereas previously, the disclosure had focused principally on the risk of criticism for not meeting the company’s DEI goals.  Another approach for a company that previously included valuing diversity, equity and inclusion as one example in a series of factors important to the company’s ability to attract and retain talent is to eliminate the DEI example.  Another approach is to cite the executive orders and the risk associated with a federal investigation resulting therefrom.  

Conclusion

The new administration’s focus on deterring companies from engaging in DEI programs is leading companies to evaluate whether they want to include a description of such initiatives in their public filings, the appropriate degree of detail to include, and the language with which such practices should be described.  Companies are also weighing whether the increased attention on such programs is a material risk that should be disclosed and how that risk should be characterized.  The threat of criminal investigation or litigation may be perceived as an increased risk for a company if its public filings include a heavy description of efforts to promote DEI.  However, companies are also focused on balancing this risk against how the public and their stockholders may perceive a shift in the company’s priorities.  

Although the long-term effect of the executive orders on company disclosures remains to be seen, the direction emerging among companies appears to be: (i) moving away from language closely associated with DEI, including “diversity” and (ii) softening the description of specific measures the company is taking and other action-oriented language.  While it is not yet known whether the recent halting of certain portions of the DEI-related executive orders will be upheld and will impact these trends, we anticipate that public companies will remain mindful of the executive orders as they review and revise their 10-K Annual Reports this year.  

Such disclosures require careful consideration of a variety of factors.  Mintz’s securities & capital markets and employment teams are monitoring these trends, will continue to provide relevant updates, and stand ready to assist public companies to undertake a disclosure risk analysis. 
 

Subscribe To Viewpoints