Shareholders of UPS, Coke and Home Depot demand changes around DEI initiatives

As diversity programs in corporate America face growing legal challenges, shareholders of three Atlanta-based publicly traded companies have demanded changes around diversity, equity and inclusion initiatives.

The moves come after a U.S. Supreme Court ruling in June 2023 effectively ended race-conscious college admissions programs. Nearly 60% of senior executives surveyed by employment law firm Littler said backlash against corporate diversity programs has increased since the ruling.

Recent court cases in Tennessee and Texas have forced changes to federal corporate diversity programs, and a high-profile racial discrimination case involving a local black-owned venture capital firm, Fearless Fund, is still ongoing examination before the courts.

Risks around DEI?

Shareholder proposals are one way that investors in a publicly traded company can push for change.

One of Coca-Cola’s shareholders, the National Center for Public Policy Research (NCPPR) – a conservative think tank based in Washington – has asked the board to commission and release a report detailing whether the company is is engaged in any diversity, equity and inclusion (DEI) approach. practices “that may create risks of discrimination against individuals who may sue the Company… for unlawful discrimination on the basis of protected categories such as race and gender” and the potential costs of such discrimination to the business.

“Our primary goal is to get companies to abandon high-risk, low-reward activities that are not directly related to their core business purpose,” Scott Shepard, director of the Free Enterprise Project (FEP) and general counsel. at NCPPR, told the Atlanta Journal-Constitution. The FEP opposes “the woke takeover of corporate America,” according to the project’s website.

NCPPR considers DEI initiatives a form of discrimination based on race, gender, or orientation, which can exclude male, white, or heterosexual employees. After nearly 200 years of slavery and segregation, the Civil Rights Act of 1964 officially prohibited employment discrimination based on race, color, religion, sex, or national origin.

Shepard said Coca-Cola was violating its fiduciary duty by not exploring the legal risks of the stock programs.

But other investors disagreed. The proposal received only 1.57% of the votes cast at the May 1 annual shareholder meeting.

Coca-Cola’s board of directors also opposed the resolution. In a filing with the Securities and Exchange Commission, the company wrote: “We believe that a diverse, equitable and inclusive workplace that is well prepared to understand, evaluate and interact with the markets and consumers we serve, is a strategic and critical business priority. to the success of the Company and that our efforts to achieve this are consistent with applicable law.

In the case of Home Depot, NCPPR proposed a resolution asking the company to list donations of $5,000 or more on its website, citing in part the home improvement giant’s $1 million donation at the nonprofit Lawyers’ Committee for Civil Rights Under Law following the 2020 protests over the killing of George Floyd.

Another conservative group, the National Legal and Policy Center, introduced a similar shareholder proposal requiring Home Depot CEO candidates to disclose information about their political and partisan donations, citing the same $1 million donation .

Home Depot’s proposals did not pass, with each receiving only 2 percent of the votes cast at Thursday’s meeting, and the company’s board of directors opposed both resolutions.

Cautious investors

Research shows that when a company is more diversified, it performs better financially. A 2023 global analysis by McKinsey found that companies with high gender or ethnic diversity are 39% more likely to financially outperform companies that were not diverse.

Since 2020, the number of proposals regarding workforce diversity has increased, according to data from the Conference Board, a nonprofit think tank and business organization, and the analytics firm ESGAUGE environmental, social and governance data.

Support for workforce diversity proposals at thousands of large U.S. companies peaked in 2022, according to Matteo Tonello, managing director for environment, social and governance at the Conference Board. But Tonello said in an email that the drop in support reflects a more nuanced situation.

“Investors may be more cautious about their support for these proposals as these topics have become politically polarizing,” Tonello said. “However, they also appreciate the significant investments that so many businesses have recently made in these areas and the pressure businesses are under due to new legislative and regulatory requirements. As a result, many investors no longer see the need to exert further pressure as they did only a few years ago.”

Push for data

But Some investors also see legal risks associated with not having well-managed DEI programs. In the case of UPS, a shareholder resolution called for the company to produce a report detailing the effectiveness of its equity initiatives and to provide metrics on “workforce diversity, hiring, promotion, and retention of employees, including data by gender, race, and ethnicity.” .”

The proposal was presented by As You Sow, a California-based nonprofit. The organization runs a workplace equity program with help from Whistle Stop Capital, aimed at getting companies to disclose data about their DEI programs.

Meredith Benton is the founder of Whistle Stop Capital and has been trying for years to get UPS to produce data on its hiring, promotion and retention rates. Benton said this data is intended to ensure that a company is not overrun with racism, discrimination, harassment and sexism in its corporate culture, as this could open it up to legal action.

She added that there is also a business case for a diverse workforce, “and so it is in investors’ interests to monitor a company’s behavior with respect to diversity of its workforce.

The proposal received approximately 22% of shareholder votes, which is not enough to pass. UPS opposed the resolution, writing in part: “We believe that our existing diversity and inclusion practices, along with our material disclosures, provide meaningful information that allows investors to determine the effectiveness of our human capital management policies related to diversity in the workplace.

This article has been updated to reflect additional information about the source of data on workforce diversity proposals.

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