The board of Apple has joined Costco’s board in recommending that investors reject shareholder proposals from the National Center for Public Policy Research (NCPPR) that ask the companies to publish a report on the risk of its diversity, equity and inclusion (DEI) programs or eliminate them completely. Corporate board members at other companies that want to remain committed to their DEI programs may want to examine how these two companies are dealing with these anti-DEI shareholder proposals and adapt some of their methods.
Although the shareholder votes on these proposals have not yet been completed, any board of a company that might be targeted by NCPPR might want to begin discussing and planning how they might react to anti-DEI shareholder proposals. Of course, as several other companies determined last year, ending such programs is also an option that boards can choose.
In Apple’s case, the NCPPR shareholder proposal is asking the company to cease all DEI efforts. The conservative group argues that last year’s US Supreme Court ruling that discrimination on the basis of race in college admissions violates the equal protection clause of the 14th Amendment may also apply to corporate DEI programs, potentially equating them with illegal discrimination.
“It’s clear that DEI poses litigation, reputational and financial risks to companies, and therefore financial risks to their shareholders, and therefore further risks to companies for not abiding by their fiduciary duties,” NCPPR wrote in its supporting statement to its shareholder proposal against Apple. “Shareholders request that the Company consider abolishing its Inclusion & Diversity program, policies, department and goals.”
In its shareholder proposal against Costco, NCPPR is asking that “the Board conduct an evaluation and publish a report, omitting proprietary and privileged information, on the risks of the Company maintaining its current DEI (including “People & Communities”) roles, policies and goals.”
In its supporting statement to its shareholder proposal against Costco, NCPPR wrote, “With 310,000 employees, Costco likely has at least 200,000 employees who are potentially victims of this type of illegal discrimination because they are white, Asian, male or straight. Accordingly, even if only a fraction of those employees were to file suit, and only some of those prove successful, the cost to Costco could be tens of billions of dollars.”
In both cases, NCPPR has labeled DEI as “illegal discrimination” even though no court has made that determination, and the conservative group cites the threat of lawsuits as the primary risk and reason for getting rid of DEI programs.
Here is how the Apple and Costco boards are dealing with these challenging shareholder proposals:
In its proxy statement, Apple has responded to the shareholder proposal asking it to cease all DEI programs by asserting that:
1. The proposal is unnecessary as Apple already has a well-established compliance program and the proposal inappropriately attempts to restrict Apple’s ability to manage its own ordinary business operations, people and teams, and business strategies. The proposal inappropriately seeks to micromanage the Company’s programs and policies by suggesting a specific means of legal compliance.
2. Apple’s Board and management team maintain active oversight of legal and regulatory risks and compliance for its global business. Apple’s determination of the appropriate means by which to comply with applicable law, including any associated changes to our programs, policies, departments, or goals, is a fundamental aspect of Apple’s business operations.
3. We seek to conduct business ethically, honestly, and in compliance with applicable laws and regulations, and our Business Conduct and Compliance policies are foundational to how we do business. And we strive to create a culture of belonging where everyone can do their best work.
In its proxy statement, Costco has responded to the shareholder proposal asking for a report on the risks associated with its DEI programs by asserting that:
1. Our success at Costco Wholesale has been built on service to our critical stakeholders: employees, members, and suppliers. Our efforts around diversity, equity and inclusion follow our code of ethics: For our employees, these efforts are built around inclusion – having all of our employees feel valued and respected. Our efforts at diversity, equity and inclusion remind and reinforce with everyone at our Company the importance of creating opportunities for all.
2. We believe (and member feedback shows) that many of our members like to see themselves reflected in the people in our warehouses with whom they interact.Having diversity in our supplier base, including appropriate attention to small businesses, is beneficial for many of the same reasons diversity benefits our Company. We believe that it fosters creativity and innovation in the merchandise and services that we offer our members.
3. As part of our obeying the law, all decisions regarding recruiting, hiring, promotion, assignment, training, termination, and other terms and conditions of employment will be made without unlawful discrimination on the basis of race, color, national origin, ancestry, sex, sexual orientation, gender identity or expression, religion, age, pregnancy, disability, work-related injury, covered military or veteran status, political ideology or expression, genetic information, marital status, or other protected status.
4. Our focus on diversity, equity and inclusion is not, however, only for the sake of improved financial performance but to enhance our culture and the well-being of people whose lives we influence. The proponent professes concern about legal and financial risks to the Company and its shareholders associated with the diversity initiatives. The supporting statement demonstrates that it is the proponent and others that are responsible for inflicting burdens on companies with their challenges to longstanding diversity programs. The proponent’s broader agenda is not reducing risk for the Company but abolition of diversity initiatives.
The key takeaways from the Apple and Costco boards’ responses are:
• Respond quickly and directly to shareholders, explaining why the company engages in DEI programs. Apple states that the company strives to “create a culture of belonging where everyone can do their best work.” Costco states that “Our efforts around diversity, equity and inclusion follow our code of ethics.” These statements and more are in the company proxy statements for all investors to see so they can draw their own conclusions.
• Emphasize that your company follows the law and is aware of what it needs to do to operate the DEI programs legally and in compliance with current regulations. Make sure to point out that your company does not discriminate against anyone.
• If possible, declare and substantiate any benefits (financial performance, recruitment, enhanced corporate culture or otherwise) that DEI has contributed to the company.
Lastly, Costco sought to demonstrate that the NCPPR has an anti-DEI agenda that actually is contributing to the legal risks that it claims to want to eliminate for the company (noting that it has threatened filing lawsuits against others.) That approach might hold more risk than some boards would like to take.