Diversity goals are disappearing from companies’ annual reports

EMIL LENDOF/THE WALL STREET JOURNAL, ISTOCK
EMIL LENDOF/THE WALL STREET JOURNAL, ISTOCK

Summary

Dozens of firms change what and how they report on their diversity initiatives as DEI programs come under legal and political threat.

Spending $1.2 billion with diverse businesses. Doubling Black and Latino leadership. Increasing recruitment from historically Black colleges and universities.

Those diversity goals were highlighted in companies’ annual reports in 2022. A year later, those references were gone.

Dozens of companies altered descriptions of diversity, equity and inclusion initiatives in their annual reports to investors as DEI programs come under legal and political threat. The changes highlight the balancing act companies face as they navigate pressure from both critics and advocates of diversity efforts.

In general, companies say they aren’t cutting back on their programs or longer-term goals. Lawyers and other experts say the disclosure changes reflect uncertainty about the legal parameters of diversity programs along with wariness of political backlash following the Supreme Court’s 2023 decision overturning affirmative action in college admissions.

The nature and degree of the changes vary, according to a Wall Street Journal analysis of 10-K filings to the Securities and Exchange Commission. Some companies shortened descriptions or removed entire sections, while others changed a few words or phrases to cut mentions of race or specific hiring or other targets.

Kohl’s no longer says it is cultivating “diverse leaders" for advancement, as it had for the past three years. The retailer’s latest annual report says its priority is to develop “leaders."

GameStop cut mention of “diversity and inclusion" from a list of philosophy tenets for its human-resources department.

Software company UiPath used to define DEI measures as “a business priority and a moral imperative." Now they are “key to creating an environment where our people feel safe to be themselves, are empowered to grow their careers, are rewarded competitively, and are challenged to do their best work while embracing the power of automation."

People and interest groups along the political spectrum are watching the companies’ words and actions.

Shortly after the affirmative-action decision, a group of Republican attorneys general wrote a letter to Fortune 100 companies warning them against race-based preferences in hiring and promotion. Soon after, Democratic attorneys general wrote to the same companies noting that corporate diversity programs are essential to combating discrimination and encouraging firms to double down on their efforts.

“There’s been a re-evaluation of the level of political risk these companies are willing to take on," said Lindsay Stewart, an analyst at Morningstar who studies corporate reporting.

The affirmative-action ruling, which struck down the consideration of race in college and university admissions, doesn’t directly affect companies. But the ruling raised the specter of more legal challenges by people and groups who see race- or gender-based goals as discriminatory.

Survey data suggest most companies aren’t making substantive changes to their diversity efforts. Around 93% of employers said their DEI commitments and activity increased or stayed the same between 2022 and 2023, according to a report published in January by employment law firm Littler Mendelson.

UiPath, for example, says its commitment “has deepened in the past year" and that it has “strengthened our operating procedures in talent acquisition toward higher goals for a more diverse workforce." A Kohl’s spokeswoman said the company’s strategy and beliefs around DEI are still in place and it routinely makes revisions to that section of its annual report. She said additional information about DEI at Kohl’s is on the company’s website  and in its annual ESG report.

Still, some companies are saying less. “Forget about any ideological agenda. You’re just trying to figure out, how do I follow the law? You don’t want to overcommit or undercommit or misdescribe where you’ll eventually land," said Jason Schwartz, a partner with Gibson Dunn and a leader of the law firm’s DEI Task Force. Schwartz currently represents the Fearless Fund, a venture firm whose grants to Black female entrepreneurs have been challenged in court.

The legal landscape shifted again last week, when the Supreme Court opened the door to discrimination claims related to a broader range of workplace actions.

Conservative legal activists have taken aim at some hiring programs and other initiatives by companies, saying they are discriminatory.

“There is a pullback from any explicit mention of race," said Dan Lennington, deputy counsel for Wisconsin Institute for Law and Liberty, a legal group that has sued multiple companies over their diversity initiatives. He said companies recognize they “face tremendous liability for any program involving race in any way," a concern that extends far less to programs based on gender.

Some companies are signaling their attention to compliance. Software company EverCommerce in 2023 added several sentences to its annual report saying it would pursue only DEI efforts that were legally compliant. EverCommerce didn’t respond to requests for comment.

Fear of legal repercussions is a major consideration, experts say. Certain programs or commitments might be seen as more likely to draw scrutiny, such as putting numerical targets on racial or gender representation or maintaining mentorship programs for underrepresented groups.

In its 2023 report, Nordstrom removed specific goals around diversity that had been in filings with the SEC since 2020. That included the goals of delivering $500 million in retail sales from brands owned, operated or designed by Black and Latino people and increasing Black and Latino representation in manager roles by 50%.

Salesforce in its 2022 report said it targets 50% of its workforce being from underrepresented groups and 40% of employees being women or nonbinary. The numbers are gone from the latest report, in which the company says it looks to advance representation and design systems with a focus on equality.

A spokesperson for Salesforce said its “commitment to equality is unwavering."

Workday in 2020 declared its commitments to increasing overall representation of Black and Latino employees in the U.S. by 30% and doubling the number of Black and Latino leaders by the end of last year. Those targets, added into the 2022 form, were missing from the 2023 version.

Electronics seller Best Buy stopped listing its commitments to spend at least $1.2 billion with diverse businesses by 2025, as well as its progress on hiring goals such as filling one in three salaried corporate positions with employees who are Black, indigenous or people of color and filling one in three positions with women. The company instead said it is focused on employee engagement, retention, representation and creating a culture of belonging.

All four companies provide more details about their diversity goals and actions in separate reports. Those documents, sometimes labeled impact reports or ESG reports, tend to be published on different timelines than annual reports.

Many other companies have kept their language on DEI initiatives unchanged in annual reports.

Companies weigh the pros and cons of disclosure, with the knowledge that financial filings are a forum to communicate not only with investors and regulators but also with competitors, suppliers, employees and other stakeholders, said Ivy Feng, an accounting professor at the University of Wisconsin who has studied diversity disclosures.

“What gets disclosed gets managed. So if they don’t say anything, it’s more difficult for outsiders to find out what’s really going on," she said. “When they say something, then it’s public, and when it’s public, they can potentially be scrutinized by outsiders."

Write to Ben Glickman at ben.glickman@wsj.com and Lauren Weber at Lauren.Weber@wsj.com

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