Three things to know about corporate DEI reductions

For today’s newsletter, I looked at why corporate America is rolling back diversity, equity and inclusion (DEI) initiatives, including incentives in executive compensation.

In response to boycott threats from conservative social media influencers, major companies have backed off previous commitments. However, I have found that reports of declining corporate involvement in social issues have been greatly exaggerated. In many cases, companies are simply changing policies that outline their social impact initiatives and staffing goals.

Diversity, equity and inclusion

What you need to know about corporate DEI rollbacks

In recent weeks, a handful of major U.S. industrial and retail companies have backtracked on their diversity, equity and inclusion policies.

US car giant Ford, beer maker Molson Coors and tractor maker Deere & Co are among companies that have announced they will make changes after being targeted by attacks influential conservative and “anti-woke” Robby Starbuck.

In 2020, when many companies announced DEI commitments in the wake of the killing of George Floyd, they cited the importance of issues like racial equity and gender inclusion to their bottom lines. But underlying trends like the racial wealth gap They haven’t changed, so why have they changed their policies?

The issue has become something of a third-string topic, with many companies and analysts wary of partisan polarization on the issue. Analysts at 11 financial institutions or sell-side research groups either declined to comment or did not respond to Moral Money’s requests for comment. Those who did comment did not see a major impact on stock prices following the DEI reductions. “I know I saw a headline about it, but it didn’t seem to resonate,” Mike Shlisky, an equity research analyst in the industrial sector, said of Deere & Co.’s announcement.

The reversal of these policies marks a major turning point in the fight for a more equitable economy, which companies said just four years ago they were determined to achieve. Since companies and analysts are largely reluctant to talk about it, here are the key points to understand.

1. Companies are changing their social activism policy, but not abandoning it completely

Several companies have presented their shift toward greater equity, fairness, and inclusion as a decision to focus on core business priorities, rather than focusing on broader social goals. In practice, however, some of those same companies have simply changed the content of their social activism, sponsorship, or political signaling, rather than scrapping that work altogether.

A recent advertisement Tractor Supply is an emblematic example of that shift. Earlier this summer, the Tennessee-based farm and livestock feed retailer announced a series of changes.

Tractor Supply pledged to stop sending data to the Human Rights Campaign, a gay rights advocacy group. It would drop its DEI targets and eliminate DEI features, it said, “while still ensuring a respectful environment.”

The company also said it would stop sponsoring “non-commercial activities like pride festivals and election campaigns,” though it pledged to “focus more on the priorities of rural America, including [farm] education, animal welfare, [and] veterans’ causes.” Finally, he said, “we would roll back our carbon emissions targets and focus on our land and water conservation efforts.”

The shift signals a very specific repositioning within the American culture wars.

Take the shift from decarbonization to environmental protection. It reflects President Joe Biden’s White House, which has put more emphasis on developing the clean energy industry, rather than efforts to clean up air and water pollution. (One possible factor: Environmental conservation laws can hamper housing development and the planning system in a way that is broadly favorable to the interests of American homeowners, over those of renters. And Homeowners are more likely to identify as Republicans.)

Meanwhile, even as Tractor Supply announced it would end its sponsorship of pride festivals and election campaigns — issues associated with the progressive left — calling them “noncommercial activities,” the company doubled down on issues that are particularly popular with conservatives, such as veterans causes and agricultural education.

It’s a sign that American consumer-facing brands aren’t abandoning culture war signals or returning to politically neutral territory, but rather are repositioning themselves to reflect the perceived preferences of their customer base.

2. DEI reductions have not had much effect on corporate valuation

Lowe’s, Harley-Davidson and Tractor Supply are among companies that have issued statements reversing their DEI policies recently, with no noticeable effect on their stock prices.

Jaime Katz, who covers all three companies as an equity analyst at Morningstar, told me she thinks executives were spooked by last year’s boycott of Bud Light, after a collaboration with a transgender influencer led to a sharp drop in sales of beer.

“I think they’re aware that America is very divided right now,” Katz told me of executives restructuring their stances on DEI. “The goal was to say: these are our constituents and this is where we’re going to invest.”

Research on how the initial implementation of corporate DEI programs affected stock prices is mixed. A study published last year by researchers in Hong Kong and California concluded that DEI commitments boosted manufacturing companies’ stock prices in the days immediately before and after the announcement. (At tech companies, by contrast, the researchers found that such announcements tended to backfire. In industries that employ “knowledge workers,” the paper suggested, “investors may interpret a high-tech firm’s DEI commitment as a strategy to recruit and promote less-skilled workers.”)

3. Many Americans continue to support DEI

Six in ten Americans still approve of DEI programs, study finds recent survey from the Washington Post and Ipsos.

So as companies try to avoid boycotts from a conservative “silent majority,” as Starbucks calls its supporters, they could risk losing some customers.

John Boyd, president of the National Black Farmers Association, has been a vocal critic of Tractor Supply’s decision to end its DEI policy, which he views as an implicit admission that Black farmers are not an important customer base for the company.

“Tractor Supply has basically said they’re going to focus on white farmers,” Boyd told me in an interview. “We see it as them not wanting to do business with black farmers. If they want to show us something different, put out a statement saying, ‘We want your business. We value you as a customer.’ They won’t say that.”

Boyd founded the NBFA in the 1990s to combat racism faced by black farmers seeking loans from the U.S. Department of Agriculture. He said he faced discrimination from a local loan officer who referred to him with racial epithets.

“I am shocked by [Tractor Supply] “They’re removing their DEI policy because some blogger posted some nonsense,” Boyd added. “What that says is how far we’ve gone backwards in race relations in this country.”

Smart reading

BlackRock plans to split its proxy votes, allowing ESG funds to vote differently on shareholder proposals. Brooke Masters approves: “The real owners, and not their hired fund managers, should have a say.” in corporate behavior.