For today’s newsletter, I looked at why US companies are scaling back diversity, equity and inclusion (DEI) initiatives, including incentives in executive compensation.
In response to conservative social media influencers threatening boycotts, major companies have retired earlier commitments. But, I found, reports of the death of corporate involvement in social issues have been rather exaggerated. In many cases, companies are just shifting the politics signalled by their social impact initiatives and workforce goals.
diversity, equity and inclusion
What you need to know about corporate DEI rollbacks
In recent weeks, a handful of high-profile US industrial companies and retailers have walked back their diversity, equity and inclusion policies.
US auto giant Ford, beer maker Molson Coors, and tractor maker Deere & Co are among the companies that have announced they would make changes after being targeted by conservative, “anti-woke” influencer Robby Starbuck.
In 2020, when many companies announced DEI commitments following the murder of George Floyd, they cited the importance of issues such as racial equity and gender inclusion to their bottom line. But underlying trends such as the racial wealth gap haven’t changed — so why have their policies?
The issue has become something of a third-rail, with many companies and analysts wary of partisan polarisation on the topic. Analysts at 11 financial institutions or sellside research groups declined to comment or did not respond to comment requests from Moral Money. Those who did comment did not see much impact on stock prices following the DEI rollbacks. “I know I saw a headline about it, but it didn’t seem to resonate,” Mike Shlisky, an equity research analyst on industrials, said of Deere & Co’s announcement.
The rollback of these policies mark a significant turning point in the drive for a more equitable economy — which companies said just four years ago that they were bent on delivering. With companies and analysts largely reluctant to discuss it, here are the key things to understand.
1. Companies are shifting the politics of their social activism — not ditching it altogether
Several companies have framed their DEI shift as a decision to narrow their focus to core business priorities, rather than more far-flung social goals. Yet, in practice, some of the same companies have simply changed the content of their social activism, sponsorship, or political signalling, rather than jettisoning that work altogether.
A recent announcement from Tractor Supply is emblematic of that shift. Earlier this summer, the Tennessee-based farm and livestock feed retailer announced a number of changes.
Tractor Supply pledged to stop submitting data to the Human Rights Campaign, a gay rights advocacy group. It would retire its DEI goals and eliminate DEI roles, it said, “while still ensuring a respectful environment”.
The company also said it would stop sponsoring “nonbusiness activities like pride festivals and voting campaigns,” even as it pledged to “further focus on rural America priorities including [farm] education, animal welfare, [and] veteran causes”. Finally, it said, it would “withdraw our carbon emission goals and focus on our land and water conservation efforts”.
The shift signals very specific repositioning within US culture wars.
Take the shift from decarbonising to protecting the environment. It’s the mirror image of President Joe Biden’s White House, which has put more emphasis on the buildout of clean energy industry, rather than efforts to clean up air and water pollution. (One possible factor: environmental conservation laws can gum up housing development and the planning system in a way that is broadly favourable to the interests of American homeowners, over those of renters. And homeowners are more likely to identify as Republican.)
Meanwhile, even as Tractor Supply announced that it would end its sponsorship of pride festivals and voting campaigns — issues associated with the progressive left — calling these “nonbusiness activities,” the company doubled down on issues that are particularly popular with conservatives, such as veterans’ causes and agriculture education.
It’s a sign that US consumer-facing brands are not retreating from culture war signalling, or returning to politically neutral territory, so much as repositioning themselves to reflect the perceived preferences of their client base.
2. DEI rollbacks haven’t had much effect on corporate valuation
Lowe’s, Harley-Davidson and Tractor Supply are among the companies that have issued statements rolling back their DEI policies recently, without a noticeable effect on their share prices.
Jaime Katz, who covers all three companies as an equities analyst at Morningstar, told me that she believes executives were spooked by last year’s boycott against Bud Light, after a collaboration with a transgender influencer led to a steep drop in sales of the beer.
“I think they’re aware that America is very divided right now,” Katz told me of executives reworking their DEI stances. “The purpose was to say, this is who our constituents are, and this is where we’re going to invest.”
Research on how the initial rollout of corporate DEI programmes affected stock prices is mixed. A study published last year by researchers in Hong Kong and California found that DEI commitments boosted the stock price of manufacturing companies in the days immediately leading up to and following the announcement. (In tech companies, by contrast, the researchers found that such announcements tended to backfire. In fields employing “knowledge workers”, the paper suggested, “investors may interpret a high-technology firm’s DEI commitment as a strategy to recruit and promote less competent workers”).
3. Many Americans remain supportive of DEI
Six in 10 Americans still approve of DEI programmes, according to a recent poll from The Washington Post and Ipsos.
So as companies look to head off boycotts from a conservative “silent majority”, as Starbuck calls his supporters, they could risk turning off some customers.
John Boyd, president of the National Black Farmers Association, has been a vocal critic of Tractor Supply’s decision to terminate its DEI policy, which he sees as an implicit admission that Black farmers are not a significant client 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, release a statement saying, ‘We do 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 US Department of Agriculture. He faced discrimination from the local loan officer, he said, who referred to him using racial epithets.
“I’m appalled by [Tractor Supply] doing away with their DEI policy because some blogger put out some nonsense,” Boyd added. “What that says is how far we’ve gone back on race relations in this country.”
Smart read
BlackRock plans to split its proxy votes, allowing ESG funds to vote differently on shareholder proposals. Brooke Masters approves: “the actual owners, rather than their hired fund managers, should be the ones who have a say” in corporate behaviour.
Read the full article here