Shareholders Show Signs of DEI Fatigue Amidst Activist Push for Votes

This annual meeting season, both advocates and opponents of diversity, equity, and inclusion (DEI) policies are urging companies to either strengthen or reduce their DEI initiatives through shareholder proposals. However, as the voting season progresses, it appears that these proposals from investors at major corporations like Apple, Costco, and John Deere are not gaining traction. Experts predict that this trend will continue as more votes are counted in the upcoming weeks and months.

Declining Support for DEI Proposals

According to experts monitoring these votes, the likelihood of majority support for DEI proposals this year is low. “I don’t expect this year that we will see many, if any, get majority support,” stated a head counsel for shareholder engagement and activism defense at Freshfields. This sentiment reflects a broader trend of waning support for DEI initiatives across the board.

Current Voting Landscape

As of late February, a total of 21 anti-DEI proposals and 16 pro-DEI proposals were slated for votes among publicly traded companies in the Russell 3000, as reported by the voting recommendation firm ISS-Corporate. The firm anticipates that the number of DEI proposals will increase before the voting season concludes in April, although it remains uncertain how many will gain significant backing.

Last year, investors in Russell 3000 companies forced votes on 34 proposals opposing DEI initiatives and 77 in favor of them. This year, there is a possibility of competing DEI proposals being presented within the same company, as was the case with John Deere in February. In that instance, shareholders rejected both pro-DEI and anti-DEI measures, indicating a lack of consensus on the issue.

Shifting Dynamics in Shareholder Support

Notably, support levels for both pro- and anti-DEI proposals among S&P 500 companies have declined over the past few proxy seasons. A professor from Fordham University School of Law noted that while anti-DEI proposals have outnumbered pro-DEI ones in recent years, the pushback is coming from all sides. This reflects a growing complexity in the corporate governance landscape regarding DEI policies.

Institutional Investors’ Influence

Institutional investors may be contributing to the unfavorable outcomes for DEI proposals, as highlighted by experts Bieber and Pam Marcogliese from Freshfields. Major investors often prefer to avoid publicly supporting ideological causes, which can lead to a lack of backing for both pro- and anti-DEI initiatives.

A recent example of this dynamic occurred at John Deere, which has been among the major U.S. companies to scale back its DEI initiatives in the past year. A pro-DEI proposal aimed at requiring the company’s board to oversee a civil rights audit assessing bias and discrimination risks received only 29.2% support from voting shareholders. Conversely, an anti-DEI proposal from the conservative think tank National Legal and Policy Center sought to mandate the disclosure of race- and gender-based hiring trends for the company’s global workforce.

The Future of DEI Proposals

As the voting season unfolds, the future of DEI proposals remains uncertain. Experts predict that most anti-DEI proposals are likely to be rejected, mirroring past trends. The evolving landscape of shareholder sentiment towards DEI initiatives suggests a complex interplay of corporate governance, investor preferences, and societal expectations.

In conclusion, as shareholders exhibit signs of DEI fatigue, the push for change within corporate policies continues to face significant challenges. The upcoming weeks will be crucial in determining the fate of DEI proposals as companies navigate the demands of their investors and the broader societal context.