10 Disclosure Considerations for Public Companies Given Trump’s and DOJ’s Outlook on “Illegal DEI”

As we previously explained, Trump issued a handful of executive orders aimed at eliminating diversity, equity and inclusion (“DEI”) programs and policies within the federal government and encouraged the private sector (including public companies) to follow suit.

Specifically, on January 21, 2025, an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Executive Order”) directed the heads of federal agencies, in conjunction with the U.S. Attorney General, to, among other things, each identify (1) “[t]he most egregious and discriminatory DEI practitioners in each sector of concern” within each agency’s jurisdiction, (2) up to nine civil compliance investigations into DEI policies and programs of certain categories of entities (including publicly traded corporations) and (3) “[l]itigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest”.

Consequently, as we previously highlighted, on February 5, 2025, the U.S. Attorney General issued a memorandum entitled “Ending Illegal DEI and DEIA Discrimination and Preferences” (the “Memorandum”) outlining the intention of the U.S. Department of Justice (“DOJ”) to effectuate the Executive Order and report on “the most egregious and discriminatory DEI and DEIA practitioners in each sector of concern” and “proposals for criminal investigations and for up to nine potential civil compliance investigations” of the types of entities (including publicly traded corporations) listed in the Executive Order.

We subsequently reported that on February 21, 2025, the United States District Court for the District of Maryland issued a preliminary injunction blocking enforcement of key provisions of the Executive Order, for which the Trump administration has already filed a notice of appeal. The court’s order, however, (1) does not eliminate the instruction to the U.S. Attorney General to submit its report “containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI,” (2) has no direct effect on private litigation or activism challenging corporate DEI initiatives and (3) likely will not prevent government agencies from bringing enforcement actions against companies they allege are violating applicable anti-discrimination laws.

Potential Risks

While neither the Executive Order nor the Memorandum changes existing federal or state laws, and litigation around these matters is ongoing, an atmosphere of heightened scrutiny for DEI initiatives has undoubtedly unfolded.

As a result, public companies may face increasing risks of investigations, enforcement actions, litigation, shareholder and consumer activism, and employment issues relating to their DEI initiatives. Some of these risks include:

• allegations of:
  • violations of anti-discrimination laws, including actions or omissions that harm individuals who may not belong to historically underrepresented populations;
  • violations of securities laws in connection with DEI-related statements or omissions in public filings and communications with stakeholders;
  • non-compliance with conflicting state, federal and international laws; and
  • unlawful retaliation against whistleblowers;
• incendiary activist shareholder proposals for inclusion in proxy materials;
• consumer boycotts;
• employee retention concerns; and
• other reputational and profitability risks.

To mitigate against the heightened risks posed by the shifting DEI landscape, some public companies are streamlining their DEI-related disclosures, opting to remove, pare back or rephrase references to DEI initiatives from their annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, ESG or sustainability reports, and other filings.

While companies should regularly evaluate their values and actions against their risk tolerance for potential legal and other challenges, below are ten disclosure considerations public companies are advised to take into account:

1. Joint Review Procedures: Prioritize cross-functional reviews involving management, legal (including external counsel), compliance, human resources, communications and investor relations teams to determine whether to remove or refine DEI-related disclosures. This determination should be based on legal and regulatory requirements and developments in all applicable local, state, federal and international jurisdictions, alongside company-specific facts and circumstances, including whether the company has any contracts with or receives funding from the federal government and the expectations of its various stakeholders.
2. Risk Factors: Evaluate existing risk factor disclosures and determine if any changes should be made to reflect changes in the company’s actual DEI practices or the uncertainty regarding DEI matters in the current market and legal, regulatory, judicial and political environments.
3. Employment Matters: Evaluate disclosure on employees and human resources, including as they relate to recruitment, retention, pay equity, harassment, discrimination, mandatory trainings, employee resource groups, talent development, company culture, and company values and objectives to avoid implications of “illegal preferences and discrimination” under the Executive Order and the Memorandum.
4. Board Diversity: Companies have begun excluding board diversity matrices from their proxy statements, given such disclosure is no longer a requirement under Nasdaq rules per our previous post. Review both quantitative and qualitative disclosures on the demographics of the board and of nominees, and focus on the benefits of a qualified board with a diversity of experiences, perspectives and skills. Evaluate references to any company policies, and the content of those policies, that consider diversity in identifying or selecting director candidates, ensuring a broad definition of diversity (beyond race, gender and other protected classes) is used to avoid allegations that “merit-based opportunities” are not being provided as mandated under the Executive Order.
5. Executive Compensation: Reconsider incentive plans that provide bonuses or other benefits for meeting DEI targets, which could be perceived as rewarding “illegal preferences and discrimination” under the Executive Order and the Memorandum.
6. Supplier Diversity: Ensure that disclosure of any arrangements or partnerships focused on women-owned and other minority-owned businesses explains that the drivers are the associated benefits on the company’s finances, operations or competitive advantage.
7. ESG: Review the “S” and “G” components of ESG initiatives and objectives, and their related disclosures, that relate to DEI and could thus attract heightened scrutiny. Emphasize compliance with applicable laws and regulations.
8. Shareholder Proposals: Consult with external legal counsel to assess DEI-related shareholder proposals, and whether any qualify for exemptions to inclusion in proxy materials, which may spare public companies from exposure to significant legal risk. Monitor proxy voting guidelines from known proxy advisory firms and other reputable sources for market and industry trends on voting recommendations and other proxy matters.
9. Other Communications: Audit other DEI disclosures by the company, including on websites, social media, and other internal and external communications, to ensure consistency with SEC filings and compliance with applicable laws and regulations.
10. Readiness: Be prepared to handle potential investor and media inquiries, public reactions, complaints, external audits, subpoenas and investigations relating to DEI matters by developing or refining response protocols. Consider which key members from management, legal (including external counsel), compliance, human resources, communications and investor relations teams should be consulted for rapid responses, and whether targeted trainings and template but adaptive questions lists, checklists or scorecards would be helpful to comprehensively address incoming issues.