By Jennifer Gorman, Divisional Assistant Vice President, Managing Attorney, [email protected]

Diversity, Equity and Inclusion (“DEI”) describes a framework, policy or set of practices focused on creating environments where people from all backgrounds feel welcome, respected, valued, and have equal access to opportunities.  Many companies are re-thinking DEI initiatives after President Trump signed Executive Order 14173 in January 2025. The  Executive Order terminates illegal “diversity, equity, and inclusion (DEI) discrimination” in the federal workforce, and in federal contracting and spending by terminating “radical DEI preferencing in federal contracting and directing federal agencies to relentlessly combat private sector discrimination.”  Importantly, the Executive Order does not repeal current discrimination laws like Title VII.

The EEOC, which enforces the discrimination laws against private sector employers with more than 15 employees, states in its guidance on DEI initiatives that “under Title VII, an employer initiative, policy, program, or practice may be unlawful if it involves an employer or other covered entity taking an employment action motivated—in whole or in part—by race, sex, or another protected characteristic.” The guidance points out that “unlawful limiting, segregating, or classifying workers related to DEI can arise when employers separate workers into groups based on race, sex, or another protected characteristic when administering DEI or any trainings, workplace programming, or other privileges of employment, even if the separate groups receive the same programming content or amount of employer resources.” 

While the current administration’s stance on DEI is reshaping how companies approach workplace inclusion, the values of fairness and opportunity remain priorities for most.  Successful DEI programs emphasize equal opportunity for all rather than group-based preferences. A well-crafted policy will have the buy-in of leadership and the flexibility to evolve as the laws and landscape change. It will avoid quotas, race/gender-based hiring targets or initiatives that only serve specific demographic groups.

The business case for DEI remains compelling, supported by evidence linking diversity initiatives to financial performance. McKinsey’s 2024 study, Diversity Wins: The Financial Impact of DEI, found that companies with ethnically diverse executive teams outperform competitors in numerous ways:

• Organizations in the top quartile for gender diversity have a +25% likelihood of financially outperforming their peers.
• Organizations in the top quartile for ethnic diversity have a +36% likelihood of financial outperformance.
• Diverse companies earn 2.5x higher cash flow per employee.
• Inclusive teams are over 35% more productive.
• Diverse teams make better decisions 87% of the time.

In addition to the financial and performance advantages, recent studies have shown that companies with committed and effective DEI policies benefit from:

• Enhanced innovation and creativity.
• Greater capacity to change and adapt to legal and cultural changes.
• Better employee mental health and well-being.
• Improved decision-making.
• Enhanced employer branding and talent attraction.
• Stronger workplace culture and cohesion.

DEI is viewed as crucial for businesses seeking to enhance their reputation and perception on a national and global scale. Consumers are becoming increasingly aware of corporate social responsibility and are more likely to support companies that prioritize diversity and inclusivity.

Companies should review current DEI initiatives, along with hiring, training, and mentorship opportunities, to ensure the focus is on an inclusive culture and merit-based advancement without alienating any group of employees. Policies should not include quota-based goals or preferential treatment of one group over another. A poorly designed policy can backfire by creating division, resentment, and liability.

In the current landscape, legal counsel plays a critical role in crafting and reviewing DEI policies, particularly for federal contractors. Counsel can help structure a tailored policy that creates tangible benefits across performance, culture, and reputation, aligns with company values, and complies with best practices in 2025.