As Proxy Voting Season Opens, a Lackluster Reception for Some Anti-Diversity Proposals

As proxy season begins and shareholders get to vote on issues affecting companies’ risks and policies, practices concerning diversity, equity, and inclusion are being challenged. So far this year, shareholders have rejected four anti DEI proposals.

Detractors regard DEI measures as discriminatory and contrary to a merit-based system. Supporters say they strengthen a company’s human capital management practices as society changes and the workforce grows more diverse. Whatever happens, expect more DEI-related proposals this season.

Recent DEI Actions

• In 2023, the US Supreme Court ruled that universities could no longer consider race as a basis for granting admissions.
• Certain companies began retreating from DEI initiatives that grew popular during the covid-19 pandemic, including Meta Platforms META, Ford Motor F, and Walmart WMT.
• In December, a US appeals court struck down Nasdaq’s rules that its listed companies have one female director and one self-identified minority director.
• As the new Trump administration took power this year, it said it would take action against federal contractors engaging in “illegal DEI”—a term that remains undefined.

Proxy Voting Season and DEI

Two proxy advisors have issued opposing voting guidelines for DEI proposals. Institutional Shareholder Services said it would stop considering board gender, racial, and/or ethnic diversity when making recommendations on board director votes. Meanwhile, Glass Lewis said it would keep its existing policies, including voting against any Russell 3000 nominating committee chair of a board that is not at least 30% gender diverse, but that it would flag diversity-related recommendations, which could support an alternative vote by the client.

Morningstar Sustainalytics, which also offers voting advice to investors, doesn’t routinely offer specific recommendations on board directors. It has issued 2025 voting guidance for clients that now consists of two policies: One for U.S. companies, and one for companies outside the U.S. Both versions continue to focus on sustainability.

Major institutional investors also revised their voting policies, though they reserved the right to take action if company boards were outside market norms.

All this is prompting companies to revisit their governance measures. In a roundup of actions around DEI issues, Cooley attorneys recommended that companies “consider whether to continue providing individualized director diversity data in the proxy statement or whether aggregate diversity disclosure is sufficient to satisfy the needs of various stakeholders” and review their board recruitment processes.

Four Shareholder Proposals Opposing DEI

Four shareholder proposals from groups opposing DEI measures have been voted on this year. Only 1.7% of Costco Wholesale COST shareholders approved a proposal asking the board to report on the risks of the company maintaining its DEI goals. Management recommended shareholders reject the proposal, saying its DEI program is key to their corporate strategy and business advantage.

Similar resolutions received 2.3% support at Apple AAPL, 1.4% at Deere DE, and 1.0% at Visa V. A fifth proposal at Deere was withdrawn by advocate As You Sow just before the meeting. As You Sow said it had several conversations with Deere, and cited the firm’s July 2024 post on X, which read: “We fundamentally believe that a diverse workforce enables us to best meet our customers’ needs, and because of that, we will continue to track and advance the diversity of our organization.” As You Sow said, “We hold them to their words as these are considered material disclosures.”

At Deere, One Proxy Voting Result May Draw Board Attention

But don’t most shareholder resolutions get rejected anyway? Last year, only 4% of proposals received majority support, according to a report from law firm Gibson Dunn.

One noteworthy proposal that lost came from Deere’s proxy ballot. The proposal from independent shareholder John Chevedden asked Deere to commission a civil rights audit to analyze “the bias and discrimination risks of Deere’s policies, practices, products, and services.” It said shareholders “need to understand the full impact of these rollbacks” of Deere’s DEI commitments, “including the company’s ability to build a talented workforce and grow its customer base and revenue.” The full text of the proposal and Deere’s recommendation to vote against it is here.

The proposal received 27% of the shareholder vote, which may be enough to make Deere’s board sit up. It’s commonly expected that support of 20% or so merits a company response. A survey by proxy solicitor Georgeson found that “if a shareholder proposal not supported by management receives 20% or more support but does not pass, investors will expect to see a formal response from the company to shareholders.” Indeed, the UK Corporate Governance Code expects a company to take certain actions if 20% or more of votes are cast against the board recommendation.

There may be more DEI-related proposals on ballots this year. Votes are upcoming at Walt Disney DIS (March 20), A.O. Smith AOS (April 8), Lennar LEN (April 9), and Genuine Parts GPC (April 28).