In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at important questions that are arising in litigation challenging Trump administration acts with regard to “DEI” — including one judge’s question about what exactly DEI is. The administration’s answer to the question could have important implications for companies, as discussed below. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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On Thursday, May 8, 2025, Massachusetts U.S. District Judge William G. Young asked government lawyers to provide the Trump administration’s definitions of diversity, equity, and inclusion. This request came during an oral argument about whether the court has jurisdiction over a lawsuit filed against the U.S. Department of Health and Human Services (HHS) and NIH agencies. The states’ complaint targets Executive Orders disrupting research grants related to specific categories of research, particularly “DEI” projects.
While this is not the first lawsuit filed challenging the administration’s executive orders aimed at DEI, it will be interesting to see how the government responds to Judge Young’s request. Because the court is trying to determine whether the Supreme Court’s precedent from Department of State v. AIDS Vaccine Advocacy Coalition applies to remove the case to the Court of Federal Claims, the DOJ may have to answer the question. This answer may have broad applications, including for public companies.
While public companies are not governmental entities, many do have government contracts or receive financial support from the government through various social service programs. Considering the 2025 proxy season filled with shareholder proposals requesting companies address various DEI initiatives, a little guidance would have been nice. Before examining how two public company boards with a relationship to the federal government responded to shareholder proposals, it is helpful to understand the proxy statement process ahead of the annual shareholder meeting.
A proxy statement is a document that a public company must send to its shareholders before a shareholder meeting. It provides detailed information shareholders need to vote on important corporate matters, like electing directors, approving executive compensation, approving mergers and acquisitions and corporate governance. Shareholders can either attend the meeting to vote or give someone else (a “proxy”) the authority to vote on their behalf, based on the information in the proxy statement.
The key securities law that governs proxy statements is the Securities Exchange Act of 1934, specifically Section 14(a). The U.S. Securities and Exchange Commission (SEC) has issued Regulation 14A, which sets out the specific rules about what needs to be disclosed in the proxy materials. Form DEF 14A is the typical form filed with the SEC for a definitive proxy statement and it may include shareholders suggested actions for the company to take (e.g., racial equity audit or status of DEI initiatives), and the company has to state its response.
When shareholders submit proposals, they are asking the rest of the shareholders to vote on an issue, like diversity policies. The company’s Board of Directors then writes a rebuttal or explanation which may give various reasons if the Board does not agree with the proposed action. The shareholders and Board can attempt to negotiate ahead of a vote at the public company’s annual meeting where Shareholders can either attend the meeting to vote or give someone else (a “proxy”) the authority to vote on their behalf, based on the information in the proxy statement. The following two companies, Costco and Boeing, both receive funds from the government. Costco accepts EBT cards (SNAP food stamps) and Boeing has received nearly $16 billion in government subsidies.
Costco’s shareholder proposal relating to DEI requested a report on the risks associated with Costco maintaining DEI efforts. Costco has publicly maintained it is pro-DEI and still employs a Chief Diversity Officer, however, there is no mention of DEI on its website. Notably, The proponents of Proposal 4 indicated the increase in DEI-related lawsuits and that “DEI holds litigation, reputational and financial risks to the Company, and therefore financial risks to shareholders.” The shareholders proposed the Costco Board conduct an evaluation and publish a report on the risks of maintaining its current efforts. The Board recommended that shareholders vote against this proposal.
At Costco’s 2025 annual general meeting the Shareholders did just that, with the proposal received only 1.7% shareholder support. Boeing Shareholders proposing DEI reports and audits were similarly rejected at its annual meeting, with less than 5% of shareholders supporting any effort to report on or audit DEI practices. Neither the board nor its shareholders considered either company’s stance on DEI to be something to be addressed.
The first Boeing Shareholder proposal requested Boeing to produce a report detailing its DEI aspirations, the resources and personnel dedicated to these efforts, and an analysis of the associated risks, including potential legal liabilities and impacts on merit-based hiring. This proposal, similar to the Costco shareholder proposal, signaled the uptick in DEI litigation and Boeing’s celebration of diversity in its workforce, despite dismantling its DEI department. Boeing rejected the proposal as well as the subsequent shareholder proposal requesting a civil rights audit, because Boeing dismantled its DEI department.
The 14A shareholder proposals received by Costco and Boeing were representative of many received by public companies this year, ahead of annual shareholder meetings. Responses were similar among public company boards, rejecting proposals in favor of or against DEI initiatives undertaken within the last few years. It is important to note that, on February 12, 2025, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued Staff Legal Bulletin No.14M (SLB 14M), which expands the ability to exclude shareholder proposals based on “economic significance” and “ordinary business.” This may include DEI proposals; however DEI is undefined.
So to be fair, given that many public companies, including Costco and Boeing receive public funds (even if not grants), the government’s answer to Judge Young’s question is important. Especially, if it is different than the definition assumed by public company shareholders and boards of organizations that receive federal funds. Companies that have been acting based on one definition of DEI may have a problem if the administration’s definition of DEI causes the administration to stop federal monetary support.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with her company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.