Even before the start of the new Trump administration, corporate DEI initiatives faced increasing scrutiny. With the new administration, DEI initiatives face even greater scrutiny. Following Trump’s January inauguration, the President and the Attorney General declared that the new administration intends to target what they have called “illegal DEI.” The administration’s approach creates regulatory and enforcement risks for companies and their executives with respect to DEI issues. And as detailed in a recent law firm memo, these developments could also give rise to increased corporate and securities litigation risks as well, as discussed below. The Winston and Strawn law firm’s April 28, 2025, memo entitled “Securities Litigation Risk in the Evolving DEI Landscape” can be found here.

Background

Even before last November’s Presidential election, companies found themselves facing scrutiny and pressure concerning their DEI initiatives, as I noted in a prior post, here. Many companies, including, for example, Ford, Harley-Davidson, and Walmart, in response to activist pressures, discontinued their DEI initiatives or otherwise walked back their DEI statements and goals.

Among the first acts President Trump undertook following his inauguration was the issuance of two executive orders staking out a strong policy position against “illegal DEI.” On January 20, 2025 – that is, on the day of Trump’s inauguration — the White House issued Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing.” The next day, the White House issued Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” Collectively, these orders emphasize a shift towards “merit-based hiring practices” and eliminating DEI-related factors in federal hiring, promotions, and contracting. They also mandate federal contractors to certify compliance with anti-discrimination laws and eliminate internal DEI efforts.

In early February, shortly after being sworn in, Attorney General Pam Bondi issued a memorandum entitled “Ending Illegal DEI and DEIA Discrimination and Preferences.” Among other things, the memorandum declared that the DOJ’s Civil Rights division would “investigate, eliminate, and penalize illegal DEi and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.”

In addition to the memorandum, the DOJ also issued a February 25, 2025, press release stating that, consistent with President Trump’s initiative to eliminate “illegal DEI,” the agency was dismissing various DOJ lawsuits that were then pending and involving the hiring of police and firefighters. 

On March 19, 2025, the DOJ issued another press release separately stating the DOJ’s position that DEI programs can violate Title VII of the Civil Rights Act of 1964. In conjunction with the press release, the DOJ also issued “technical assistance” documents telling employees what they can do if they believe they have been discriminated against as a result of their employer’s DEI program.

These Trump administration actions signal that corporate DEI programs may face significant scrutiny. The tone and content of the governmental statements also suggest that companies could face regulatory action or even discrimination lawsuits in connection with their DEI programs. As discussed in the law firm memo to which I linked at the top of the post, as a result of these developments, as well as the efforts of activists and others, the new DEI landscape could also mean corporate and securities litigation.

DEI-Related Corporate and Securities Litigation

As I have noted in prior posts on this site, even before the Trump administration’s recent initiatives, some companies had faced DEI-related corporate and securities litigation (as noted, for example, here). As the law firm memo observed, “even before the recent change in the DEI landscape, plaintiff firms and political groups had begun filing claims against companies, officers, and directors concerning their DEI-related disclosures.”

Perhaps most prominently among these prior lawsuits was the securities class action lawsuit filed in August 2023 by a conservative legal activist group against Target and certain of its executives. Among other things, the plaintiff alleged that Target misleadingly downplayed or failed to warn shareholders about the known risks of customer backlash in response to the company’s Pride Month campaign in June 2023. Significantly, and as discussed in detail here, in December 2024, the court entered an order denying the defendants’ motion to dismiss, finding, among other things, that the company’s risk disclosures “could be materially misleading.”

The law firm memo notes, with respect to the dismissal motion denial in the Target case, that “as companies face scrutiny of allegedly ‘illegal’ DEI practices, courts may view the shareholders’ theories advanced in Target to be increasingly plausible.”

The memo’s authors further note that governmental action (whether at the federal level or at the state level – for example, through initiatives by state AGs) or employment discrimination litigation, customer complaints, supplier problems, or other issues linked to disputes over DEI, “may lay the groundwork for more shareholder claims alleging that DEI programs created undisclosed litigation, reputational, and financial risks.” The law firm memo notes that the DEI-related litigation risk includes not only the risk of securities class action litigation but the risk of shareholder derivative litigation as well.

The memo also notes that changes in the SEC leadership under the Trump administration could well mean a change in the agency’s approach to DEI as well. During the Biden administration under then SEC Chair Gary Gensler, the SEC identified DEI as a priority with respect to the SEC’s regulation of Capital Markets, as reflected in an interview of Gensler entitled “A Mission for Inclusion.” The law firm memo observes that under the SEC’s new Chair Paul Atkins, “it is hard to imagine the agency will continue on the same path,” adding that “it is more likely that the agency will scrutinize DEI- (and ESG-) related disclosures and, particularly following negative market events, examine whether they accurately conveyed to investors the companies’ DEI practices and associated risks.”

Discussion

There is no doubt that in the new world that has dawned under the Trump administration that the issues surrounding DEI have changed. Now, more than ever, as the law firm memo puts it, “DEI-related disclosures will come under the microscope.” The administration’s actions, as well as the efforts of activist investors, could well lead to further DEI-related corporate and securities litigation.

In light of these litigation risks, the memo suggests that companies take a number of steps with regard to their DEI-related disclosures. First, the memo highlights the importance for companies to ensure that its DEI disclosures “match its practices.” Second, the company should be sure to specify particular risks, as, if the company is “aware of specific DEI-related risks,” a corresponding risk disclosure “is likely to serve as a powerful defense.” The memo adds that where possible, the company should identify DEI statements as forward-looking and take steps to ensure proper oversight relating to DEI.

D&O underwriters worried about the possible sources of applicants’ corporate and securities litigation risks will want to consider the regulatory and litigation risks associated with DEI in the new environment. Many companies have recently altered their public statements about DEI, and underwriters may well want to consider both the applicant’s recently revised statements as well as its prior disclosures in an effort to consider whether the company may attract the unwanted attention of either regulatory authorities or corporate activists.

In any event, in the current environment, the likelihood over the coming months seems to be that DEI-related issues could give rise further corporate and securities litigation, a set of concerns over which many will be keeping a watchful and wary eye.