Costco pushes back on investor effort to scrap DEI program

Costco Wholesale is pushing back against a movement by investors for the retail giant to drop its diversity, equity, and inclusion (DEI) initiatives, announcing that its “commitment to an enterprise rooted in respect and inclusion is appropriate and necessary.”

The wholesale club now faces a backlash from conservative activists calling for a Costco boycott, according to an article in Newsweek. 

The Costco Board of Directors released a statement in the notice of its upcoming annual shareholder meeting, scheduled for Jan. 23, that the effort to discontinue the DEI policy was submitted by the National Center for Public Policy Research (NCPPR), a conservative think tank headquartered in Washington, D.C.

The Costco letter to shareholders noted that some shareholders are requesting the Costco Board conduct a full evaluation of the program and publish a report evaluating the potential risks associated with its DEI program.

The shareholder letter noted that the proposal to scrap the DEI program will be voted on at the annual meeting “only if properly presented by or on behalf of the proponent.”

NCPPR argued in a letter to Costco that the DEI program could result in lawsuits against the company, citing the 2023 U.S. Supreme Court decision in Students for Fair Admissions v. Harvard that determined affirmative action programs for college admissions violated the Equal Protection Clause of the 14th Amendment.

NCPPR also noted that the Supreme Court decision has prompted DEI-related lawsuits, including the lawsuit against Starbucks Corp. for firing regional director Shannon Phillips, who claimed she was fired for being white. That lawsuit resulted in a $25.6 million verdict for Phillips, who called the police on two black men at a Philadelphia Starbucks in 2018, which sparked protests against the company. 

“It’s clear that DEI holds litigation, reputational, and financial risks to the company, and therefore financial risks to shareholders,” the NCPPR letter to Costco stated, noting that other companies such as Alphabet, Meta, Zoom, and John Deere have scaled back or eliminated their DEI programs. 

Similarly, Walmart recently reversed course on DEI and LGBTQ initiatives, which includes cutting funding to the Center for Racial Equity, which was established after the killing of George Floyd by a white police officer in Minneapolis in 2020. 

The Costco Board of Directors said in its letter to shareholders that the requested report “would not provide meaningful additional information to our shareholders, and the Board thus unanimously recommends a vote against this proposal.”

Costco said it regularly evaluates its practices to comply with the law “including evolving Supreme Court decisions.”

“The proponent’s broader agenda is not reducing risk for the company but abolition of diversity initiatives,” the letter stated. “A 2023 federal district court decision, in a case brought by (NCPPR), noted that the proponent had ‘published a document called ‘Balancing the Boardroom 2022,’ which describes its shareholder activism as ‘fighting back’ against ‘the evils of woke politicized capital and companies.’”