Executive Branch Guidance, and New Glass Lewis Policy, on Corporate DEI Practices

On February 5, 2025, the U.S. Department of Justice (DOJ) and the U.S. Office of Personnel Management (OPM) issued internal memoranda (the “Memoranda”) providing guidance relating to implementation of the Administration’s Executive Orders (EOs) on diversity, equity, inclusion, and accessibility (DEI) policies and practices at government agencies and private-sector companies. The DOJ has been directed to issue a report by March 3, 2025 with further specific recommendations on how the government will discourage private sector “illegal DEI.” On February 19, 2025, proxy advisory firm Glass Lewis sent a letter to its clients stating that, in light of the Administration’s approach to DEI, it is re-evaluating its DEI-related voting guidance.

Key Points

• Private-sector companies may be criminally “investigated and punished” for their DEI practices. The Memoranda are extensive in their breadth and detail. Most notably, they indicate that the DOJ will be investigating (civilly and criminally) DEI practices at privatesector companies and will be engaging in “litigation activities” to deter DEI practices at such companies. The memoranda also indicate the Administration’s views with respect to certain specific DEI practices.
• Glass Lewis will be issuing new voting guidance relating to DEI. The proxy firm stated in its letter to clients that it will issue new guidance on March 3, 2025. With respect to institutional investors who “remain committed to the value of diversity,” Glass Lewis stated that, given the Administration’s position, it may not be “fully possible” for Glass Lewis to support those investors’ voting preferences.
• Companies will be subject to uncertainty relating to DEI for some time—given a marked lack of clarity in the EOs and the Memoranda; pending litigation challenging the EOs; and pending changes in proxy advisors’ guidelines. As a result, companies may face difficult choices with respect to whether, when, and how to revise, limit, or eliminate  their DEI policies and practices in response to the EOs. See “Practice Points” below.
• Companies should keep apprised of DEI-related developments—including the expected March 3, 2025 DOJ report and Glass Lewis guidance; any further DEI-related guidance from the Administration; any announced investigations or cases the government actually brings against companies or others with respect to their DEI practices; any developments in pending (and any future) DEI-related litigation; and any emerging consensus or general practice among peer companies with respect to DEI.

Discussion

The DEI-related Executive Orders. On January 20, 2025, the Administration issued Executive Order 14151, titled “Ending Radical and Wasteful Government DEI Programs and Preferencing.” On January 21, 2025, the Administration issued Executive Order 14173, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”

• EO 14151. This EO directs federal agencies, employees, grant recipients, and contractors to “terminate to the maximum extent allowed by law” any equity-related grants or contracts and DEI-related performance requirements.
• EO 14173. This EO prohibits federal agencies from engaging in or promoting DEI-related practices, and requires heads of federal agencies to generate reports identifying “the most egregious DEI practitioners” in each “sector of concern” within the agency’s jurisdiction. The EO also requires each agency to develop a plan to deter DEI at private-sector companies, including by identifying up to nine “potential civil compliance investigation targets,” with a focus on publicly-traded corporations, “large non-profit corporations or associations,” foundations with more than $500 million in assets, state and local bar and medical associations, and institutions of higher education with endowments of $1 billion or more. This EO expressly revokes the EO issued by President Lyndon Johnson that, among other things, for decades, has required every government contract and government job posting to include a statement that the contractor or the government (as the case may be) will not discriminate against any employee or applicant for employment because of race, creed, color, or national origin.

The DOJ Memoranda. The DOJ issued two internal memoranda providing guidance for implementation of the DEI-related EOs.

• DEI at private-sector companies. The Memoranda direct the DOJ’s Civil Rights Division to “investigate, eliminate and penalize illegal DEI…preferences, mandates, policies, programs and activities in the private sector and in educational institutions that receive federal funds.” In addition, the Memoranda direct government agencies to consider undertaking “litigation activities” to end private-sector companies’ DEI practices—including through intervention in pending cases, regulatory actions, and “sub-regulatory guidance.”
• DEI at government agencies. The Memoranda direct federal government agencies to eliminate their “unlawful DEI practices.” The Memoranda also direct the DOJ to identify federal contractors, suppliers, vendors and grantees “who have provided DEI training or DEI training materials to agency or department employees since January 20, 2021”; to identify federal grantees who received federal funding to provide or advance DEI or “environmental justice” programs, services, or activities since January 20, 2021; and to identify new DEI hires at government agencies.
• Footnotes on cultural celebrations. In footnotes, both DOJ Memoranda state that they are not intended to prohibit “educational, cultural, or historical observances—such as Black History Month, International Holocaust Remembrance Day, or similar events—that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination.”

The OPM Memorandum. The OPM Memorandum focuses on eliminating DEI practices at federal agencies—but is instructive in indicating the Administration’s views on particular DEI practices, which it potentially could seek to apply to private sector companies as well.

• Protected characteristics. The OPM Memorandum directs government agencies to eliminate “[u]nlawful discrimination related to DEI,” which, it states, “includes taking action motivated, in whole or in part, by protected characteristics….” The memorandum clarifies that “a protected characteristic does not need to be the sole or exclusive reason for an agency’s action” for it to constitute unlawful discrimination.
• Diverse slate policies. One notable directive in the Memorandum is that agencies must end “diverse slate” policies (i.e., policies requiring that a diverse group of candidates be interviewed for a position before a hiring decision is made).
• Employee resource groups. The Memorandum states that agencies must prohibit employee resource groups, or affinity groups, “to the extent they promote unlawful [DEI] initiatives or advance recruitment, hiring, preferential benefits…, or employee retention agendas based on protected characteristics.” ERGs can, however, “gather for social and cultural events,” so long as they do so consistently with the “goal of creating a federal workplace focused on individual merit.” The Memorandum states that an agency cannot permit the formation of ERGs only for certain groups and not for others.

Potential False Claims Act liability for contractors and grantees. One potential legal issue arising from the EOs is the risk of potential liability under the False Claims Act (FCA) for federal government contractors and grant recipients, who may be deemed to be not complying with antidiscrimination laws. EO 14173—which revokes certain long-standing EOs promoting nondiscrimination and affirmative action— directs government agencies to cease requiring that contractors take affirmative action in their employment actions. The EO expressly contemplates that the FCA will be used as an enforcement tool with respect to the government’s anti-DEI efforts. It specifies that the head of each agency must include in every contract or grant award terms that require the contractor or grantee to (i) “agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decision” for purposes of the FCA, and (ii) “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”

Legal challenges. On February 3, 2025, three national associations representing university diversity officers, university professors, and restaurant workers, respectively, and the Mayor and City Council of Baltimore, filed a lawsuit in federal court in Maryland—Natl. Assn. of Diversity Officers in Higher Education, et al v. Trump—claiming that the EOs relating to DEI are unconstitutionally vague and violate free speech rights, due process rights, and the separation of powers.

The Glass Lewis letter. The letter states that, in light of the Administration’s views on DEI, Glass Lewis “may in fact determine that it is in our clients’ best interest for Glass Lewis to change its approach to voting guidance on board elections and DEI-related shareholder proposals at U.S. companies, particularly in areas where this guidance considers gender, ethnic, and racial diversity of the board.” The letter states, with respect to institutional investors who “remain committed to diversity”: “We will do our best to support your voting preferences, but ask you to understand that may not be fully possible in the end.” Glass Lewis states that it “will spend the next two weeks gathering input from clients” and will issue new guidance on March 3, 2025, following the DOJ’s issuance of its report.

Practice Points

• Uncertainty. The EOs and related Memoranda leave numerous important questions unanswered. Perhaps most critically, it is not clear whether the many references to “illegal DEI programs” means that all DEI programs are now presumptively illegal, or that some (for example, if mandated under existing laws or if not focused on demographic preferences) remain legal. It is unclear: whether the government would intend to bring civil charges only or also criminal charges; what the government would expect a company to do if the federal directives conflict with state or local laws; and what effect, if any, there will be on existing government contracts and grant awards.
• Changes to DEI practices. Private-sector companies should consider to what extent they wish: (i) to take a wait-and-see approach pending further developments; or, instead, (ii) to act to eliminate, limit or reduce their DEI initiatives; or, instead, (iii) to publicly advocate and/or litigate against the Administration’s anti-DEI stance. These judgments may depend on, for example: whether the company is in a category expressly targeted in the EOs or guidance; the company becomes the subject of a government investigation or litigation activities as specified in the EOs or guidance; the company’s past level of commitment to, and public statements about, DEI; expectations of the company’s stakeholders; and the company’s general risk tolerance with respect to such matters.
• Internal audit. An advisable first step may be to conduct an internal audit to identify all of the company’s internal- and external-facing DEI-related policies, programs and practices; and the company’s compliance with existing federal, state and local antidiscrimination laws. Particular attention should be given to identifying any of the company’s policies, programs or practices that could imply preferences for, or exclusions of, individuals based on demographic characteristics.
• Proxy statement and other disclosure. A company should review the disclosure in its proxy statement, and statements that appear on its website and social media, relating to its DEI policies and practices to determine if changes should be made.
• Internal guidance. Consideration should be given to providing guidance to the company’s board, executive management, human resources and communications departments, and others with respect to the new environment and the possibility of investigation and/or litigation by the federal government relating to DEI practices.
• Due diligence. In connection with any M&A transaction, the acquiror should include in its due diligence investigation the target company’s DEI practices and the extent to which such practices may be noncompliant with the Administration’s directives and/or existing nondiscrimination laws; may be inconsistent with the acquiror’s own DEI practices or its approach in response to the Administration’s directives; and/or may be likely to attract government scrutiny, heighten potential FCA liability, or generate negative publicity. Target companies should be prepared to provide due diligence information with respect to their DEI practices.
• Keep apprised. Companies should keep apprised of developments relating to DEI policies and practices—and other policies and practices that the Administration may address in future EOs or guidance, including, for example, environmental or energy policies, policies relating to employee medical care, and so on.