DEI’s Proxy Battles Aren’t About Diversity. They’re About Power

Proxy fights over diversity, equity, and inclusion aren’t always about DEI, but about who gets to decide. Corporate boards want to protect their discretion in relation to shareholders. A clear example is Goldman Sachs Group Inc., which has decided to get rid of DEI criteria for its board.

Goldman Sachs’ board didn’t need to make this decision; it did so because it chose to make a deal with the conservative National Legal and Policy Center, or NLPC, to uphold its request submitted through a shareholder proposal. Goldman could have allowed the proposal to go to a shareholder vote knowing that the proposal would fail.

If the board expected the proposal to fail, it could have let shareholders reject it publicly. Settling avoids a vote, a headline vote tally, and a recorded shareholder rebuke of the anti-DEI proposal while preserving board control over timing and narrative.

Goldman had the leverage to push back. Just last year, the NLPC submitted an anti-DEI proposal asking the bank to revisit its DEI goals in executive compensation. Goldman allowed the proposal to go to a vote, which received only 2% support from investors—a typical vote for an anti-DEI proposal.

This vote provided Goldman with strong incentives and leverage to ignore it. But the board wanted to maintain control of the decision about whether DEI policies remain or are erased.

When a shareholder files a proposal, boards generally choose among four paths: settle and make it disappear, ask the Securities and Exchange Commission to omit it, put it on the ballot and urge a no vote, or—rarely—endorse it.

Goldman chose the first option with its DEI board criteria: to settle with shareholders by agreeing to implementing the proposal’s request.

The second option would have been for the company to challenge the legality of the request by filing a “no-action letter” request with the SEC to seek its informal and nonbinding opinion on whether there was a legal basis to exclude the shareholder proposal from the company’s proxy statement.

While the SEC under the Trump administration has temporarily paused responses to no-action letter requests, the SEC still requires companies to inform the Commission if they choose to exclude a proposal. This is because the law requires a company’s board to make proposals available to other shareholders who either vote to approve or reject the proposal. To aid shareholders in their decisions, the board of directors typically makes recommendations on how shareholders should vote on a proposal.

In my research on shareholder proposals and SEC exclusion requests from 2020 to 2023, I found boards routinely urged investors to vote down DEI-related proposals, even while touting DEI commitments publicly. My research examines 69 proposals where companies sent letters to the SEC to exclude the proposals from shareholder votes.

Companies now use some of the same reasons they used between 2020 and 2023 to reject pro-DEI proposals, including that the proposals interfered with their company’s business operations—and that the company has already acted on the requests—to also reject anti-DEI proposals.

Whether a proposal is for or against DEI, the board wants to remain in control of the direction of the decision-making and not be swayed by shareholders. My book, “Disclosureland: How Corporate Words Constrain Racial Progress,” documents the many changes companies made through their board, largely due to shareholder pressure. Boards may be trying to hold on to as much power as they can.

Yes, legal and political pressure has changed incentives for companies. But the more durable story is procedural. Boards are treating DEI as a domain they must keep under board control, regardless of which side is pushing.

Besides settling with a shareholder and asking the SEC for a no-action letter, a company can also put a proposal on the ballot and urge a no vote. Even when companies don’t settle with shareholders or when they include proposals for shareholder votes, boards almost always recommend that shareholders vote against DEI-related proposals regardless of whether it is pro- or anti-DEI.

The final option, which is rare, is for the company to include the proposal in its proxy statement and recommend that shareholders vote for the proposal.

Goldman’s move to remove the consideration of race, gender, and LGBTQ+ status from its board criteria is less a verdict on DEI than a verdict on shareholder democracy. Boards want DEI decisions and reversals to remain board decisions, not shareholder decisions.

For now, it seems like some boards are responsive to litigation, such as the New York City retirement plan’s lawsuit against AT&T, which swayed the board. But it shouldn’t need to come to litigation for boards to allow shareholders to seek accountability through proper governance channels when for years, boards have treated DEI as a governance concern.

Boards themselves chose to embed DEI in the architecture of corporate oversight by adopting board composition criteria, tying executive pay to workplace metrics, issuing statements about DEI, and invoking DEI as a matter of strategy and risk management. Having used governance tools to institutionalize DEI, directors shouldn’t prevent shareholders from using governance channels for accountability because it threatens board discretion.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Atinuke Adediran is a professor at Fordham University School of Law and the author of “Disclosureland: How Corporate Words Constrains Racial Progress.”

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