Labor & Employment Law Daily Wrap Up, INDUSTRY NEWS, TRENDS—Costco seeks to short-circuit critique of DEI program, (Jan 3, 2025)

By Mark S. Nelson, J.D.

Costco’s defense of its DEI program may set a precedent by asking shareholders to reject a proposal that seeks a board report on DEI litigation risk.

Costco Wholesale Corporation has recommended that its shareholders vote against a proposal to require the company to issue a report on the risks of continuing to engage in activities related to diversity, equity, and inclusion (DEI) in what may become an example of one way in which companies can respond to proposals to limit DEI in light of criticism of these programs by groups that broadly constitute what has been called the “anti-woke” movement. Some companies have gone quiet about their DEI activities or have dropped the “equity” portion from DEI, while still others have announced they will scale back or end some DEI activities. Costco, however, said in its definitive proxy statement recently filed with the SEC that it plans to retain its DEI program.

Washington-based Costco will hold its annual shareholders’ meeting on January 23, 2025. The meeting will be virtual only, which the company said will promote “accessibility” and help to lessen its carbon footprint. Costco’s meeting agenda is mostly routine: elect directors; ratify its choice of independent auditor; and approve executive pay packages on an advisory basis.

However, a fourth proposal, submitted by National Center for Public Policy Research calls on “the Board [to] conduct an evaluation and publish a report, omitting proprietary and privileged information, on the risks of the Company maintaining its current DEI (including ‘People & Communities’) roles, policies and goals.”

According to NCPPR, the Supreme Court’s recent opinion in which a majority found that the admissions practices of some federally-funded colleges and universities violated the Equal Protection Clause of the Fourteenth Amendment may also apply to public corporations. NCPPR noted that, in at least one lawsuit, a company was held liable to a white employee for $25 million for alleged discrimination.

NCPPR further suggested that nearly two-thirds of Costco’s 310,000 employees could potentially claim they are victims of discrimination from the company’s DEI policies. The group said it worries that even a small number of successful lawsuits against Costco could result in the company being liable for “tens of billions of dollars.”

“And yet Costco still has such a program, though it was apprehensive enough to recognize this as it recently and quietly rebranded its DEI program to ‘People and Communities,’” said NCPPR in its materials supporting its proposal. “But sticking a new label on discriminatory practices does not protect Costco and its shareholders from these risks.”

For its part, Costco said the NCPPR proposal would not yield meaningful information to shareholders and that the company routinely re-assesses its compliance with the law and has determined that its DEI programs are “legally appropriate.” As a result, Costco recommended that shareholders vote against NCPPR’s proposal.

Costco explained that its DEI programs for employees and for suppliers help to bring new ideas to the company regarding products its stocks in its stores while also satisfying customers’ desire to interact with store employees who represent them. Costco also disputed some claims made by NCPPR, such as the claim that other companies had eliminated DEI jobs, which Costco said was in some instances inaccurate.

Costco also disputed the source of litigation risk over DEI programs. Said Costco: “The supporting statement demonstrates that it is the proponent and others that are responsible for inflicting burdens on companies with their challenges to longstanding diversity programs. The proponent's broader agenda is not reducing risk for the Company but abolition of diversity initiatives.”

Companies: Costco Wholesale Corporation

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