Insights

“Corporations are people too, my friend,” Mitt Romney infamously said in front of the Butter Cow at the Iowa State Fair. It was a statement that would weigh down his 2012 Presidential campaign, but there’s a certain truth to this observation that surfaces every time a major company faces a choice that can’t be answered with a glance at the balance sheet.

Corporations and private companies respond to outside pressures the same way people do – imperfectly, inconsistently, and often unpredictably. While individual choices usually reflect the short-term moment and opportunity, the long-term accumulation of these choices build a very human picture that can be summed up, for better or worse, in a single word: values.

Values guide people, from gut reactions to long term planning. They can be simulated, and they can be tailored to fit a certain customer base, but in the long run, they really can’t be faked. So when a profit-making organization faces conflicting external pressures to make or mold its values in opposing directions, that company will usually revert back to the values of the people in charge.

The latest back and forth over corporate commitment to Diversity, Equity, and Inclusion efforts (DEI) is an instructive example. In the wake of the killing of George Floyd, many corporations expressed vocal support for transformative DEI efforts, and many made specific commitments to change their hiring, social outreach, and commercial practices to reflect those efforts.

However, many of these companies now face pressure to reject or walk back these commitments. Over a dozen state Attorneys General have issued letters threatening legal action against corporate DEI practices, and a Federal Judge in Tennessee struck down a longstanding provision in the Small Business Administration 8(A) program, threatening billions of dollars in government contracting opportunity for historically disadvantaged groups.

GOP candidates for every office from County Sheriff to President have also made combating DEI a pillar of their political messages. As the failed campaign of Ron DeSantis demonstrated, political candidates would be well advised to avoid going to war with three letter acronyms as their central rallying point. But when expressed as a simple matter of fairness, the messaging battle against DEI is gaining traction in the primary landscape, and that pressure is making its way to the C Suite.

In response, civil rights and minority business coalitions are pushing back with pressure campaigns of their own. For example, in December, the Congressional Black Caucus issued a letter calling on Corporations to:

1. Reaffirm their commitments to DEI and reiterate their dedication to upholding these values in their daily decision-making processes.
2. Share updates on their 2020 commitments to address racial and economic inequality.
3. Work with Members of the CBC to close the racial wealth gap.

And last month, groups including US Black Chambers and the Global Black Economic Forum issued a letter to Fortune 500 CEOs stating: “We believe it is imperative that CEOs and other company leaders are able to make strategic decisions for their companies without threats of frivolous lawsuits and political pressure.”

This framing puts the DEI question back into more comfortable territory for CEOs and other decision makers, citing it as a question of freedom to make the best strategic choice for their companies rather than any imperative to pursue a “woke” agenda. And free of legal pressure from one side or the other, corporations seem generally inclined to continue their public commitments to both DEI and broader initiatives under the umbrella of Environment, Social, and Governance (ESG) investments, though the internal balances of these investments may shift.

Last summer, Center Forward took a look at how corporations reported their ESG spending, and how those numbers have shifted over the past few years. Our report, Pillars of Progress, found that while spending environmental efforts, the “E” pillar of ESG, remained comparatively level since 2020, the social spending, or “S” pillar, dipped considerably in that time period, and governance spending, the “G” pillar, increased by a similar amount.

Much of this can be ascribed to a shift in the external pressures corporations experienced, as 2020 decisions were driven by both a global pandemic and a national social justice movement, while heading into 2024, spending now focuses on internal governance, accountability, and management transparency.

A 2020 corporation wants to be seen as leading through a crisis, projecting the message that we’re all in this together. A 2024 corporation generally wants to stay out of the headlines.

All of this suggests the companies facing legal and political pressure to back off on DEI may be easily persuaded to do so. However, our report also found that, at least as of the summer of 2023, companies have become increasingly focused on building and maintaining a diverse, equitable, and inclusive work environment.

There remains room for improvement in every measure, particularly racial diversity, which lags slightly behind the metrics related to women in the workplace. It remains to be seen whether this gap widens in the face of conservative pressure or shrinks in response to continued activism and oversight from historically disadvantaged groups.

If there is a message corporate leaders should take from an examination of the current DEI and ESG environment, it is that their actions should reflect the values they support over the long term, not posturing for the short business cycle. There is no easy play. Businesses should assess their objectives and impact, then make real choices and stand by them.

Cori Smith Kramer is CEO of Center Forward, which brings together members of Congress, not-for-profits, academic experts, trade associations, corporations and unions to find common ground and give voice to the center of the American electorate.