Comment: Costco’s work to defend its DEI values isn’t over

By Beth Kowitt / Bloomberg Opinion

Republican attorneys general have put Costco Wholesale Corp. on notice.

Nineteen of them recently signed off on a letter telling the company to stop “clinging to DEI policies that courts and businesses have rejected as illegal” and that it should do the right thing by “following the law and repealing its DEI policies.”

The attorneys general never says what exactly those policies are, and it doesn’t really seem to matter a whole lot to them. Their complaint puts all of the Issaquah-based Costco’s diversity efforts in the same bucket — bad and illegal — portraying DEI as if it were a single entity rather than a grouping of policies with lots of different approaches and goals.

The AGs are adopting a strategy used by private conservative advocacy groups, most notably Stephen Miller’s America First Legal, that have been on a crusade against what they consider “woke corporations.” They have tried to demonize DEI by painting it in binary terms; something that is unfair and bad, that companies are either for or against.

“They’ve done a really effective job at owning the public dialogue about this without any nuance,” says Jason Schwartz, a partner at Gibson Dunn who co-chairs the firm’s labor and employment practice group. “And corporate America did not do a good job at explaining itself and its programs.”

Indeed, companies have unwittingly set up conservatives for this line of attack by relying on the acronym as a catchall. “No one knows what the heck it means,” says Schwartz. “DEI is not some monolith.”

Costco seems to have fallen into this trap. It became a target for the GOP attorneys general after facing a proxy proposal designed to compel the company to reverse its DEI policies. (Shareholders overwhelmingly sided with the Costco board and voted it down.) In its response, the warehouse retailer did a powerful job of making a business case for why its DEI programs are important to the company; that they attract and retain talent, that diversity helps the company foster its originality and creativity and that customers want to see themselves reflected in the people who work in its stores.

But what the company did not do is explain what policies it uses to achieve those results. It’s a lack of clarity that Bloomberg News alluded to, noting that Costco doesn’t list many specific DEI programs in its corporate materials. It reported that the company has a supplier program designed to “partner with community organizations to identify qualified diverse suppliers to support our business,” and employee development goals that “provide all employees with training, education and opportunities for career development.”

I don’t really know what those things mean in practice, and that kind of haziness is not going to cut it in the current anti-woke climate. Simply replacing the controversial three-letter acronym with words like “belonging” isn’t going to cut it either. (In its fiscal 2023, Costco consolidated its DEI efforts under one team called “Inclusive Community.”) If Costco and other companies want to hold on to their policies that bolster diversity, they’re going to need to get much more descriptive and specific about what exactly they entail.

For example, Schwartz points out that a lot of companies have examined the fairness and objectivity of their interview processes by requiring that all candidates answer the same standard list of interview questions. That doesn’t mean any one group gets different or preferential treatment, as anti-DEI activists might have you believe; quite the opposite; it’s designed to give everyone a fair shake. To dispel the myths building up around DEI, companies are going to have to do the tedious work of explaining that.

Companies also need to get granular in the face of President Trump’s executive order that instructs government agencies to identify “up to nine” companies and others in the private sector that should be investigated for their DEI practices. Corporations that vaguely allude to “doing DEI” are much more likely to end up in the crosshairs than ones that, say, outline mentorship program designed to encourage people to stay and grow at their company.

The good news for corporate America is that, despite what the Trump administration might want us to think, the law is the same as it was two weeks ago. “I think the narrative that all of a sudden that DEI, whatever that means, is illegal; that’s not true,” Schwartz says.

The next stage in this battle will inevitably be convincing the courts to keep it that way.