Costco Rejects Anti-DEI Shareholder Proposal, Stands Firm on Diversity Initiatives
Costco shareholders overwhelmingly voted down a proposal from a conservative think tank that sought to examine the potential risks associated with the company’s diversity, equity, and inclusion (DEI) initiatives. Preliminary results announced by Costco Chairman Hamilton “Tony” James revealed that more than 98% of shares were cast against the proposal.
Ahead of the vote, James and other board members urged shareholders to reject the proposal, which questioned the company’s DEI policies. “We owe our success to the more than 300,000 employees who serve our members every day,” James said. “It is important that they all feel included and appreciated and that they transmit these values to our customers. ”
The National Center for Public Policy Research, a right-leaning shareholder advocacy group, submitted the proposal. In a prerecorded message, Ethan Peck, a representative of the group, argued that DEI initiatives are “illegal, immoral, and detrimental to shareholder value,” claiming they increase litigation risks and compromise hiring and promotion decisions based solely on merit.
By not hiring and promoting completely irrespective of race and sex — in other words, by merit alone — the company is not always hiring or promoting the best person for the job,” Peck said, adding that this approach undermines the company’s future success and shareholders’ interests.
Costco’s vote comes amid a larger cultural and political battle over corporate DEI policies. Conservative organizations, including the National Center for Public Policy Research and the National Legal and Policy Center, have increasingly advocated shareholder proposals rolling back what they describe as “woke” corporate activities. These groups contend that DEI efforts create potential litigation and financial risks, pointing to the Supreme Court’s 2023 decision to phase out college affirmative action as the basis to challenge corporate diversity programs.
That said, the number of anti-DEI shareholder proposals has skyrocketed more than threefold since 2020, according to the Conference Board. Even Walmart and Starbucks are facing similar proposals this year, although that kind of measure typically draws less than 2% support from shareholders.
While some firms are scaling back on their DEI commitments, the pressure of shareholders and political leaders, others have dug in. Such companies include Costco and Apple, both of which recently recommended their shareholders vote down proposals to abolish DEI programs in their organizations, similar to what Costco did.
Costco’s board unanimously rejected the proposal, saying that diversity in its employees and suppliers is the source of innovation for its products and services. “Our commitment to an enterprise rooted in respect and inclusion is appropriate and necessary,” the board said. “The report requested by this proposal would not provide meaningful additional information.”
For instance, during a mail exchange with a concerned shareholder, Costco CEO Ron Vachris was candid on the company’s emphasis on equal opportunity without hiring quotas. “If these are the policies you see as offensive, I must tell you I am not prepared to change,” Vachris said.
Even with claims that DEI programs are going to cost reputations and dollars, Costco stands its ground. The critics are even the likes of Stefan Padfield, a director at the think tank. In his argument, he says Costco’s move on the shareholder proposal is defiant. He refers to it as rejection of “perfectly reasonable request.”
However, progressive shareholder advocacy groups, such as As You Sow, say that diversity has correlations with better financial performance. According to a 2023 report, the organization discovered “statistically significant correlations” between diverse management teams and eight key financial metrics.
Meredith Benton, principal founder of Whistle Stop Capital, said long-term planning is key. “These are businesses that have been around longer than four years. We expect them to be around beyond this four-year window in front of us,” Benton said. “What we want to see is them making decisions that are in their business interests over the long term.”
A big difference for Costco is its refusal to retreat as other companies fold under mounting political and shareholder pressures: it will take a victory by the critics for that to change. Whether it will be a model or an exception remains to be seen as the debate over diversity policies continues in corporate America.
