Contrary to the popular narrative, leading firms, supported by overwhelming shareholder majorities, have maintained their commitment to diversity, equity, and inclusion (DEI). The reason is simple—inclusive practices improve corporate governance.

Literature from finance, management, sociology, and psychology illustrates that both identity-based diversity and diversity, broadly defined, enrich the decision-making capacity of groups. Furthermore, academic research supports the value of inclusion in corporate governance at companies whose boards and shareholders have resoundingly rejected anti-DEI efforts.

The Historical Pendulum: From Exclusion to Mandates and Backlash

The trajectory of DEI in corporate governance over the past two decades has swung dramatically. Even past the start of this century, corporate leadership operated as an old-boys club, almost exclusively the domain of white males. In 2000, women occupied less than 10% of board seats in the S&P 1500 and less than 0.5% of CEO positions in the Fortune 500. Selection processes relied on personal networks and homophily rather than a meritocratic search for expertise.

The mid-2010s marked the pinnacle of inclusion efforts as U.S. companies faced significant pressure from a variety of stakeholders to diversify their corporate governance institutions. Whereas institutional investors primarily advanced the business case for diversity, other advocates stressed its moral and social justifications. Meanwhile, large asset managers such as Vanguard, BlackRock, and State Street pushed for progress by utilizing their voting power to demand greater board diversity.

Legislative mandates followed in this transition, with California passing Senate Bill (SB) 826 in 2018 (mandating women on boards) and Assembly Bill (AB) 979 in 2020 (mandating representation from underrepresented communities). Additionally, in 2021 Nasdaq introduced a “comply-or-explain” rule for board diversity. By 2024, the tangible results of these efforts were evident: Women held 34% of S&P 500 board seats.

However, this political shift engineered a coordinated reversal starting in 2024, with conservatives scrutinizing assertive moves to diversify the corporate world. The Los Angeles Superior Court invalidated California SB 826 and AB 979 as unconstitutional, while the U.S. District Court for the Eastern District of California heard a challenge only to AB 979 and also struck it down. The Fifth Circuit Court of Appeals overturned the Nasdaq rule, arguing that the SEC had exceeded its statutory authority. This major shift in diversification efforts began with the Supreme Court’s Students for Fair Admissions (SFFA) decision, which voided affirmative action policies at public and private universities, overturning decades of precedent.

The backlash intensified in January 2025 with President Trump’s executive orders (EO), notably EOs 14151 and 14173, which barred federal DEI programs and pressured the private sector to eliminate “preferences.” The Trump administration has relentlessly continued to pressure industries, firms, and universities to eliminate DEI efforts. Consequently, several major firms chose to swing the pendulum back, including BlackRock, John Deere, and Harley Davidson, which reduced or eliminated their DEI commitments.

The Tech Sector and the Normalization of Weak Governance

While U.S. firms have experienced unprecedented growth in recent decades, corporate governance has experienced a troubling decline in quality, which sporadic DEI efforts have failed to counteract. Good governance depends on effective teamwork on boards and in C-suites, and diverse perspectives play a central role in enabling such teams to achieve the most careful, deliberate, and effective processes. The retreat from DEI serves as both a symptom of and a contributor to weak governance.

The rapid rise of founder-dominated technology firms has driven this decline in governance quality. While tech firms have achieved soaring valuations, they have also normalized governance pathologies, such as the concentration of power within individual founders and the sidelining of traditional safeguards. This model, referred to as “Founder Mode,” prioritizes the individual genius of the leader over independent oversight.

This institutional failure can be observed in the case study of WeWork. This global company, well known for providing shared workspace environments, consisted of a largely male board and executive team. This homogenous environment enabled CEO Adam Neumann’s erratic behaviour, self-dealing, and a discriminatory workplace culture, which led the company from a $47 billion valuation to bankruptcy in just four years. Executives consistently proposed male-bonding activities such as surfing and sitting in a sauna or an ice bath with Neumann, leaving little room for women to access valuable less formal time with Neumann outside of the office. WeWork’s governance structure rewarded conformity and discouraged dissent, creating an echo chamber that validated Neumann’s erratic behaviour while systematically marginalizing women and people of color who might have provided essential reality checks.

Several interconnected factors characterize “bad governance”:

• Imperial CEOs: Leaders who run firms through a highly centralized form of governance in which these theydefine the firm’s strategy and future.
• Impulsivity: Knee-jerk decisions, such as the rapid adoption and subsequent abandonment of DEI policies, rather than deliberate process.
• Short-Termism and Regulatory Entrepreneurship: A focus on rapid scaling by circumventing or breaking laws rather than on long-term institutional stability.
• Compensation Cushions: Multi-million dollar pay packages and “golden parachutes” that insulate executives from the consequences of failure, engendering a reckless disregard for the socio-political costs of their actions.

The Empirical Foundation: Inclusion and Group Decision-Making

Interdisciplinary research from finance, sociology, and psychology demonstrates that inclusive practices are essential to effective group processes. There are three key elements of group decision-making that correlate with diversity:

1. Deliberative Process: Heterogeneous teams consider a wider range of alternatives and engage in “cognitive conflict,” which prevents groupthink and leads to more innovative solutions. Diverse boards are more likely to challenge entrenched assumptions and slow down decision-making in productive ways. For example, studies show that gender-diverse boards are less likely to overpay for acquisitions or acquiesce to overconfident CEOs.
2. Addressing Information Gaps: Diverse boards often bring a heightened awareness of stakeholder perspectives (employees, customers, community groups), ensuring that decisions are based on more comprehensive and accurate information. This leads to more balanced decisions that consider the organization’s broader environment.
3. Risk Management: Inclusion strengthens a board’s ability to monitor legal compliance and oversee risk. Research suggests that directors from diverse backgrounds ask more questions and engage in more rigorous discussions, which can prevent catastrophic failures like those seen at Enron, Lehman Brothers, or FTX.

Ultimately, research finds that identity-based diversity (gender, race) is a vital component of this cognitive diversity because lived experience fundamentally shapes how individuals perceive and solve problems.

Resilience Amidst Backlash: 2025 Proxy Evidence

Proxy statements from 2025 challenge the narrative that DEI is dead. While some firms have retreated, many influential corporations have vigorously defended their inclusive practices against anti-DEI shareholder proposals. The boards at these companies argued that inclusion is a strategic business imperative that generates competitive advantages, fosters innovation, and enhances shareholder value.

Examples include:

• Costco: Defended DEI as crucial for enhancing employee satisfaction and providing diverse consumer insights; 98% of shareholders rejected an anti-DEI proposal.
• Walmart: Emphasized that an inclusive culture helps attract and retain the talent necessary to drive the business.
• Levi Strauss: Argued that inclusion ensures that its products remain relevant to a diverse global consumer base.
• Mastercard: Stated that financial inclusion and an inclusive culture drive long-term stockholder value.
• Bristol Myers Squibb and Gilead Sciences: Both pharmaceutical giants insisted that inclusion is critical for reaching diverse patient populations and fostering agility in their supply chains.

In nearly all these cases, shareholders resoundingly rejected anti-DEI proposals, whose support often fell below 2%. This suggests that boards and institutional investors recognize that the long-term value created by inclusion outweighs its political risk.

The Turning Point for Governance

The current anti-DEI backlash provides a test of fundamental assumptions about how firms should govern themselves. The rapid abandonment of inclusive practices by some firms reflects a susceptibility to reactionary thinking. Conversely, firms that have “stuck to their guns” understand that diversity is a prerequisite for excellence, not a constraint.

Boards must slow down and prioritize processes. Decisions about inclusion programs should proceed deliberately and should reflect the core principles of effective governance—deliberation, information sharing, and risk assessment. Ultimately, robust, inclusive governance is the only way for firms to remain resilient in an era of unprecedented global uncertainty. Long-term corporate success inextricably requires integrating radically different points of view to balance opportunity and risk.

Afra Afsharipour is John D. Ayer Endowed Chair in Business Law & Martin Luther King, Jr. Professor of Law at UC Davis School of Law. Darren Rosenblum is a professor of law at St. John’s University and McGill University. This post is based on their recent article, “The Inclusion Imperative For Repairing Corporate Governance,” available here.