Shareholders at Costco have overwhelmingly rejected a proposal from a conservative think tank that urged the company to evaluate the risks associated with its diversity initiatives.

Preliminary results indicate that over 98% of shares voted against the initiative, as reported by Costco chairman Hamilton “Tony” James. He, along with other board members, had encouraged shareholders to oppose the proposal concerning the company’s diversity, equity, and inclusion (DEI) policies before Thursday’s annual meeting.

James noted, “Our success is due to the hard work of our 300,000 employees who serve our members daily. It’s crucial for them to feel included and valued, and that they extend these values to our customers.”

Ethan Peck from the National Center for Public Policy Research—a conservative group that introduced the proposal—argued in a pre-recorded statement that DEI policies are “unlawful, unethical, and harmful to shareholder interests,” and could lead to legal challenges for the firm.

Peck asserted, “By not hiring or promoting based solely on merit—which means ignoring race and gender—the company may not always select the best candidates. This compromises the future success of the company and ultimately harms shareholders.”

This voting took place shortly after former President Donald Trump used executive action to restrict DEI initiatives.

Companies are increasingly encountering DEI-related proposals from shareholders.

For instance, Apple recently advised investors to oppose a proposal to dispel its DEI programs.

Conservative groups like the National Center for Public Policy Research and the National Legal and Policy Center argue they bring these proposals to push back against liberal influences in corporate governance and a “woke” agenda that they claim jeopardizes business stability.

These groups are using the Supreme Court’s 2023 ruling that overturned affirmative action in college admissions to challenge corporate diversity standards, which has led to a rise in DEI-related proposals at investor meetings.

According to the Conference Board, while the number of anti-DEI proposals remains small, it has more than tripled since 2020. This proxy season, companies such as Walmart and Starbucks are facing similar challenges.

Peck, who is the deputy director at the National Center for Public Policy Research’s Free Enterprise Project, mentioned that his organization is planning 40 shareholder proposals for this year, with 12 focusing specifically on DEI.

He stated, “Our proposals align with the broader backlash against DEI as we seek to reveal the discriminatory and value-eroding nature of these initiatives,” as noted in an interview with YSL News.

Conservative investors often propose such resolutions—even ones likely to receive minimal support—as a way to draw attention. Corporate boards, like Costco’s, typically advocate for shareholders to vote against these measures, which generally fail to garner more than 2% of support.

Trump’s DEI Orders Heighten Business Risks

Speaking at the World Economic Forum in Davos on Thursday, Trump described DEI programs as “absolute nonsense.”

His latest executive order to eliminate DEI programs in the federal government and affirmative action in federal contracts stirred considerable concern in corporate circles. Trump warned that his administration would scrutinize companies that do not comply. This could incite increased shareholder activism regarding the potential legal and financial risks tied to DEI initiatives.

JPMorgan Chase is one company that might face scrutiny.

In response to inquiries about potential challenges to its DEI policies, CEO Jamie Dimon told CNBC’s Squawk Box: “Challenge us if you wish,” emphasizing that he is open to discussions about potential missteps and necessary adjustments.

As major corporations navigate a swiftly evolving political landscape, facing pressures from conservative organizations, a growing number are scaling back their diversity efforts.

Some businesses began to distance themselves from DEI commitments even before Trump took office. This includes Meta, the parent company of Facebook and Instagram, as CEO Mark Zuckerberg aimed to align the social media giant more closely with the Trump administration’s policies.

Costco and Others Stand Firm Against Anti-DEI Proposals

Critics are warning that such retreats can be short-sighted and may weaken these businesses in the long run.

Among the critics is the progressive group As You Sow, which released a 2023 report showing a significant positive relationship between diverse leadership and eight key financial performance metrics.

“These are established businesses that we believe will thrive beyond the immediate future,” remarked Meredith Benton, the principal founder of Whistle Stop Capital, consulting with As You Sow on DEI issues. “We encourage them to make decisions that benefit their long-term business prospects.”

Some companies, including Costco, are firmly supporting their DEI programs. Costco’s commitment to these initiatives is among the most robust.

The National Center for Public Policy Research put forward the shareholder proposal, stating that Costco’s DEI efforts carry potential “litigation, reputational, and financial risks” for the company and its shareholders.

Costco’s board unanimously urged shareholders to reject the proposal, arguing that diverse employees and suppliers are crucial for innovation in their product offerings and services.

“Our dedication to a business culture based on respect and inclusivity is vital and justified,” the directors stated. “The report requested by this proposal would not yield significant additional insight.”

Costco CEO Ron Vachris also addressed concerns from shareholders, explaining that the company does not enforce hiring quotas, but instead emphasizes equal opportunity for all employees.

“If these policies are seen as problematic, I must inform you that I’m not inclined to make any changes,” Vachris conveyed in his exchange with a concerned shareholder, as reported by the Wall Street Journal.

Stefan Padfield, director of the National Center for Public Policy Research’s Free Enterprise Project, criticized Costco for its “defiant” stance against what he viewed as a reasonable shareholder request.

“Merely asking shareholders to take the current practices on trust is not sufficient,” Padfield stated to YSL News. “We are in a rapidly evolving environment concerning laws, regulations, and market perceptions, which justifies shareholders’ desire for a thorough review of practices and associated legal considerations.”