The Miscalculation of Corporate DEI Risk

Corporate diversity, equity, and inclusion (DEI) efforts have undergone a dramatic reversal in a remarkably short period of time. In the wake of George Floyd’s murder in 2020, public companies widely embraced DEI as a core component of their internal governance and workforce management efforts. Firms were responding, at least in part, to pressure from investors, consumers, and employees. By 2025, however, that apparent moment of reform had given way to rapid retrenchment. Project 2025 and related federal enforcement initiatives reframed corporate DEI practices as legally suspect, creating powerful incentives for firms to retreat from their prior commitments. Although cycles of racial reform and retrenchment are a familiar feature of U.S. legal and political history, the current backlash is distinctive in that it is unfolding within publicly traded firms governed by boards of directors that owe fiduciary duties to identify, assess, and manage material risks.

This Article argues that many firms’ responses to the current anti-DEI turn reflect a fundamental miscalculation of risk. By responding to legal and political uncertainty with abrupt expansion or retreat, corporations have framed DEI as a temporary political or compliance issue rather than as a sustained subject of enterprise risk oversight. The result is not the avoidance of risk. Both the adoption and dismantling of DEI initiatives generate legal, regulatory, disclosure, reputational, and workforce risks that demand deliberate board-level analysis. This Article suggests that the greatest danger for public companies lies not in DEI itself, but in boards’ failure to engage in a holistic, process-driven evaluation of the tradeoffs associated with embracing or turning away from their DEI commitments. By integrating DEI into ordinary risk-oversight frameworks—rather than treating it as a symbolic commitment or political liability—boards can better fulfill their fiduciary obligations and responsibly navigate future periods of reform and retrenchment as it relates to racial equity within corporate firms.