USA Trends and Developments Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
demonstrated an increased willingness to hold directors accountable for perceived oversight or disclosure failures. In this rapidly changing environment, it is impor - tant for business leaders to stay apprised of new and ongoing developments and consider their impact on their company’s strategic plans, oper - ations and risk profiles. Boards may also want to consider requesting more frequent updates from management on key developments that could materially impact their business and, in some cases, even ask management to review and test assumptions and sensitivities underly - ing their company’s strategic plans to ensure dif - ferent potential scenarios are taken into account, if appropriate. Additionally, companies should also consider preparing responses to possible shareholder questions regarding how they are navigating these ongoing political, regulatory, economic and social uncertainties. Corporate DEI Practices Face Growing Scrutiny Although there is still a significant amount of uncertainty regarding the new administration’s priorities and policies, one area that has become a clear area of scrutiny for regulators and politi - cians is diversity, equity and inclusion (DEI). The legal basis for DEI attacks stems, in part, from the U.S. Supreme Court’s June 2023 deci - sion in Students for Fair Admissions v. Harvard, in which the Court struck down race-based affirmative action programmes in college and university admissions based on Title VI of the Civil Rights Act of 1964, which prohibits dis - crimination based on race, colour or national origin in connection with programmes/activities that receive federal financial assistance. While the Harvard decision does not directly apply to private corporations, in its wake, US companies
have faced increased legal challenges to their corporate DEI programmes, including, most recently, from federal regulators. Consistent with President Trump’s campaign promises, over the last few months, the admin - istration has taken significant actions to roll back private sector DEI initiatives through executive orders. These executive orders, among oth - er things, direct the U.S. Attorney General, in consultation with the heads of relevant federal agencies, to identify private sector companies with “egregious and discriminatory” DEI pro - grammes, signalling the possibility of poten - tial investigations, lawsuits or other regulatory actions against publicly traded companies and large nonprofits. The U.S. Department of Justice (the DOJ) and the U.S. Office of Personnel Man - agement have since issued internal memoranda implementing these executive orders, includ - ing one memorandum describing the steps the DOJ plans to take to “investigate, eliminate, and penalize illegal DEI and [accessibility] preferenc- es, mandates, policies, programs, and activities in the private sector” , including the possible use of criminal investigations. In response to these developments, many com - panies are re-examining their DEI policies and activities, including any DEI-related representa - tion goals (eg, for their boards, management, employees, suppliers and/or vendors), compen - sation metrics and public disclosures. Many proxy advisers and institutional inves - tors have also revised their voting policies and guidelines to reflect the fact that they are under increased scrutiny with respect to DEI. For example, ISS has indefinitely halted its consid - eration of gender, racial or ethnic diversity when making voting recommendations with respect to the election of directors at US companies, while
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