Should Costco Be Championing Its DEI Practices?

As many major U.S. companies dial back their diversity efforts under activists’ pressure, Costco is strongly defending its diversity, equity, and inclusion (DEI) focus, claiming the programs support its in-store offerings and values.

The wholesale club now faces calls for a boycott, according to a Newsweek article.

Costco’s strong defense follows a proposal by a group of shareholders, led by conservative think tank National Center for Public Policy Research (NCPPR), calling for Costco’s board to “conduct an evaluation and publish a report, omitting proprietary and privileged information, on the risks of the company maintaining its current DEI (including ‘People & Communities’) roles, policies and goals.”

The proposal described DEI programs, including in hiring and choosing suppliers, as “illegal discrimination” and claimed they expose the company to legal and reputational risks.

Costco’s board of directors explained in its proxy statement to investors that the opposite is true: “We welcome members from all walks of life and backgrounds. As our membership diversifies, we believe that serving it with a diverse group of employees enhances satisfaction. Among other things, a diverse group of employees helps bring originality and creativity to our merchandise offerings, promoting the ‘treasure hunt’ that our customers value. That group also helps to provide insights into the tastes and preferences of our members. And we believe (and member feedback shows) that many of our members like to see themselves reflected in the people in our warehouses with whom they interact.”

The board added that aiming for diversity across its supplier base, including “appropriate attention to small businesses, is beneficial for many of the same reasons diversity benefits our company. We believe that it fosters creativity and innovation in the merchandise and services that we offer our members.”

In a unanimous vote, the Board urged shareholders to reject the proposal. Shareholders will vote on it at the annual meeting on Jan. 23.

The dispute comes as Walmart, Harley Davidson, Ford Motor Company, Tractor Supply, John Deere, Home Depot, Lowe’s, Microsoft, Southwest Airlines, and several other major companies have started to scale back or scrap their DEI commitments that were put in place or amplified following the 2020 death of George Floyd and the subsequent Black Lives Matter protest campaigns.

Bud Light in early 2023 became a poster child for risks related to diversity efforts, as it faced a major boycott after featuring TikTok personality and transgender woman Dylan Mulvaney in a social media promotion. Target later that year during June’s Pride Month faced a boycott due to in-store displays of LGBTQ+ gear, including “tuck” swimsuits for trans women, leading to a scaling back of its Pride program the following year.

Conservative activists in recent years have been more aggressively pushing boards to eliminate corporate DEI programs that factor in race and gender for hiring, promotions, and supplier selections following a Supreme Court ruling in 2023 that struck down affirmative action in college admissions. Anti-DEI activists claim that the goal of equity as part of diversity pushes comes at the expense of merit. Since the ruling, several companies have faced lawsuits over DEI practices, including Starbucks, which was hit with a $25 million lawsuit for discriminating against a white employee.

Proponents of the Costco proposal warn that the retailer could be vulnerable to similar legal challenges, especially since its DEI program emphasizes “equity” and includes a chief diversity officer.

Costco’s board of directors asserted that its DEI practices “are legally appropriate, and nothing in the proposal demonstrates otherwise.” The board also claimed that the National Center for Public Policy Research’s request for a study of Costco’s DEI practices “reflects a policy bias” and threatens to burden company resources.

The calls on social media to boycott Costco haven’t yet delivered the backlash seen by Bud Light or Target.

A recent Wall Street Journal article indicated that the pressure on companies from activists over diversity programs will likely increase under a second Trump administration. The article stated, “Supporters of DEI say most boards and executives still support diversity efforts, even if they avoid the term, bend to the demands of activists or try to sidestep skirmishes with Trump’s administration. CEOs also risk backlash among customers and employees.”