The ongoing conflict surrounding corporate diversity, equity, and inclusion (DEI) policies has intensified as the state of Florida mounted a securities fraud lawsuit against Target, while Missouri initiated legal action against Starbucks for infringing upon federal and state civil rights statutes.

DEI has gained significant attention following the Supreme Court’s 2023 decision that dismissed Harvard University’s affirmative action admissions processes, which set a precedent for corporate hiring practices. The issue gained further political momentum after President Trump signed an executive order aimed at shutting down federal government DEI initiatives.

This executive order instructed “all departments and agencies to take robust action to halt discrimination arising from private sector DEI practices, including investigations for civil compliance.” Acting in response, the Justice Department is developing a report for release on March 1, which will outline measures, including potential criminal inquiries, to discourage the use of DEI strategies that may constitute illegal discrimination or preferential treatment within the private sector.

Adding to the administration’s efforts against DEI is Stephen Miller, who is vocal about his stance and serves as the founder of America First Legal and Trump’s advisor for policy. America First Legal is collaborating in the lawsuit against Target and has identified 45 companies that it claims may be in violation of federal anti-discrimination laws.

Among the corporations included in this list are prominent retailers such as Amazon, Dick’s Sporting Goods, Kontoor Brands, Macy’s, McDonald’s, Nike, Nordstrom, Shake Shack, Starbucks, Target, Walt Disney, Williams Sonoma, and Yum! Brands.

Target Faces Legal Pressure

In the wake of the Florida City of Riviera Beach Police Pension Fund’s class action lawsuit against Target—which contends the retailer misled investors by providing “false and misleading” information regarding its DEI initiatives—the State of Florida escalated the situation by filing a securities fraud lawsuit with similar allegations.

The Florida State Board of Administration, overseeing the state’s public pension fund, asserts that Target presented misleading information to investors regarding the risks linked to its 2023 Pride Month merchandise in its financial disclosures.

The lawsuit states that consumer backlash against the company resulted in a staggering loss of “tens of billions of dollars” for shareholders, describing the 2023 Pride Month displays as “exceptionally offensive.” In response, Target has pulled certain displays from many locations and reduced its Pride merchandise assortment for 2024.

“Target’s attempts to sexualize children caused its stock price to plummet,” asserted Florida Attorney General James Uthmeier in a post on X.

Uthmeier further cautioned, “Corporations that endorse radical leftist ideologies at the cost of financial gain endanger the retirement security of Florida’s first responders and educators. My office is dedicated to pursuing corporate reform so that businesses can refocus on their core operations rather than engage in offensive political theatrics.”

As of now, Target has not publicly commented on this lawsuit.

Companies Under Scrutiny

Reuters has indicated that Florida’s lawsuit marks the first instance of a U.S. state filing a shareholder claim regarding “mismanagement of DEI initiatives.” However, more lawsuits could emerge as America First Legal’s Senior Vice President Reed Rubinstein stated, “America First Legal is committed to persist in this battle.”

In July 2023, the Attorneys General from 13 states contacted CEOs of Fortune 100 companies, advising that “discrimination based on race, under the guise of ‘diversity, equity, and inclusion,’ violates federal and state law,” and warning of potential “serious legal repercussions” for any company engaging in racial discrimination.

The letter was signed by Attorneys General from Alabama, Arkansas, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, South Carolina, Tennessee, and West Virginia. Missouri Attorney General Andrew Bailey is now taking concrete steps following that communication.

Missouri Targets Starbucks

On February 11, Missouri filed a lawsuit claiming that Starbucks violated both federal and state anti-discrimination laws regarding race and sex. The suit alleges that Starbucks has practiced “race-and-sex based hiring,” unlawfully segregated employees, and provided exclusive training and employment benefits to select groups, contravening anti-discrimination statutes.

Inspired by the Supreme Court’s ban on race-based college admissions, Attorney General Bailey contended that the principles apply similarly to employment choices. He alleged that Starbucks ties executive pay to “racial and gender quotas” and discriminates against individuals based on race and sex for board appointments.

“Due to Starbucks’ discriminatory practices and policies, Missouri consumers are likely paying elevated prices and facing longer waits for goods and services that could be provided more efficiently had Starbucks hired the most qualified candidates, irrespective of their race, color, sex, or national origin,” he stated, advocating for merit-based hiring, a view aligned with the stance taken by President Trump in his executive order.

Starbucks has refuted the allegations in the lawsuit, stating, “We disagree with the attorney general and believe these allegations are unfounded.” They affirmed their commitment to creating opportunities for all employees, emphasizing that their programs and benefits adhere to legal guidelines.

Retailers Confront Legal Ambiguity

National retailers now face increasing risks stemming from DEI policies that were previously perceived as socially responsible and beneficial for business. The landscape surrounding DEI has swiftly transformed into a contentious political and social arena.

Public sentiment on the issue is divided, though generally leaning positive. A recent Pew survey indicated that 52% of Americans view DEI favorably compared to only 21% expressing negative opinions, although this was prior to the increased backlash post-Trump’s executive order.

In light of shifting perceptions, many retailers have opted to scale back their DEI initiatives, including giants like Amazon, Walmart, Lowe’s, McDonald’s, Tractor Supply, and Target. Conversely, companies such as Costco, Kroger, Giant, and Trader Joe’s have reaffirmed their dedication to DEI policies, asserting compliance with federal and state regulations.

Marcus Collins, an assistant professor of marketing at the University of Michigan, noted in an interview with Supermarket News that “brands that aren’t fully committed, but aim to avoid backlash or boycotts, may choose to delay making a decision until then.”

However, retailers should be cautious about delaying action due to potential litigation costs and reputational damage.

Even if companies have meticulously crafted their public stances on DEI with legal and PR oversight, they might still face accountability based on private employee communications revealed during lawsuits.

An attorney from Dorsey and Whitney, Aaron Goldstein cautioned that “we should expect to see more lawsuits of this nature.”

See also:

ForbesCitigroup Rolls Back Diversity Initiatives—Here Are All The Companies Cutting DEI ProgramsBy Conor Murray
ForbesFlorida Sues Target Over Pride Merchandise—As More States Take Legal Action Against DEIBy Conor Murray
ForbesTarget Hit With Shareholder Lawsuit, Claiming Investors Were Defrauded About DEI RisksBy Pamela N. Danziger
ForbesCostco Shareholders Overwhelmingly Support Company’s DEI Policies As Other Major Retailers RetreatBy Pamela N. Danziger