Evolving Legal and Regulatory Dynamics for DEI Challenges and its Impact on Corporate Disclosures

The legal and regulatory landscape surrounding corporate diversity, equity, and inclusion (DEI) programs has undergone significant transformation over the past year. What started with an Executive Order (EO) signed by President Trump on the day he was inaugurated for his second term in early 2025 has quickly expanded into coordinated, multi-federal agency and states attorneys general enforcement efforts—one that now impacts nearly every aspect of corporate DEI strategy. Federal contractors and subcontractors, in particular, face new certification requirements and heightened risk of potential False Claims Act (FCA) liability. At the same time, the U.S. Equal Employment Opportunity Commission (EEOC) has intensified its scrutiny of DEI initiatives leading to litigation and subpoena enforcement efforts, and companies must navigate an increasingly complex patchwork of sometimes conflicting state and federal requirements.

These changes have already begun to reshape how public companies approach and disclose information to their shareholders about their own diversity initiatives. In 2025, we observed early signs that S&P 500 companies were revising, shortening, or eliminating DEI-related disclosures from their 10-K filings.[1] That trend has accelerated sharply: by early 2026, only 55 percent of S&P 500 companies included any diversity-related disclosure in their 10-K—down from 97 percent in 2024. Notably, just 8 percent continued to use the term “DEI” or similar language in their 10-K filings, a sharp decline from 90 percent only two years earlier.

This article provides an updated analysis of these evolving legal and regulatory dynamics affecting corporate DEI programs. We also examine how disclosure practices are changing across the S&P 500, with a focus on the financial sector and the new terminology companies are now adopting in place of DEI.

1. Expanded Use of Executive Orders and FCA in DEI Enforcement

DOJ Civil Rights Fraud Initiative: Enforcement Through the False Claims Act (FCA)
In May 2025, the Department of Justice (DOJ) launched the Civil Rights Fraud Initiative (Initiative) to challenge corporate DEI-related programs and polices more aggressively.[2] A central enforcement tool in this effort is the FCA, a federal law that allows the government to hold companies liable if they knowingly submit false statements or certifications to obtain government funds. In the DEI context, this means that companies could face significant penalties if they falsely claim to comply with antidiscrimination laws—for example, by exaggerating or misrepresenting their compliance while maintaining DEI programs that tie compensation to demographic targets or restrict access to training opportunities based on race or sex. As part of the initiative, the DOJ “strongly encourage[d]” anyone with knowledge of alleged discrimination by federal funding recipients to consider filing a qui tam action under the FCA, noting that a whistleblower who files a successful qui tam action typically receives part of any monetary recovery.[3]

In connection with this initiative, the DOJ announced in April 2026 that it had settled with IBM for more than $17 million to resolve allegations that IBM violated the FCA by failing to comply with antidiscrimination requirements in its federal contracts.[4] The DOJ alleged that IBM was required to certify as a federal contractor that it would not discriminate against employees or applicants for employment based on race, color, national origin, or sex, and that IBM violated these requirements by linking executive bonuses to demographic targets, adjusting interview criteria through “diverse interview slates,” and setting race- and sex-based goals for business units.[5]  The DOJ further alleged that IBM limited access to certain training, mentoring, and other opportunities based on race and sex.[6] The settlement covered conduct dating back to 2019, demonstrating that the DOJ is willing not only to enforce current compliance but also to review and act on statements and practices from previous years. This retroactive approach increases risk for companies, as past actions can now be subject to new scrutiny and legal challenges. The settlement agreement provided that IBM was making no admission of liability or that it engaged in the alleged wrongful conduct. The IBM settlement appears to be merely the beginning of the DOJ’s enforcement campaign. In December 2025, the Wall Street Journal reported that the DOJ is investigating major U.S. companies “ranging from automotive and pharmaceuticals to defense and utilities” for their DEI practices.[7] In February 2026, Deputy Assistant Attorney General Brenna Jenny confirmed at the Federal Bar Association’s Qui Tam Conference that the DEI cases brought pursuant to the Initiative “are receiving expedited priority treatment.”[8]

Executive Order 14398: Scope and Impact
In March 2026, the Trump Administration issued EO 14398, expanding federal oversight of DEI practices across a broad spectrum of businesses that directly or indirectly do business with the federal government.[9] EO 14398 builds on EO 14173, issued in January 2025, which first imposed a DEI certification requirement on federal contractors. Although EO 14173 broadly prohibited DEI programs that “violate any applicable Federal anti-discrimination laws,” it did not define prohibited conduct or explicitly extend those obligations to subcontractors.  In contrast, EO 14398 covers not only primary federal contractors—those companies that directly engage in business with the federal government—but also subcontractors, including those several tiers removed from direct contracts.[10] Under the EO, these entities must now formally certify, as a prerequisite to receiving federal contracts or payments, that they “will not engage in any racially discriminatory DEI activities.”[11] The EO defines this to mean “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.”[12]

EO 14398 also creates several new obligations for federal contractors and subcontractors. It requires the inclusion of a new clause in all covered contracts—mandating compliance with the EO’s nondiscrimination provisions.[13] The EO also establishes enhanced enforcement mechanisms: it directs the Attorney General to consider bringing FCA actions against contractors and subcontractors who violate these requirements.[14] Additionally, contractors are required to suspend any subcontractors who fail to comply with the EO, and noncompliance can result in cancellation, termination, or suspension of the contract, as well as suspension or debarment—making an entity ineligible for future government contracts.[15]

Notably, EO 14398 also seeks to make it easier for the government to establish liability under the FCA by building into the contract an explicit representation that the contractor or subcontractor’s certification was material to the government’s payment decision—a key element required for FCA liability. By embedding this representation in contract language, the government may be better positioned to overcome materiality challenges in FCA enforcement actions. The Supreme Court held in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), that express identification of a condition as material is relevant (but not automatically dispositive) to determining FCA liability. Courts therefore may still scrutinize whether the certification was in fact material to the government’s payment decision in any given case.

2. Heightened EEOC Scrutiny of DEI Programs

The Equal Employment Opportunity Commission (EEOC) has increased its focus on both traditional and reverse discrimination claims tied to DEI programs. Under Commissioner Andrea Lucas, the EEOC has publicly encouraged individuals who believe they experienced discrimination—particularly white male employees—to come forward and has used social media platforms to broadcast that message[16] Additionally, on February 26, 2026, Commissioner Lucas sent letters directly to the CEOs, general counsels, and board chairs of the 500 largest U.S. companies—reminding them of their obligations under Title VII and warning that DEI programs (and “functionally similar programs, policies, and practices that now may bear other labels, such as Inclusion & Diversity; Belonging; People & Culture; or Opportunity & Inclusion”) may constitute unlawful discrimination. The letter ended with the reminder of “this Administration’s vigilance in protecting the rights of all Americans.”[17]

Recent enforcement actions include a $500,000 settlement with Planned Parenthood of Illinois, which was the first resolution involving DEI-related practices under the current administration.[18] The EEOC found reasonable cause to conclude that Planned Parenthood of Illinois violated Title VII by racially segregating employees into mandatory “affinity caucuses,” in which employees of other races could not join, subjecting white employees to repeated racially derogatory statements in required DEI trainings, and denying white employees workplace benefits—such as time off—that were granted to Black employees.[19]

The EEOC also brought suit against Coca-Cola, alleging that Coca‑Cola Beverages Northeast, Inc. violated Title VII by allegedly excluding male employees from a two‑day, employer‑sponsored and paid networking and social event by inviting only female employees.[20] The complaint further alleges that the invited female employees were excused from work and paid their regular wages without taking leave, while male employees were denied both participation and the associated employment benefits. A motion to dismiss the complaint filed by Coca-Cola is currently being briefed by the parties.

In another high-profile case, the EEOC is seeking to enforce a subpoena against Nike for workforce demographic data and information about internal DEI programs.[21] The EEOC is investigating whether Nike’s DEI-related targets and programs influenced hiring, promotions, layoffs, executive compensation, and access to internships, mentoring, leadership development, and other career advancement opportunities in violation of Title VII.[22] The Nike investigation has involved rescinding a previous settlement agreement and requesting information as far back as 2018, signaling a more expansive review of company practices.

3. Conflicting State and Federal Signals and Resulting Litigation Risks

Employers are increasingly navigating conflicting requirements from state and federal authorities. Several states—including a coalition of 16 attorneys general as of February 2025—have enacted or proposed laws requiring or affirmatively protecting certain DEI practices.[23] They have also issued joint guidance affirming the legality of workplace DEI initiatives and outlining best practices.[24] These efforts sometimes clash with federal enforcement priorities or executive orders restricting or scrutinizing DEI programs. Other attorneys general have sided with the federal government’s challenges to diversity initiatives. For example, in January 2026, the Attorneys General of Florida and Texas issued formal opinion letters taking aim at race- and sex-based DEI initiatives. The Florida Attorney General concluded that many state laws requiring race-based preferences or classifications violate federal and state constitutional protections, while the Texas Attorney General found that DEI programs considering race or sex in employment or contracting violate both federal and state constitution protections, as well as civil rights and securities laws. More recently, in May 2026, the attorneys general of Texas, Nebraska, Iowa, and West Virginia filed lawsuits against Institutional Shareholder Services, alleging that its proxy voting recommendations misled investors by prioritizing ESG and DEI objectives over shareholder interests. As a result, companies operating across multiple states face complex compliance challenges: maintaining DEI programs may expose them to reverse discrimination claims (particularly after cases like Ames v. Ohio Dep’t of Youth Services[25] lowered the higher pleading barriers for reverse discrimination claims that had been in place in some circuits), while curtailing such programs could lead to traditional discrimination suits or state-level enforcement actions. Industry associations and civil rights groups have responded with guidance reminding employers that diversity training and initiatives remain legal if implemented without unlawful discrimination.[26]

4. Changing DEI Disclosure Practices Across the S&P 500

Amid expanded Executive Orders and heightened EEOC and state attorneys general scrutiny of DEI programs, companies are making notable changes to their diversity-related disclosures. These changes are evident across company websites, sustainability and ESG reporting, and in 10-Ks filed with the SEC.

In calendar year 2024, 97 percent of the S&P 500 had a diversity-related disclosure in their 10-K, and 90 percent had a reference to DEI or to a similar term. In the first four months of 2026, those numbers dropped sharply—only 55 percent had a diversity-related disclosure in their 10-K, and only 8 percent had referenced DEI or a similar term. We observed a significant drop in the prevalence of diversity-related disclosures in the 10-K across multiple topics, including:

• Use of diverse slates when hiring,
• Diversity-related hiring or recruitment goals,
• References to employee resource groups—all areas that have come under increased scrutiny from the Trump Administration.

However, not all diversity-related content is being excised from 10-Ks. Pay equity-related initiative disclosures have generally remained consistent since 2024. Additionally, at least half of the index still has at least one reference to a workforce diversity-related topic in their most recent 10-K, often through mention of an “Inclusion and Belonging” program or similar. While many S&P 500 companies have significantly revised or shortened diversity-related content since 2024, large public companies in the US have not removed all such content from their 10-Ks.

Given the increased level of focus across the Trump Administration, including at the EEOC, on both traditional and reverse discrimination claims tied to DEI programs, even diversity-related content that does not reference DEI specifically may represent a risk. Since EO 14173 was issued in January 2025, the prevalence and length of disclosures addressing topics such as workplace culture or belonging have significantly fallen, and explicit references to DEI now appear in single-digit percentages of 10-K filings. Despite this scrutiny and potential risk, 55% of companies across the market still make some diversity-related disclosures.

Changing DEI Disclosures for the S&P 500[27]

Spotlight: The Financial Sector

The pace and approach by which companies initially revised DEI-related disclosures in 2025 varied across industries. Factors such as the timing of fiscal year ends, the level of scrutiny by anti-ESG activists, and the importance of federal contracts all influenced when and how companies addressed diversity-related content in 2025. Accordingly, we saw companies revisit, remove or revise DEI-related content to different degrees from industry to industry. However, in 2026 there is a trend towards an overall reduction in DEI-related content across industries. As an example, we analyzed DEI-related disclosures for financial sector companies in the S&P 500.

In 2025, only 4 percent of financial companies in the S&P 500 entirely removed diversity-related disclosure from their 10-K, compared to 19 percent of the full index. Rather than eliminating such disclosures, companies in the financial sector opted to revise them: 74 percent of financial companies in the S&P 500 significantly revised rather than remove DEI-related disclosures, compared to just 40 percent of the entire S&P 500. Financial sector companies also shortened the length of DEI-related disclosures in the 10-K more sharply—the average word count of DEI-related content fell by 42 percent for companies in the financial sector from 2024 to 2025, compared to 34 percent for the full S&P 500.

So far in 2026, the approach across the financial sector has generally converged with the broader market. From the end of 2025 to the end of March 2026, 60 percent of financial companies in the S&P 500 included a diversity- related disclosure in their 10-Ks, down from 94 percent in 2025 and consistent with 55 percent across the entire S&P 500 for the same period.

A similar pattern appears when looking at the use of DEI or substantially similar language. In 2025, relatively few financial companies in the S&P 500 removed all references to DEI from 10-Ks when compared to the approach taken across the index. In 2026 to date, the prevalence of DEI or similar language in the financial sector 10-Ks fell to 9 percent—consistent with the 8 percent rate across the full S&P 500.

Changing DEI Disclosures for the Financial Sector[28]