How-to guide: How to comply with legal developments relating to Diversity, Equity and Inclusion (USA)

Updated as of: 18 August 2025

Introduction

This guide provides information for in-house counsel, human resource professionals, and private practitioners about developments relating to diversity, equity, and inclusion (DEI) in the United States. It explains what DEI is, outlines key elements of DEI frameworks, and provides information about the recent changes to DEI made by President Trump. The guide also focuses on DEI matters relevant to boards of directors, including board composition, the role of the board in overseeing DEI initiatives, and reporting and disclosure considerations.

This guide covers the following:

  1. Understanding DEI
  2. The role of the board of directors
  3. Is DEI effective?

Related legal requirements and prohibitions at both federal and state levels are highlighted throughout the guide, to help organizations understand and navigate the increasingly complex legal landscape impacting DEI.

This How-to-guide can be read in conjunction with How-to guide: How to deliver workplace diversity training.

Section 1 - Understanding DEI

1.1 Overview

DEI has become a highly visible feature of mainstream political and social debates in the United States. Many employees, customers, and shareholders demand that organizations support diversity, equity, and inclusion, and put that support into practice by implementing concrete DEI measures. On the other hand, shareholders, elected officials, and commentators have engaged in pushback against any DEI efforts. Lawmakers have responded by enacting various laws relating to DEI, particularly at the state level. DEI is therefore increasingly also a legal and compliance issue.

Controversy around DEI is growing and the issue has become very politicized. This politicization has created considerable legal uncertainty and requirements that change rapidly. Regardless of the priority an organization places on DEI, it is vital to be aware of significant trends and developments.

1.2 Terminology

1.2.1 Diversity

Efforts by an organization that are focused on diversity aim to ensure that a broad array of identities, perspectives, skills, and styles are reflected in an organization’s workforce. This can mean diversity in terms of gender, age, race, ethnicity, physical, and cognitive abilities, or in terms of sexual orientation, religious affiliation or socioeconomic background.

1.2.2 Equity

Equity is focused on implementing and conveying policies, practices, systems and attitudes that ensure that all members of a workforce are fairly treated and given access to available opportunities. The goal is to ensure that everyone is treated in a way that avoids unfair advantages for some over others.

Equity does not mean the same thing as ‘equality’, which assumes that everyone should be treated in the same manner. While identical treatment may sound positive in theory, it can fail to take into consideration circumstances that can affect individuals’ opportunities and experiences. Equity therefore focuses instead on producing equal chances and results.

1.2.3 Inclusion

Fostering inclusion involves creating an environment that actively welcomes, connects, and values people of all backgrounds while harming none. It is a vital aspect of nurturing diversity, as hiring and retaining people with different backgrounds and perspectives will only succeed in the long run if those people feel respected, heard, and allowed opportunities to thrive.

1.3 Federal and state laws

There is an extensive set of federal and state laws that relate to DEI and provide the basis for the objectives found in DEI programs. While not exhaustive, the following list provides a brief synopsis of the laws relating to DEI.

1.4 Recent developments under the Trump Administration

The Trump administration has issued several executive orders that revamp federal policy on DEI and similar topics. These orders have upended the legal and compliance landscape for companies and organizations, particularly those that receive federal funding.

Some of the key executive orders are as follows:

  • Executive Order 14151, Ending Radical And Wasteful Government DEI Programs And Preferencing. This order, issued on January 20, 2025, directs the termination of all federal DEI programs, policies, and mandates. It requires federal agencies to eliminate DEI-related offices, positions, and initiatives and prohibits the use of DEI factors in federal employment practices. Higher education administrators, federal contractors, and others should be aware of its potential to affect federal funding, grant eligibility, and hiring policies related to DEI initiatives in programs that receive federal support.

    • A Fact Sheet issued by the White House claims that the order will enhance individual opportunity by removing DEI-based preferences in federal contracting, and combating private sector discrimination.

    • This order represents a significant retreat from DEI practices for organizations across the United States, affecting both federal contractors and private employers that maintain DEI policies.

  • Executive Order 14168, Defending Women From Gender Ideology Extremism And Restoring Biological Truth To The Federal Government. Issued on January 20, 2025, this order impacts language and categories on government forms and documents. It mandates that government-issued identification documents, including passports, visas, and Global Entry cards, must accurately reflect the holder's sex, as defined by the order. The Office of Personnel Management is also directed to ensure that personnel records for federal employees accurately report their sex.

  • Executive Order 14201, Keeping Men Out of Women’s Sports. This order, issued on February 5, 2025, makes it a federal policy that a person’s eligibility to participate in women's sports is based exclusively on their sex at birth. Institutions that receive federal funding must comply with the order to maintain their eligibility for support. 

Legal Action

These executive orders have been met with legal challenges. For instance, on February 21, 2025, the US District Court in Maryland issued a temporary injunction, blocking the enforcement of three key provisions of the orders. The court found that the following provisions of the orders were unconstitutional under the First and Fifth Amendments of the US Constitution:

  • the requirement that federal contractors and grantees certify that they do not operate ‘illegal’ DEI programs and comply with federal anti-discrimination laws for purposes of the False Claims Act (FCA);

  • a provision directing the Attorney General to target ‘illegal’ DEI programs in the private sector; and

  • the requirement that federal agencies terminate ‘equity-related grants or contracts.’

National Association of Diversity Officers in Higher Education v Trump, No 1:25-cv-00333 (D Md Feb 21, 2025). The preliminary injunction granting temporary relief from the three provisions was appealed to the Fourth Circuit Court of Appeals, with the Notice of Appeal being filed on February 24, 2025.

On March 14, 2025, the Fourth Circuit Court of Appeals granted the government's request to stay the preliminary injunction, see National Association of Diversity Officers in Higher Education, et al, v Donald J Trump, et al, No. 25-1189, Dkt 29 (4th Cir 2025). As a result, the executive orders are now fully in effect while the appeal proceeds on an expedited schedule.

Section 2 – The role of the board of directors

Boards of directors can play an important role in corporate actions relating to DEI. As further outlined below, board action may not always be optional.

2.1 Composition of the board

Applicable laws range from a requirement to disclose information regarding board diversity, to mandatory diversity quotas.

2.1.1 Federal requirements

NASDAQ diversity rule

The NASDAQ board diversity rule (NASDAQ rule 5605(f)) came into effect in December 2023, but has since been struck down (see below). It required all listed companies to disclose board-level diversity using a standard template. In addition, it required such companies to either have at least two ‘diverse directors’ or explain why they do not. 

Although the NASDAQ diversity rules are not a legal requirement for companies, they still provide useful guidance for companies interested in establishing their own voluntary DEI programs. However, note that even a voluntary DEI program may raise issues for companies interested in pursuing federal government contracts.

Under the NASDAQ rule, a director is considered ‘diverse’ if they self-identify as female, LGBTQ+, or as an underrepresented minority (defined as Black or African American, Hispanic or Latin, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or of two or more races or ethnicities).

The exact requirements, and their date of application, vary depending on board and company size, date of NASDAQ listing, as well as for so-called ‘foreign issuers.’ Companies with boards of more than five members can meet the diversity requirement with one director who is female and one who is an underrepresented minority or LGBTQ+. Those with boards of five or fewer directors satisfy the diversity objective with one diverse member.

So-called ‘smaller reporting companies’ can satisfy the rule with two female directors, or with one female director and one who is an underrepresented minority or LGBTQ+. Whether or not a company qualifies as a smaller reporting company is connected to its annual revenues as well as the amount of its public shares.

The requirements for so-called ‘foreign issuers’ also vary; they can meet the requirements with two female directors, or with one female director and one who is an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious, or linguistic identity in the country of the company’s principal executive offices, or LGBTQ+.

The Security and Exchange Commission (SEC) approved NASDAQ’s diversity rule in August 2021. This prompted a lawsuit by the Alliance for Fair Board Recruitment and the National Center for Public Policy Research. In October 2023, a panel of the US Court of Appeals for the Fifth Circuit upheld the SEC’s approval of the Nasdaq rule; however, the full Court reversed the panel and invalidated the SEC rule. See Alliance for Fair Board Recruitment v Securities and Exchange Commission, 125 F.4th 159 (5th Cir. 2024).

Recent developments under the Trump Administration

In light of President Trump’s Executive Order 14151 mentioned above, several organizations are changing how they interact with DEI in annual reporting. Reported in February 2025, Google is aligning with the Trump administration's efforts to reduce DEI initiatives, removing DEI mentions from its annual report and eliminating its goal of hiring from historically underrepresented backgrounds.

Alphabet, Google’s parent company, has omitted its DEI commitment from its annual report to the SEC. Additionally, Google announced it will no longer use hiring targets to enhance representation, according to The Wall Street Journal.

NBC News reported that Google recently updated its diversity website, changing a top executive's title from ‘Chief Diversity Officer’ to ‘VP, People Operations.’

Several major companies have reduced their DEI efforts, following the push to curb diversity initiatives in the private sector. Companies such as Meta, Amazon, Target, and Walmart have ended their DEI policies, though some large corporations have resisted, maintaining their initiatives.

2.1.2 State requirements

Several states have imposed requirements relating to board diversity. Some focus on disclosure, while others impose actual quotas.

Focus on disclosure

Since mid-2020, New York requires domestic corporations and those doing business in the state, to disclose in biennial statements, the number of directors on the board, and how many of them are women.

Illinois has required public corporations domiciled in the state to report diversity-related information to the Secretary of State since late 2019. They must indicate board makeup based on gender and race or ethnicity, and disclose how they go about, via their policies and practices, identifying and appointing board members. The University of Illinois analyzes and reports on the results (see School of Labor and Employment Relations, Illinois Corporate Board Diversity Report).

Beyond disclosure

Maryland has required for several years certain businesses and non-profit organizations to disclose the number of women on their boards as part of an annually required tax form. Since mid-2022, it also requires certain business entities to show that their board or executive leadership includes underrepresented communities, or that their mission supports such communities, in order to qualify for state grants, state tax credits, or state contracts of or above $1 million per year. This is estimated to affect over 400,000 businesses. See Corporate Diversity – Board, Executive Leadership, and Mission.

California is generally considered to be the most aggressive state in terms of pushing board diversity. It has mandated gender, racial, and ethnic diversity on the boards of public companies headquartered in the state since 2018. Senate Bill 826 (codified in California Corporations Code section 301.3) requires at least:

  • one female director on California corporate boards with four or fewer directors;
  • two female directors on boards with five directors; and
  • at least three female directors on boards with six or more directors.

California Corporations Code section 301.4 requires certain companies headquartered in the state to include a minimum number of directors from ‘underrepresented communities’, or be subject to fines.

These laws have been challenged in both state and federal courts. In April 2022, a state court concluded that the requirement regarding underrepresented communities (AB 797) violates the equal protection clause of California’s Constitution (Crest v Padilla, Los Angeles Cty Superior Court Case No. 20STCV37513 (June 2, 2022)). Another state court had already held that, with respect to SB 826, the state failed to establish the necessity of using gender-based classifications to achieve the law’s purported goals (Crest v Padilla, Los Angeles Cty Superior Court Case No. 19STCV27561 (May 13, 2022)). In May 2023, a California-based federal court ruled that AB 797 violates federal law and the US Constitution (Alliance for Fair Board Recruitment v Weber, 2:21-cv-01951 (ED Cal May 15, 2023)). Appeals are pending in all cases.

Meanwhile,Washington requires, since the beginning of 2022, boards of certain public companies to be made up of at least 25 percent women. If the requirement is not met, the company must explain why and must disclose the methods taken to address the lack of gender diversity.

2.2 Oversight

Boards can also foster DEI by overseeing their organization’s related efforts and initiatives. This can be carried out in a number of ways and to varying degrees.

Implementing a system where the full board owns DEI oversight and regularly discusses the issue is generally considered best practice. An alternative option is to set up board level committees tasked with promoting progress on DEI. In some cases, this is done by existing committees with broader mandates - such as those dealing with environmental, social, and governance (ESG) matters. Other boards create separate committees with agendas focused more specifically on DEI.

Oversight can also be practiced by integrating DEI issues into compensation committees. This can yield very practically relevant results. For example, some boards choose to link senior managers’ compensation to progress made on specific diversity goals. Compensation committees can also contribute to DEI efforts by obtaining relevant compensation data and using that data for an assessment of company-wide progress on DEI and developing related goals.

2.3 DEI reporting and disclosures

Boards can play an important role in DEI through their decisions regarding disclosures. While some level of reporting may be legally required, some boards opt to bolster DEI efforts by going beyond mandatory disclosure.

2.3.1 Legally required reporting

Federal level

Federal law requires DEI-related reporting annually for private companies with 100 or more employees (as well as select federal contractors). Companies required to file Equal Employment Opportunity Reports (EEO reports) on employee diversity with the federal Equal Employment Opportunity Commission (EEOC) must indicate the number of individuals they employ by job category and by sex and race or ethnicity. (For more information, see the EEOC’s related instruction booklet).

Covered entities must submit data electronically by December of the following year (so, for 2022, the filing deadline is December 2023). The EEOC collects the data and uses it for various purposes, including enforcement, self-assessment by employers, and research (see EEOC, EEO Data Collections). It also shares the data with other federal agencies. Companies are not required to publicly disclose the reports, and the data provided is confidential. However, the EEOC does publish aggregated data.

State level

Some states impose similar reporting obligations on employers. Examples include California and Illinois.

California began requiring certain private employers with 100 or more employees to submit annual ‘pay data reports’ to the state’s Civil Rights Department in 2020. Since 2023, that duty has been expanded. Covered entities must file reports that include the number of employees by race, ethnicity, and sex in one of 10 specific job categories (ranging from ‘executive or senior level officials and managers’ to ‘technicians’ and ‘service workers’). Within each job category, the reports must also indicate the median and mean hourly rate for each combination of race, ethnicity, and sex. Since 2023, civil penalties can be imposed on employers who do not comply with these requirements. The data must be reported for both employees hired directly by the employer as well as certain employees hired via labor contractors.

In Illinois, certain private businesses with 100 or more employees are required, since early 2024, to obtain an Equal Pay Registration Certificate and recertify every two years thereafter. To receive such a certificate, they must provide certain pay, demographic, and other data to the Illinois Department of Labor, as well as a statement certifying that their business complies with state and federal laws related to equal pay. Specifically, companies must list all employees during the preceding calendar year, separated by gender and the race and ethnicity categories as reported in their most recent EEO report.

Meanwhile, New York introduced a bill (see Senate Bill 636) that would have required those companies already obliged to file EEO reports with the EEOC to also file that form with New York’s Secretary of State, which would then publish the EEO report on its website. However, the bill was vetoed in late 2023.

2.3.2 Voluntary reporting

Some organizations choose to disclose DEI-related information even where this is not mandated by law. Voluntary DEI reporting is on the rise. For example, the 2023 survey Corporate Diversity Data: What Fortune 500 DEI Reports Reveal, notes that, among Fortune 500 companies, 154 proactively published DEI reports in 2023, compared to 79 reports in 2022. The survey notes an emphasis on reporting on women in corporate governance and top management.

However, according to a subsequent survey, only 36 Fortune 500 companies published a standalone DEI report in 2024. A number of companies that ceased publishing a DEI report did, nonetheless, publish similar data elsewhere, such as part of sustainability reports.  The survey found that in 2024 approximately 60% of Fortune 500 companies published diverse workforce statistics in some form.

Leaders at large organizations considering stepping up their DEI-related reporting and other activity may be interested in resources published by the DEI Board, a membership organization.

Section 3 – Is DEI effective?

A DEI framework is an organization’s overall strategy for guiding DEI efforts and reaching goals. There is no one-size-fits-all DEI framework that can be applied by all organizations. The framework should be developed with corporate goals in mind – why does the organization want a DEI program? Given the increasing politicization of DEI efforts, it is also vital to keep in mind possible legal challenges to these efforts. It is also prudent to consider adjusting DEI frameworks and efforts to stave off such legal challenges.

3.1 Key elements of a DEI framework

3.1.1 Embedded in corporate culture

DEI efforts will produce results only if they are embedded in an organization’s culture. Embedding requires the organization’s leadership to both clearly communicate and demonstrate support for DEI, whether it is the board or the management team. It also means including DEI in the organization’s guiding concepts, either through vision statements, core values, or employee handbooks. DEI goals should also be reflected in HR policies on recruiting, onboarding, and retaining employees (further discussed below).

3.1.2 Consistent communication

Clear communication with stakeholders as well as employees is key. It is also vital to communicate consistently, for both internal policy communications (such as emails, or memos), and for communications directed towards external audiences, such as marketing or branding materials. Key elements for communications are: 

  • always using inclusive language;
  • communicating why DEI efforts are important as well providing details of what they are; and
  • encouraging employees and other stakeholders to contribute to DEI efforts and offer them relevant resources. These can include newsletters on the topic or different types of training (discussed further below, at section 3.1.4).

3.1.3 Allyship

Allyship refers to mindsets, behavior and actions by individuals who are not themselves part of marginalized groups to support those who are. DEI efforts will not bring sustainable change if individuals not directly affected by discrimination or exclusion do not contribute. This can take various forms, such as speaking up on behalf of colleagues who face discrimination or are simply not being heard, or making sure to mentor or assign visible projects to colleagues with different backgrounds. It is less about one-time performative measures, however, and more about encouraging awareness and thoughtfulness in a broad range of contexts.

3.1.4 Training

One very practical way to ensure an effective DEI framework is to encourage a wide application of DEI principles by offering internal training. DEI training aims to strengthen awareness of diversity issues in workplace settings and, ultimately, to help employees to work more collaboratively and productively with people from diverse groups.

DEI training has triggered both controversy and backlash. This has created a complicated and occasionally contradictory legal landscape. For example, some state laws require such training in select industries, such as New York, which requires real estate brokers and salespersons to receive implicit bias training as part of their license-renewal process. Meanwhile, other states, such as Florida, have tried to restrict the content of mandatory diversity training conducted by businesses; that effort, however, was deemed unconstitutional by a federal appellate court in March 2024. For more information, see How-to guide: How to deliver workplace diversity training (USA).

3.2 Legal uncertainty surrounding DEI frameworks

An organization’s DEI framework will only be effective if DEI principles are applied across a wide range of areas, from recruiting to branding. In light of recent legal developments, it is important to find approaches that further DEI goals without making the organization vulnerable to charges of discrimination by individuals who are not the direct beneficiaries of DEI measures.

The legal uncertainty around DEI, and the backlash against such programs, does not mean that employers no longer need to be concerned about employment discrimination. The statutory framework concerning employment discrimination remains in place and remains enforceable by private parties and by state authorities.

In the short-term legal uncertainty will likely persist. Organizations may choose to wait for more clarity before either introducing or amending specific DEI programs or frameworks, depending on how important these are to their employees, customers, and other stakeholders.

If an organization does decide to proactively review its DEI efforts, and its priority is to avoid legal challenges to such efforts, it is advisable to carefully (re-)craft criteria used in hiring and promotion decisions. Also, consider documenting decisions to avoid accusations of discrimination.

When articulating hiring and promotion criteria, focus on race- and gender-neutral goals, measurable criteria, as well as legitimate business reasons. Emphasize relevant experiences over simple categorization. The amended criteria now used for Perkins Coie’s and Morrison Foerster’s fellowship programs can serve as helpful guidance.

3.3 Business case for DEI

Some organizations opt to view the success of their DEI programs primarily through the profitability lens. However, the evidence as to the strength of the ‘business case’ for DEI is mixed.

Some studies maintain that DEI efforts boost profits. For example, McKinsey’s 2023 report Diversity matters even more: the case for holistic impact concluded that companies with diverse executive teams, whether in terms of gender or ethnicity/culture, were more profitable than those with less diverse teams. The conclusions were based on data from more than 1,200 companies in 23 countries.

Others disagree. For example, a 2017 review of academic research on the relationship between board gender diversity and company performance found that companies perform neither better nor worse when they have women on their boards (see Wharton School of the University of Pennsylvania, Does Gender Diversity on Boards Really Boost Company Performance?).

3.4 Metrics for measuring DEI efforts’ broader gains

While profitability provides a tangible basis for gauging the success of efforts to promote diversity, equity, and conclusion, the ultimate goals are far broader. This does not mean that the success of such efforts cannot be measured. Considering the angles outlined below can provide helpful bases for evaluating progress made.

3.4.1 Employment pipeline

Instead of focusing only on how diverse the organization’s current workforce is, it is important to think about, and evaluate, the steps that lead to job acceptances. Track, for example, how many diverse candidates apply, are interviewed, get offers and ultimately accept those offers.

3.4.2 Attrition

Hiring a diverse workforce is obviously crucial, but an even more revealing inquiry is to what extent employees with underrepresented backgrounds are staying. It can also be useful to see whether individuals are choosing to leave or whether they are being laid off, and to examine the reasons for such developments.

3.4.3 Performance

Track whether employees of different backgrounds are equally distributed in terms of receiving both high and low ratings. If not, this could be a sign of bias. Low ratings, for example, may indicate bias in reviews as well as with respect to opportunities provided within the organization.

3.4.4 Promotions

Assessing promotions by pay grade, race, and gender, as well as checking for balance between different demographic groups, can yield important insights. If promotion rates across gender and racial lines are fairly balanced, this is a good sign that bias is likely not an impediment to promotions. It is important for balance to exist at all levels of the corporate hierarchy. An assessment of promotions should look at job mobility at both entry/junior levels, as well as at senior levels. 

3.4.5 Leadership pipeline

The ‘leadership pipeline’ is about thinking beyond immediate promotions and embracing long-term perspectives for the leadership of the company. The pipeline should reflect the organization’s diversity objectives. For example, if the aim is to ultimately have more women in leadership, more women will need to be included in this group.

3.4.6 Pay equity

‘Pay equity’ refers to the same pay for the same work. Being transparent about this topic can provide a strong boost to credibility. To determine whether the organization offers such equity, consider the starting salaries it offers as well as the policies that determine pay rises. A common error is to base pay on tenure rather than on performance or competence, as this can benefit employees who may enjoy advantages based on past hiring decisions.

Do not confuse ‘pay equity’ with ‘pay gap’. The latter largely has to do with broader factors that affect access to labor markets and is typically a topic more relevant for policymakers than for HR departments or individual companies.

Additional resources

Elma S Groenewald, Inclusive Workplaces: The Key Strategies for Sustainable Diversity Practices
Harvard Business Review, The Five Stages of DEI Maturity

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