DEI backlash hits corporate America

• "2023 has undeniably shifted the DEI landscape for years to come," write the authors of a report out Monday from DEI consulting firm Paradigm.
• "External forces are no longer pushing companies to invest in DEI; instead, in some cases, external forces are pushing back on companies' investment in DEI."

Catch up fast: In June the Supreme Court struck down affirmative action in colleges — ruling that schools can't explicitly consider race in the admissions process.

• Since then, the group that brought that case — American Alliance for Equal Rights — sued two law firms, challenging minority fellowships that were open only to students of color, those who identify as LGBTQ+, or those who have disabilities.
• The Alliance argued the fellowships discriminated against other groups — like white people, straight people, or those who do not have disabilities.
• The group also sued a venture capital fund, the Fearless Fund, for investing solely in Black women. (The case is working its way through the courts.)

In response, this fall, the law firms revised the programs, broadening their criteria to all law students at a certain stage of school. The suits were dropped.

• Another major law firm — which had not been sued — proactively changed its fellowship.
• The fellowships were meant to bring more minority law students into firms’ hiring pipelines, as Big Law is among the least diverse professions.

Meanwhile: In a letter this summer, 13 Republican state attorneys general urged Fortune 100 companies to take another look at their DEI programs in the wake of the court's decision.

• The letter takes aim at "explicit racial quotas in hiring, recruiting retention, promotion and advancement."

Between the lines: The lawsuits and letters "will have significant downstream consequences for DEI for years to come," per the Paradigm report.

• Paradigm also says that companies have de-prioritized DEI as the hiring frenzy of the past few years has slowed.

Zoom out: The DEI backlash comes on the heels of another related acronym freakout, over corporate ESG.

• Both terms have become increasingly politicized and weaponized.
• But corporate DEI is essentially the practice of making sure employers are treating workers fairly, said Joelle Emerson, Paradigm CEO. It's about "fair outcomes" in hiring and promotion, she said. Its meaning gets twisted in the discourse, she added.

Zoom in: For its report, Paradigm looked at anonymized data from 148 clients — about a third were in tech, and about a quarter were large firms with 1,000-10,000 employees. The firm also relied on insights and conversations with other clients.

• Those in the study were motivated companies already working with a DEI consultant, but the report was a mixed bag. Companies cut spending on DEI budgets from the previous year, and fewer firms had a DEI strategy.
• On the flip side, more firms had hired a senior DEI leader — and about 40% of firms track race/ethnicity representation.

Reality check: A backlash is rising, possibly because the DEI efforts made in 2020 had a real impact.

• 94% of the headcount increase at large firms in 2021, from the previous year, stemmed from hiring people of color, according to a Bloomberg analysis of 88 S&P 100 firms.
• Many companies, for their part, still say they're committed to diversity, equity and inclusion.