In the wake of DOJ settlement, corporate America faces test of leadership on DEI
Diversity, Culture & Belonging? Talent, Inclusion & Opportunity? Fair Opportunity?
Across the U.S., companies are experimenting with creative alternatives to the now‑loaded “Diversity, Equity and Inclusion” or “DEI” label.
The rebranding isn’t superficial, either. It’s happening against the backdrop of the federal government’s campaign against what it calls “illegal DEI,” most recently highlighted by IBM’s roughly US$17 million settlement over alleged violations tied to its federal contracts.
According to the settlement, the Justice Department alleged that IBM “knowingly” made false statements to the government about its hiring and employment practices in federal contracts, including by tying executive incentive pay to specific diversity targets and operating development programs that in practice favored certain protected groups while the company was certifying equal opportunity. The agreement specifies that the resolution is “neither an admission of liability by IBM nor a concession by the United States that its claims are not well founded.”
Read more: IBM to pay $17 million to settle
HR executives advising boards and senior management on DEI programs in this politically charged climate have had to undertake a delicate dance of avoiding legal scrutiny and protecting existing diversity and inclusion efforts.
IBM’s wake‑up call for HR leaders
News of the settlement has also increased the risk that organizations will opt for the path of least resistance and hollow out or abandon the work altogether for fear of legal and financial repercussions.
That’s according to David Glasgow, founding executive director of the Meltzer Center for Diversity, Inclusion, and Belonging at NYU School of Law and an adjunct professor there, who calls the IBM case “definitely significant” because it is the first settlement to come out of the Justice Department’s new False Claims Act investigations into DEI, and because it reaches back to conduct as far back as 2019. That means contractors who believed they were in the clear after they “cleaned up” their programs in response to the Trump administration’s crackdown on DEI practices may still be asked to answer for their earlier actions.
Glasgow also explained that although exposure to the False Claims Act is limited to federal contractors, private employers aren’t off the hook. He pointed to a growing wave of Equal Employment Opportunity Commission (EEOC) investigations into DEI practices at major brands, including Nike, a Coca‑Cola distributor, and Planned Parenthood, based on alleged violations of Title VII of the Civil Rights Act of 1964.
In his view, every large employer, not just contractors, should be reviewing DEI policies and programs just as carefully, because “they're going after different organizations that have nothing to do with the False Claims Act, but they're just alleging violations of federal anti-discrimination law.”
Read more: EEOC chair signals 'attack' to DEI employment rights
Robert Raben, founder and president of public policy firm The Raben Group and a former U.S. assistant attorney general, sees the IBM settlement less as a shift in the law and more as a test of corporate leadership.
“It really is about leadership of the companies, at this point,” he said. "People are paying attention."
Practically speaking, this raises an important question: which programs actually create legal exposure, and which should be defended and improved rather than dropped?
The ‘three Ps’ test for DEI
Glasgow’s answer is a simple framework he calls the “three Ps.” He advises employers to look at every DEI initiative and ask whether it:
- has “a Preference, meaning it treats some groups differently from other groups”
- includes a preference “for a Protected group,” such as race, color, national origin, sex, religion, sexual orientation or gender identity
- involves “a Palpable benefit,” where a tangible advantage is given to some or withheld from others
Programs that hit all three Ps are the ones most likely to attract attention from regulators or plaintiffs, he said.
“For example, let's say you have an internship program or a scholarship or a grant or a fellowship and you exclusively reserve that for members of specific groups,” Glasgow said. “Those would hit those three Ps and would be legally risky.”
Instead, Glasgow suggests opening cohort‑based offerings to anyone who is committed to the content of the program. A women‑only internship, for instance, could be open to any employee “who has a demonstrated commitment to advancing gender equity in your industry,” keeping the gender‑equity focus while avoiding a hard exclusion based on sex.
Redesign, don’t retreat
For Raben, the worst outcome would be for employers to panic and walk away from diversity efforts that are both lawful and commercially sound. He urges HR teams to push back if they are only hearing “risk avoidance” from outside legal counsel.
“I think the vast majority of decision makers in corporate America know that diverse marketing, that culturally competent hiring, that having salespeople who can speak multiple languages… they're all sold on diversity and inclusion as a business proposition,” he said.
Glasgow agrees, calling it “a huge mistake” to assume the safest option is to scrap DEI programs. If employers allow more biased, hostile or unequal conditions to develop, he says, “you've just increased your risk of getting sued by members of those groups.”
So, is DEI really dead in American workplaces?
Glasgow doesn’t think so.
“I think the acronym is dying,” he said. “But I don't think the actual work of trying to create fair systems in the workplace, trying to create welcoming cultures where people feel included and feel able to do their best work, trying to ensure that you are recruiting from a diverse talent pool… I don't think that is dying.”
On a fundamental level, Glasgow advises thinking about how to remove bias from systems to create a fair and level playing field rather than using techniques that give bumps or preferences to people from specific groups.
“It's a balancing act,” he said. “It's not something that you can just say, ‘oh, we can reduce our risk just by getting rid of all of this.’”
