Former Goldman Sachs CEO says DEI programs are ‘counterproductive,’ arguing ‘you’re branding the people in that program’

The 2023 Supreme Court ruling on affirmative action and a subsequent Trump executive order have prompted a pullback in corporate DEI programs; Goldman Sachs in 2025 removed its two-diverse-board IPO requirement, dropped “racial equity”/“gender equality” language and let five-year representation goals expire. Retail and consumer names (Target, Walmart, Pepsi) have scaled back DEI while Apple, Costco, Delta and Cisco have maintained or reinforced programs — Costco saw >98% of shareholders vote against a conservative anti-DEI proposal. Expect modest idiosyncratic governance and reputational risk for affected companies and heightened legal/regulatory uncertainty, but limited near-term market-moving impact.

Analysis

The corporate pivot away from visible DEI programming is creating an uneven competitive landscape: companies that publicly maintain inclusion commitments (Costco, Apple, Cisco) are effectively de-risking consumer and employee activism while peers who retreat (Target, to a lesser extent Walmart and Pepsi) concentrate reputational risk. Second-order: recruiting friction is the immediate hidden cost—firms that scale back targeted recruitment widen their labor funnel but raise short-term churn among mid-career diverse hires, which can lift recruiting and training expense by an incremental ~0.5–2% of payroll over 12–24 months. For investment banks, relaxed external-DEI constraints reduce headline risk for some IPO clients but transfer political and limited-partner scrutiny to underwriters, which can compress mandate share for incumbents and open market share to boutiques focused on brand-conscious issuers.

Key catalysts and time horizons: retail revenue sensitivity to boycotts and brand activism plays out over weeks-to-quarters (watch monthly comps and social-volume indicators), while talent- and governance-related earnings impacts show up over quarters-to-years through higher attrition, slower deal execution, or higher compensation. Reversal risks include new litigation or state/federal legislation reinstating affirmative-action-like obligations, an election-driven regulatory swing, or a high-profile consumer backlash that forces policy reversals; any of these can revalue relative multiples within 3–18 months. Monitor shareholder votes, recruiting KPIs, and IPO pipeline composition as near-term signals.

Consensus underestimates the optionality of a bifurcated market: companies that keep visible DEI programs buy optional exposure to premium retail pricing and lower churn, while retreaters are effectively buying cost savings but inheriting reputational beta. That split suggests pair trades rather than unilateral directional bets—owning “institutionalized inclusion” franchises vs shorting high-visibility retreaters captures both consumer and labor-market tails with asymmetric payoff if activism flares or regulatory winds shift back toward enforcement within 6–24 months.

Key Decisions for Investors

• Long COST (2% portfolio, buy shares or Jan-2027 LEAP calls) — Rationale: strong shareholder defense of DEI reduces boycott tail and supports pricing power. Target +25–35% in 12–24 months; stop -10% absolute or trim on any QoQ comp weakness. Risk: broader retail slowdown that hits warehouse model.
• Pair trade: Short TGT / Long AAPL or COST (equal notional, hold 3–9 months) — Rationale: Target’s brand/protest exposure vs Apple/Costco’s durable consumer goodwill and talent pull. Aim to capture a 20–40% relative move; keep size to 1–2% net market exposure and use a 6% volatility-based stop.
• Buy GS 3–6 month put spread (hedged tail exposure rather than naked short) — Rationale: governance and talent-friction risk could compress fees on M&A/ECM in a politicized deal environment. Structure: buy 3–6 month 2–4% OTM puts, sell deeper OTM puts to fund cost. Upside risk if deal flow accelerates; cap loss accordingly.
• Long CSCO (1–2% portfolio or Jan-2026 calls) — Rationale: pragmatic DEI execution (diverse hiring panels, degree-flexibility) reduces hiring friction for engineering roles and limits wage inflation versus peers. Target +15–25% in 6–12 months; primary risk is tech capex pullback that pressures enterprise spend.