On Jan. 20, the day President Donald Trump took office for the second time, he issued an executive order aimed at quashing diversity, equity, inclusion, and accessibility programs in the federal workforce. The very next day he doubled down, issuing an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” revoking Executive Order 11246, a landmark directive signed by President Lyndon B. Johnson in 1965. The second Trump order not only ends DEI practices in the federal government, it specifically affects federal employers, agencies, contractors, and subcontractors.
In the days since Trump’s flurry of orders, administration personnel have already begun terminating federal employees whose work responsibilities included administering DEI programming.
The second order “[encourages] the private sector to end” what it describes as “illegal DEI discrimination and preferences,” asserting that these policies “violate the text and spirit of our longstanding Federal civil-rights laws.
“Hardworking Americans who deserve a shot at the American Dream should not be stigmatized, demeaned, or shut out of opportunities because of their race or sex,” the Jan. 21 order states.
Experts who counsel businesses on DEI policies said that while the administration lacks the legal authority to mandate that private companies eliminate DEI programs, the order’s wording suggests the possibility of legal action, effectively pressuring them to reconsider their policies.
“The revocation of Executive Order 11246 represents a fundamental shift in federal policy on employment discrimination and diversity programs,” said David Goldstein, a shareholder with the law firm Littler Mendelson, which has Wisconsin offices in Madison and Milwaukee. “The immediate cessation of DEI initiatives in federal contracting signals a broader strategy to dismantle affirmative action at multiple levels.”
Attempts by the Trump administration and policymakers to erase DEI is unlikely to stop at government agencies and contractors, local experts said. And the more that private businesses acquiesce and remove DEI from their operations to align with the shift in federal policies, the more those businesses will suffer from missing out on a full talent pool.
The nuts and bolts of Trump’s actions
Johnson’s Executive Order 11246 was a pivotal mandate in the history of civil rights in the United States. It aimed to eliminate discrimination in employment by federal contractors and subcontractors, prohibiting discrimination based on race, color, religion, sex, or national origin and it required contractors to enact affirmative action policies to ensure equal opportunity.
Over the years, its scope expanded. In 2014, President Barack Obama amended the order to include protections against discrimination based on sexual orientation and gender identity.
In revoking Executive Order 11246, the Trump administration directed the attorney general to “submit a report … containing recommendations for enforcing federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI” within 120 days of the order’s announcement. The Office of Management and Budget, which oversees federal agency performance, is expected to play a role in implementing these directives, along with department leaders.
Federal agencies have been directed to identify as many as nine potential civil compliance investigations targeting major organizations, including publicly traded companies, large nonprofit entities, foundations with assets exceeding $500 million, state and local bar and medical associations, and universities with endowments over $1 billion.
Agencies also must designate “key sectors of concern” and highlight “the most egregious and discriminatory DEI practitioners” within their jurisdictions. Each agency is expected to devise “a plan of specific steps or measures to deter DEI programs or principles.”
The potential for legal battles over DEI policies puts private businesses on edge. Several major corporations — including Amazon, Meta, McDonald’s, Walmart, and Ford — announced ahead of Trump’s inauguration that they were reassessing, scaling back, or discontinuing aspects of their DEI initiatives.
Not all companies are retreating. Some, such as Goldman Sachs, Costco, and JPMorgan Chase, have reaffirmed their DEI commitments. Their executives have voiced support for workplace diversity initiatives, even as anti-DEI activist shareholders push for rollbacks.
What DEI research shows
Numerous studies have shown that companies with strong DEI initiatives outperform their less diverse counterparts across financial, operational, and cultural metrics.
Independent DEI consultant Kate Hardiman recently highlighted in a LinkedIn blog post the body of research supporting the business case for DEI.
An analysis from McKinsey & Company found that companies with more diverse leadership teams perform better financially — those in the top quartile for gender diversity were 25% more likely to achieve above-average profitability, while ethnically diverse leadership teams saw an even greater edge at 36%.
Beyond financial performance, a diverse workforce fosters innovation and market expansion. A Boston Consulting Group (BCG) study reported that companies with above-average diversity generated 19% higher innovation revenues, while Harvard Business Review found that organizations with more diverse management earned 38% more of their revenue from new products and services. Additionally, the Center for Talent Innovation noted that diverse teams are 45% more likely to expand their market share.
The benefits extend to decision-making and operational efficiency. Research by Cloverpop demonstrated that diverse teams made superior decisions 87% of the time, often with fewer meetings and less time spent deliberating. Employee engagement and retention also improve with DEI strategies — McKinsey found that companies prioritizing inclusion have lower turnover, while a Deloitte survey revealed that 83% of millennials feel more engaged when they see their employer committing to diversity. This is particularly relevant as millennials and Gen Z increasingly dominate the workforce.
DEI also plays a crucial role in brand reputation and consumer loyalty. Glassdoor research indicates that 76% of job seekers consider workforce diversity a key factor when evaluating potential employers. On the consumer side, PwC found that 75% of customers prefer to support brands that actively demonstrate a commitment to inclusion.
The case for DEI
Amid the ongoing debate, industry leaders emphasize that much of the criticism of DEI initiatives is not only misleading but inaccurate.
“When we talk about DEI, we’re talking about more than just a set of policies or a feel-good phrase,” said Deborah Biddle, founder and chief consultant of The People Company Consulting Group, based in Madison. “We’re talking about the core of an organization — the very fabric of a workplace that mirrors the society in which we live. DEI involves creating environments where everyone — regardless of race, gender, background, or identity — has the chance to bring their full selves to and reach their full potential in the workplace.”
Diverse, equitable, and inclusive workplaces drive innovation, employee retention, and profitability, agreed ananda de oliviera mirilli, co-director of the nINA Collective, a Madison consulting group. If organizations retreat from DEI, they risk eroding hard-won progress and jeopardizing their own success.
“Public and private organizations that want to continue attracting and retaining top talent — and remain relevant — cannot afford to step backward. Consumers and employees are watching — businesses that fail to uphold their stated values risk losing trust and long-term market relevance,” mirilli said in an email. “In a rapidly evolving world, companies that deprioritize equity and belonging will struggle to compete — not just in profits but in building the workforce of the future.”
Their colleagues at the nINA Collective — co-directors Jacquelyn Boggess, Alia Stevenson, Jordan Bingham, and Colleen Butler — spelled out what happens when DEI policies get rolled back: “The consequences are immediate and measurable: decreased engagement, higher turnover, loss of top talent, and weakened public trust. When employees — especially those from historically and institutionally excluded groups — see that belonging, accessibility, and human dignity are no longer priorities, they leave.
“Businesses stagnate when diverse perspectives are silenced, and we miss out on an unfathomable amount of innovation and leadership across all industries.”
Legal and ethical risks also loom large, according to Biddle. DEI policies help create fair workplaces and protect businesses from lawsuits. Without DEI initiatives — whether pay audits, diverse recruitment, or equitable promotion practices — companies open themselves up to discrimination claims, she said. Businesses risk legal exposure from employees who feel marginalized or unfairly treated. “The lawsuits will follow, and they won’t be pretty.
“The current administration’s executive orders aimed at eliminating DEI programs are not just an ideological statement; they pose a direct threat to workplace fairness and accountability,” Biddle added. “DEI programs often serve as safeguards against bias, promoting transparency and ensuring that companies do not merely discuss fairness — they actively implement it. Without these protections, businesses risk perpetuating inequities, whether visible or not.”
The meritocracy fallacy
Opponents of DEI often claim that such initiatives undermine meritocracy. They say policies aimed at promoting diversity can result in more qualified workers being passed over for hires or promotions because they don’t “check a box.” Instead, employees should be judged strictly on merit.
But proponents argue DEI efforts are designed to ensure true merit-based opportunity by addressing systemic barriers that have historically favored certain groups. The status quo has long benefited white individuals — particularly white men — in hiring and education, for example, often in ways unrelated to merit.
A 2019 study by the National Bureau of Economic Research examined Harvard University’s admissions records and found that among white students admitted, over 43% received preferential treatment due to legacy status, athletic recruitment, or being children of faculty and staff. Researchers concluded these students would not have been accepted based on academic merit alone.
In the corporate world, similar disparities exist, often in the form of informal networks, unconscious bias, and structural advantages that disproportionately benefit certain demographics. DEI initiatives seek to level the playing field, Biddle said, ensuring all candidates have equitable access to opportunities based on their skills, qualifications, and potential.
“DEI aims to create an environment where true merit leads to success — not privilege, not bias — and that it is not influenced by your last name or zip code,” Biddle said. “When we talk about DEI, we’re talking about a space where every person, regardless of race, gender, or background, has an opportunity to contribute and advance. For far too long, too many have been excluded simply because of where they were born, what they look like, or whom they choose to love. DEI is about keeping the door open for everyone with the talent, the grit, and the desire to walk through it.”
These policies are not designed to take opportunities away from anyone, Biddle added, or lower standards.
“It’s about raising the standards for everyone. … You want the best talent. You want people who bring fresh perspectives, unique ideas, and innovation. You want people who haven’t had the same access, but who have the drive, skills, and vision to improve your workplace.”
“Let’s be clear: Merit has never been an objective standard,” mirilli stated. “Every hiring, promotion, and leadership decision is shaped by subjective judgment — often influenced by individual and systemic bias. DEI doesn’t replace merit; it ensures that talent isn’t overlooked due to bias or other barriers.”
Legal questions for federal contractors
Since the requirements for government contractors and subcontractors under Executive Order 11246 are contractual, there are significant questions about how its revocation will be carried out.
Government contractors undergoing compliance reviews should consult with their legal counsel as to how to proceed. The same is true for contractors subject to conciliation agreements with the Office of Federal Contract Compliance Programs (OFCCP), a U.S. Department of Labor agency that ensures federal contractors and subcontractors comply with nondiscrimination laws.
“Contractors under audit may want to hold off on responding to information requests pending further guidance from OFCCP or advice from legal counsel,” Goldstein said. “The order does provide that contractors that wish to continue to comply with the current regulations may, at a minimum, do so for 90 days from the date of the order.”
He added that Section 503 of the Rehabilitation Act of 1973 (protecting the disabled) and the Vietnam Era Veterans’ Readjustment Act of 1974 (VEVRAA) (protecting certain veterans) and OFCCP’s enforcement of these laws do not appear to be affected by the new executive order.
Attorneys Michael Schrier and Tracey O’Brien from Husch Blackwell said the new order extends beyond federal contracting to federal grants. It requires agencies to certify their compliance with federal anti-discrimination laws and declare that they do not operate DEI programs that violate those laws. As Schrier and O’Brien point out, this provision lays the groundwork for potential enforcement actions under the False Claims Act (FCA).
The FCA is a federal law that imposes liability on individuals and companies that defraud governmental programs. Under the new executive order, if a contractor falsely certifies compliance with federal anti-discrimination laws or misrepresents the legality of their DEI programs, they could face FCA enforcement actions. Penalties under the FCA can include substantial fines and damages.
“Federal contractors will need to be extremely cautious in how they frame their DEI initiatives moving forward,” the Husch Blackwell attorneys said. “The combination of certification requirements and potential False Claims Act liabilities adds a new layer of legal risk that cannot be ignored.”
‘A chilling effect’
While repealing Executive Order 11246 directly affects federal contractors, its influence may extend to the broader private sector, and businesses may find themselves reevaluating their DEI initiatives to comply.
This reassessment could lead to scaling back certain programs or shifting toward broader, legally sound inclusion efforts. At the same time, the executive order directs the U.S. attorney general to identify and investigate what it deems “illegal” DEI practices in major publicly traded companies, nonprofit organizations, and higher education institutions.
While Trump’s order may not be strictly enforceable on private businesses, attorneys Lori Rubin Garber, Lauren P. Carboni, and Byron J. McLain with Foley & Lardner LLP noted in a legal analysis of the new executive order that the administration “could be counting on a chilling effect, with the potential costs of investigations, enforcement action, and litigation outweighing companies’ willingness to go to battle for their DEI programs in court.”
