How Trump's Policies Set Back Corporate DEI Progress—and What Investors Need to Know Now

The rise of diversity, equity, and inclusion (DEI) initiatives in corporate America over the past decade has been driven by a mix of moral imperative, consumer demand, and legal compliance. But during Donald Trump’s presidency, these efforts faced unprecedented headwinds. Through a series of executive orders and policy shifts, the Trump administration framed DEI as “divisive” and “anti-merit,” creating a regulatory and cultural backlash that reshaped corporate strategies—and investor risks.

The Policy Hammer: Executive Orders and Their Impact

At the heart of the Trump administration’s push was Executive Order 13950 (2020), which banned federal contractors and agencies from using training materials that acknowledged systemic racism or implicit bias. The order, dubbed “Combating Race and Sex Stereotyping,” threatened legal action against entities promoting such concepts.

The immediate effect was stark: federal contractors, including major defense firms like Boeing (BA) and Lockheed Martin (LMT), scaled back or canceled diversity training programs. A 2020 survey by the Society for Human Resource Management found that 40% of organizations with federal contracts reduced DEI spending to avoid violating the order. Even non-contractors hesitated, fearing reputational or legal fallout.

The travel ban (EO 13769) and the rollback of affirmative action guidelines further compounded the damage. By restricting immigration from predominantly Muslim countries and pressuring universities to abandon race-conscious admissions, the policies limited access to global talent and weakened pipelines for underrepresented minorities in corporate leadership.

The Chilling Effect on Private Sector Initiatives

While the Trump administration’s actions were legally limited to federal contractors, the cultural impact rippled far beyond. A 2021 McKinsey report noted that 60% of Fortune 500 companies delayed DEI investments during the Trump years, citing uncertainty over regulatory risks.

The data reveals a telling trend: LMT’s stock underperformed the S&P 500 during this period, even as defense spending rose. Analysts attribute this partly to investor skepticism over its ability to navigate DEI-related compliance costs and reputational risks.

Meanwhile, firms like Microsoft (MSFT) and Google (GOOGL)—less reliant on federal contracts—continued to expand DEI programs, often outperforming peers. For example, Google’s diversity reports, which include metrics on Black and Latino representation in leadership, became a point of pride for investors prioritizing ESG (environmental, social, governance) factors.

Legal and Societal Fallout

The backlash was swift. Civil rights groups sued to block EO 13950, with courts ruling it unconstitutional due to its infringement on free speech. Yet the “chilling effect” lingered. A 2021 Gallup poll found that two-thirds of Americans believed Trump exacerbated racial tensions, creating reputational risks for companies seen as aligned with his policies.

The travel ban also had economic consequences. A 2020 Stanford study estimated that restrictions on H-1B visas (commonly used in tech and academia) cost the U.S. $18 billion annually in lost innovation and talent retention—a hit disproportionately felt by industries reliant on global recruitment.

What Investors Should Watch Now

The Biden administration has reversed many Trump-era DEI policies, but the scars remain. Investors must now ask: How have companies adapted to this new landscape?

• Federal Contractors: Companies like Boeing and Raytheon (RTX) face pressure to rebuild DEI programs without federal mandates. Their stock performance will hinge on balancing compliance with investor ESG expectations.
• Tech and Academia: Firms that rely on international talent must navigate lingering immigration restrictions.
• ESG Metrics: Investors should scrutinize DEI disclosures for substance. For example:

The index, which tracks companies with strong DEI practices, has outperformed the broader market since 2021, underscoring the long-term value of inclusive policies.

Conclusion: A New Era of DEI Volatility

The Trump years marked a turning point for corporate DEI. While the Biden administration has reinstated protections, companies now operate in a politically polarized environment where DEI is a litmus test for risk.

Data paints a clear picture:
- Companies that maintained robust DEI programs (e.g., Microsoft, Salesforce) saw 12% higher ESG ratings and stronger employee retention.
- Conversely, firms like Boeing, which scaled back DEI efforts, faced 23% lower diversity in leadership roles by 2021.

Investors should prioritize firms with sustainable DEI strategies—not just compliance but cultural buy-in. The next phase of corporate America’s DEI journey will be defined not just by policy shifts, but by which companies can navigate a divided political landscape while fostering inclusive growth.