Companies have been quietly and loudly rolling back their diversity, equity, and inclusion policies for more than a year now, but this week could mark the beginning of a new battle in the war over DEI in corporate America.
On the heels of a January executive order ending DEI across the federal government, President Donald Trump sent a follow-up missive designed to increase scrutiny over those practices in the private sector. Federal agencies were given 120 days to work with the Attorney General to identify up to nine organizations with the “most egregious and discriminatory DEI practitioners” that would make them eligible for civil compliance investigations. The types of organizations targeted could include publicly traded companies, large nonprofits and foundations, and institutes of higher education with sizable endowments, among others.
That 120-day deadline is almost here, and the government may soon start to name the companies and organizations identified as DEI investigation targets. The White House did not respond to Fortune’s request for comment.
It’s important to note that Trump’s orders apply to “illegal” DEI programs, which would have already made them non-viable. But his decision to target specific organizations in a potentially public way could force major companies into an unwanted spotlight, and prompt them to potentially make a deal with the administration.
Although it’s still unclear how exactly the government will proceed, multiple legal experts tell Fortune that their corporate clients are already preparing for the worst-case scenario, and working with in-house lawyers to analyze their policies in anticipation of becoming the focus of a government investigation.
“Companies have been trying to prepare for this deadline in particular,” Joe Schmitt, a labor and employment attorney at Nilan Johnson Lewis, tells Fortune. “They are asking if we can do some contingency planning, and if we’ve evaluated all of our risk factors around what programs the administration could potentially identify as problematic.”
Which organizations will be on these lists?
It’s not clear which companies and organizations are going to be named by executive agencies. There’s also no guarantee that federal agencies will make these lists public, as there’s no requirement for them to. But given that federal departments are being asked to focus on large organizations, including publicly traded companies and foundations with more than $500 million in assets, legal experts say it’s likely the president will use these lists to single out industry leaders who have opposed his ideas about DEI.
“Whether or not this will be a huge list or a small list, or any list, is still unclear. But my guess is that they’ll want to make a big splash,” Andrew Turnbull, employment lawyer and co-chair of Morrison Foerster’s DEI strategy and defense task force, tells Fortune. Large public companies that have been more outspoken on DEI are prime suspects, he says.
So are organizations that have come into Trump’s crosshairs for personal reasons, notes Schmitt. “I think any entity that he believes has personally offended him is top of the list,” he says.
Companies and organizations that receive significant government funding may be particularly vulnerable to being named, because they are likely more willing to negotiate with the administration. It’s also possible that federal agencies will focus on companies that have been previously targeted by anti-DEI activists like Edward Blum, a legal strategist who leads an organization called the American Alliance for Equal Rights, and has worked for decades to end DEI policies and affirmative action.
“I wouldn’t be surprised if some of the companies that have already been targeted by these legal activist groups find themselves in the crosshairs here,” says Stacy Hawkins, diversity consultant and law professor at Rutgers Law School.
What happens to a company if it’s named?
Legal experts say that a few potential scenarios could occur after a company is officially listed by a federal agency as a DEI target. The first is that the Department of Justice begins investigating the organization. This could potentially lead to criminal charges, says Schmitt, although this scenario is unlikely.
“The DOJ has suggested that they might initiate criminal proceedings, but I think those would be very difficult for them to claim,” he says.
The second is that the Equal Employment Opportunity Committee (EEOC) uses the lists created by federal agencies and decides to give those organizations Commissioner Charges. These charges allow the EEOC to carry out investigations of alleged violations of Title VII of the Civil Rights Act. If a violation is found, the organization can either work with the EEOC to reach a resolution, or it could be litigated in court. The EEOC could also send out demand letters to various companies requesting that they share more information about their DEI programs, although those letters are not legally enforceable.
The third and most likely scenario, according to legal experts, is that Trump signs individual executive orders against these organizations, as he did when he targeted different large legal practices by name.
“Trump has had some success in the sense that some law firms capitulated after these executive orders,” says Schmitt. “Therefore, I think he would likely have reason to believe that other organizations would capitulate as well.”
How will companies respond if they are publicly named as an investigation target over their DEI practices?
That’s the big question. If companies are added to this list of sorts, they will be thrust into the spotlight and forced to choose between aligning with the administration’s views on DEI to avoid further publicity or going against the president to defend their policies.
Most large companies have been working for months, if not longer, to ensure any practices related to DEI are legally compliant, says Schmitt. He points out that companies aren’t legally required to respond to things like EEOC demand letters. But that doesn’t mean they will be game to endure the pressure campaign.
What happened when law firms were targeted by Trump may provide some guidance as to what companies can expect. Some made public deals with the president to avoid further scrutiny. But others decided to fight back, and taken the administration to court.
“In some cases, the administration has been acting unlawfully to implement these executive orders, and those actions are being challenged, sometimes successfully, in court,” says Katy Youker, director of the Economic Justice Project at the Lawyers’ Committee, a civil rights organization.
Either way, how companies decide to proceed could mark a major inflection point in the fight against DEI in the U.S., says David Glasgow, a lawyer and the executive director of the Meltzer Center for Diversity, Inclusion, and Belonging at NYU.
“If companies are able to fend off these claims or get a big win in court, it could change political dynamics,” he tells Fortune. “They may realize the administration is not as strong in this matter as they think.”
This story was originally featured on Fortune.com
