Under pressure from activist investors to curtail its diversity, equity and inclusion initiatives, Costco’s board defended its DEI efforts, in contrast to other firms, like John Deere and Walmart, which have also come under scrutiny by anti-DEI activists.
Costco’s stance came in response to a shareholder proposal, submitted by a conservative think tank, demanding that Costco assess and publicly disclose the risks associated with its DEI policies and goals. The proposal alleged that Costco’s DEI initiatives pose reputational, financial and litigation threats, which could hurt shareholders.
The number of anti-DEI shareholder proposals, including the one filed against Costco, doubled from 15 in 2023 to 30 in 2024. Until now, these proposals have garnered minimal support from the broader investor community, according to an analysis published in Harvard Law School Forum on Corporate Governance.
However, anti-DEI activists have had a wave of success in getting several large firms to publicly dial down their diversity efforts. While Costco’s board of directors unanimously dismissed the demands, the ultimate decision now rests with shareholders, who are set to vote on the matter this month.
In its defense, Costco positions its DEI initiatives as integral to business growth and operational success. This strategy mirrors the U.S. Naval Academy’s successful defense of its DEI efforts in a recent federal court ruling: both emphasize that DEI efforts are defensible when tied to mission-critical goals. For organizations evaluating which DEI initiatives to retain and how to position them, here are some key takeaways from Costco’s arguments to its shareholders.
DEI Drives Costco’s Business Growth Strategy
Costco directly links its DEI efforts to its signature “treasure hunt” retail strategy—offering unique, limited-time products at eye-catching prices. The strategy contributes to the company’s growth by encouraging customers to purchase additional products and spend more time shopping, according to a Wall Street Journal analysis.
The retailer emphasizes that a “diverse group of employees helps bring originality and creativity to our merchandise offerings, promoting the ‘treasure hunt’ that our customers value.” This underlines how workforce diversity directly fuels the success of Costco’s business model.
In its documents for shareholders, Costco’s directors also highlight the importance of supplier diversity—a key target in activists’ demands. According to the company, a diverse supplier base “fosters creativity and innovation in the merchandise and services that we offer our members.” By tying DEI initiatives to its ability to offer unique products and experiences, the board emphasizes diversity’s role in preserving its competitive edge.
Costco’s approach offers a lesson for companies evaluating their DEI initiatives: tie diversity explicitly to core business strategies to demonstrate its value and protect themselves against activist challenges. By embedding DEI into a growth-focused framework, companies can not only defend these efforts but also emphasize their critical role in long-term success.
DEI Contributes To Costco Culture And A Productive Workforce
Costco’s board highlights how its DEI initiatives are pivotal to cultivating an organizational culture that drives the company’s growth. These programs remind employees of “the importance of creating opportunities for all,” while fostering an environment where everyone feels “valued and respected.”
The retailer’s directors also emphasize that DEI strengthens its ability to attract and retain top talent—an essential driver of its success. “This capacity is critical because we owe our success to our now over 300,000 employees around the globe,” the board notes. This commitment is reflected in Costco’s remarkably low turnover rate of 8% compared to the retail industry average of 55%, according to Harvard Business Review.
The lesson for companies is clear: prioritize DEI initiatives that enhance workplace culture and deliver measurable results. Costco demonstrates this by linking its DEI efforts to fostering an inclusive environment that attracts and retains top talent. Its low turnover rate underscores how tying DEI to tangible outcomes reinforces its strategic value.
The Takeaway For Business Leaders
Costco’s defense offers a roadmap for firms committed to diversity by illustrating how to integrate DEI into core business objectives. By showing how DEI is critical to its growth strategy, workforce stability and innovation pipeline, Costco’s directors counter activist demands with evidence-based arguments that position DEI as mission-critical.
While the board’s defense outlines a strong argument for the role of DEI in business success, Costco’s shareholders will have the final say. They will vote on the proposal on Jan. 23 at 2:00 p.m. Pacific Time, during the Annual Meeting of Shareholders, held via webcast.
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