Institutional Shareholder Services (ISS), a leading proxy advisory firm, has announced that it will no longer factor in diversity elements such as gender and race when making voting recommendations for U.S. corporate boards. The decision comes amid growing political scrutiny of Diversity, Equity, and Inclusion (DEI) initiatives.
This shift by ISS is part of a broader trend of U.S. companies and investors reevaluating DEI policies, particularly in the wake of a Supreme Court ruling that struck down Harvard’s race-based affirmative action in college admissions. The ruling has intensified legal and political challenges to corporate DEI initiatives.
The pushback against DEI gained further momentum following Donald Trump’s election. After taking office, he signed an executive order that eliminated DEI-based preferences in federal contracting and mandated that contractors affirm they “will not engage in illegal discrimination, including illegal DEI.”
ISS itself has faced political pressure, with 21 state Attorneys General warning the firm in 2023 that its support for DEI and climate-related proposals at companies could conflict with its duty to prioritize clients’ financial interests.
In its statement announcing the policy shift, ISS stated:
“In light of these developments, ISS will indefinitely halt consideration of certain diversity factors in making vote recommendations with respect to directors at U.S. companies under its proprietary Benchmark and Specialty policies.”
Among the specific changes, ISS will no longer take gender, racial, or ethnic diversity into account when making recommendations on director elections or re-elections.
The firm further noted:
“We anticipate that institutional investors and U.S. companies will have a range of perspectives on DEI, including whether and how companies can or should adapt their specific policies and practices to the evolving market and governmental activity.”
