The DEI Hype Cycle: Learning to fail forward in a politicised landscape

As we have previously noted, Diversity, Equity, and Inclusion (“DEI”), has become a politicised symbol of partisan battles, overshadowing its core purpose of strengthening both organisations and broader society.

In the US especially, actions taken by President Trump¹ are forcing companies to retreat on DEI commitments. For example, Novo Nordisk, a Danish pharmaceutical company held in WHEB’s health theme, is amongst 200² of the largest corporates to have recently dropped senior management gender diversity targets in the US (Figure 1)³.

According to Novo, ‘changing legal requirements’ – US government investigations into alleged illegal DEI practices in federal agencies, and now also the private sector, – threaten eligibility for Contacted Medicare & Medicaid Services (CMS), which represent over 20% of its US business.

 Figure 1: Conversations about DEI between companies and investors are in decline⁴

And it’s not only legal recourse corporates are wary of. Robby Starbuck, a conservative commentator called for a boycott of John Deere, which is held in an FCM fund⁵, for going ‘woke’ with its DEI-focused policies (Figure 2). Given the brand’s deep cultural resonance in rural, conservative America, Deere subsequently withdrew support for Pride parades, audited internal training materials to remove ‘socially driven content’, and clarified its position on diversity quotas and pronoun policies.

Figure 2: Conservative commentator calls out John Deere for ‘going woke’.⁶ 

The zone of disillusion

We believe this moment reflects the Gartner Hype Cycle, where enthusiasm for new ideas often gives way to disillusionment before stabilising. The rise of DEI initiatives peaked around 2019–2020, driven by gender quotas and racial justice movements, with major financial institutions backing diversity through policies and practices, marking ‘peak hype’. Mapping Figure 1 to Figure 3 suggests we’re in the disillusionment phase amid backlash.

Figure 3: ‘DEI’ in the Gartner Hype Cycle’s zone of disillusion?⁷

But reaching the “new normal” requires a pragmatic view of the situation. Amidst the ideological push back, the business case for DEI has been further weakened by poorly implemented initiatives, sparking concerns about reverse discrimination⁸, and recent (justified) critiques of the research often used to justify action on DEI⁹. 

Letting DEI ‘fail forward’

As a response, scrapping DEI initiatives altogether would be a significant step backwards. Instead, we must learn from where the concept has failed and then to adapt approaches to better achieve the outcomes sought, as these are what matter.

And appetite for ‘DEI 2.0’ is there, even if it needs a rebrand.

Returning to our example of John Deere, its 2025 AGM became somewhat of a battleground with a counter-boycott launched by customers from the National Black Farmers Union¹⁰ and shareholder proposals filled on both sides. But pro-DEI investor sentiment prevailed with almost 30% (including FCM) voting in favour of an independent civil rights audit¹¹ while anti-DEI proposals drew less than 1.5% support^12,13.

Similar outcomes were seen at Disney, Goldman Sachs, Levi’s, and Coca-Cola’s AGMs and one study suggests shareholder support for workforce diversity in this proxy season was as high as 98%.¹⁴ 

Leading with the end before the means

For many corporations, improved firm performance has been the primary motivation for pursuing DEI initiatives, with broader societal benefits seen as a welcome bonus.

Encouragingly, a growing body of credible research is now linking firm performance to aspects of cognitive diversity¹⁵ and employee satisfaction¹⁶, both of which align closely with DEI principles.

These findings are significant in today’s political environment, where legislative efforts are underway to redefine materiality and challenge the compatibility of ESG considerations with fiduciary duty¹⁷.

Putting it into practice: evolving our engagement on DEI

Given our broader exposure to US listed companies, we’re adapting our engagement strategy.

Despite recent US policy changes, Novo Nordisk’s global DEI approach remains strong. The company has reaffirmed its target of 45% women in senior leadership by 2025 and continues to embed DEI through the ‘Novo Nordisk Way’. We therefore aim to prioritise resources for engagement on DEI elsewhere.

In our post-AGM engagement call with Deere, the company clarified that its inclusion efforts are ongoing but are being reframed to maintain impact while avoiding political sensitivities. This will be a challenging balancing act and we intend to support the company by sharing emerging evidence on how inclusive practices drive performance.

WHEB’s diversity matrix (Figure 4) remains a useful tool to identify engagement priorities. For example, Xylem, in the WHEB strategy’s Water Management theme, performs well in terms of ‘management priority’, but less so on the key performance indicator of senior gender diversity. We aim to explore how the company will respond to the evolving US context and will share research linking cognitive diversity, psychological safety, and performance.

In contrast, Advanced Drainage Systems, which is held in WHEB’s Environmental Services theme continues to underperform on both gender diversity and management priority.  Consequently, we will consider shifting the conversation away from DEI terminology and instead focus on the core principles of high-performing teams, supported by evidence and aligned with long-term value creation.

Figure 4: Mapping gender diversity priorities within the FP WHEB Sustainability Impact Fund¹⁸

Conclusion

The current backlash against DEI marks not an end, but a transition. We believe that the route forward lies in focusing less on labels and more on outcomes. As is typical of our approach, ensuring engagement objectives are grounded in evidence-based practices will help us navigate the heightened political challenges characteristic of this period.

In this way we can evolve our strategies to remain effective stewards of long-term value, while staying true to the core purpose of DEI: building better businesses and a more equitable society.