Costco Stands Up To Diversity Critics

Happy New Year and welcome back to Communication Breakdown, a new podcast from the Observatory on Corporate Reputation. Thanks for joining us. I'm Steve Dowling in Silicon Valley. And I'm Craig Carroll in New York City. Happy New Year. Each week Steve and I take a look at strategies companies are using to shape headlines and sometimes save their skins. It's a post game show for PR Pros. This week Costco stands up to diversity critics.

Other listeners know that since we started this podcast Craig and I have been tracking what companies say as they backtrack on diversity commitments. Specifically how they walk the PR tightrope of appeasing diversity critics while apparently changing as little as possible when it comes to recruiting and retaining employees from underrepresented groups.

This trend has been gaining steam for the past six months as conservative activists apply pressure to companies like Ford, Mulsik Wars and Lowe's, home improvement, picking just before the holiday season when Walmart became the latest and biggest company to walk back previous commitments on supplier diversity and racial equity training, even promising to stop using terms like the EI and official communications.

All the while we've been wondering when someone might actually defend their diversity initiatives in the face of these name and shame campaigns and over the holidays we got the answer. Costco wholesale. The membership only warehouse retailer with over 600 stores and 200,000 employees in the US.

In their proxy filing that went virtually unnoticed for two weeks in December, Costco stood up and recommended that shareholders vote against a proposal that demanded Costco's board evaluate and report on what critics called the risks of maintaining DEI policies. But Costco's board is having none of it. Having diversity helps both the bottom line and company culture. They write in their proxy quote, "We welcome members from all walks of life and backgrounds.

As our membership diversifies, we believe that serving it with that diverse group of employees enhances satisfaction." Louder please for the people in the back. Craig, the Costco board mounted a concise, well-reasoned defense and they called out their critics for inflicting burdens on companies with these anti-woke challenges. They weren't exactly forthright. They filed this with the SEC and kind of waited to see if anyone noticed, presumably when they weren't Christmast shopping at Costco.

What's your takeaway given the way the company went about this? There's a number of things here. One, sure, it is the holidays. This is their annual meeting coming up. They probably wouldn't have said anything other than it's a material statement. They do have a proxy that they're having to deal with and they're not expecting it to go forward. But they have to make this statement and I think they did the minimal viable statement that they could make on it.

I think what's important about this is that after this prolonged season of companies rolling over for anti-diversity activists, Costco is the first one to show some sort of resolve in the face of pressure. They're the first in a while to publicly stand by their diversity initiatives even though they didn't do much to really promote that position. I'm curious how much they're really paying attention to what's going on in general.

I mean, certainly in something like this, this is not something that anybody can neglect. This has been an important issue for the past four or five years. They don't participate very much widely in other aspects, but I think this is one that's so in your face that they can't really not pay attention to this one. It's interesting because as you mentioned, they don't seem to thump their chest generally about corporate issues.

It's pretty well known that they don't have a public relations department. So making a bigger deal out of this might have been out of character for them. So in that way, I guess it's there being consistent. And maybe because they aren't the type of company that goes out and says a lot of stuff about corporate issues, maybe that's how they are able to sneak under the radar. They are an unlikely target for the activists.

But by taking a stand here, they can hold firm and I believe very genuine in their defense as it's written. There's a couple of things going on here. One, 70% of their investor bases, institutional investors, right? So the name of the organization writing the proposal. It's the National Center for Public Policy Research. They're a right wing think tank. They've challenged diversity programs at Ford Boeing, Intel, American Express, a whole bunch of other companies.

But they're not very successful. I don't think they've managed to get anyone to take any of their proposals. Not to say that they're not taking it seriously, but they're not getting the votes. Yeah, the high water mark for them, I think is like 6, 7, 8% and most of them don't reach that threshold. If you get, I think under some rules, and I'm not entirely clear about all of these, you get more than 5%, it makes it easier to bring the proposal back in the following year.

So they were able to do that, for instance, last year at Boeing on an anti-diversity proposal, they got 5.3%. That's pretty high. I think part of it here also is that, look, this is a statement that they're making, they're proxy statement. They're not making any more of a public statement to the general public, right? This is an SEC filing that they are required to make by law, and I think that's where they draw the limit in terms of their communication here on this.

Yeah, and over the holidays, when they were asked by reporters, they just referred folks back to their statement, which is a solid PR strategy, even for a company that doesn't supposedly have a PR department. I think another aspect of that is that the dynamic, this time around, the dynamic with the Costco challenge is different because, as you said, the shareholder proposal, it's not likely to succeed.

But if we step back and look at the ongoing challenges to these DEI programs and how they're playing out, the other companies got show trials. This one's going to actually have a jury. As you point out, they're almost 70% institutional investors. The company is recommending a vote against, and the shareholder proposals are an uphill climb, generally, on any topic. I think if the board opposes it, especially with so many institutional investors.

As far as the headlines go, diversity opponents have been winning, basically without a fight for the past six months.

Now you have this $400 billion company pushing back, and on January 23rd, when they have their annual meeting, the diversity opponents are probably going to lose. From a broad PR perspective, as the story plays out in the headlines, that puts a damper on the opponent's momentum. Maybe that will stiffen the spines of some other companies as the proxy season moves into full swing because I'm sure there will be other companies that have this challenge to their policies.

Yeah. I think it'll be interesting to see how it plays out in terms of how much Costco continues to participate, certainly in public discussions here. They've made a very clear, strong business statement in their proxy for the business value of diversity and the impact on their employees and their customer base. But they haven't really appealed to societal issues or moral issues for any of the reason that they've done.

For you, what are some possible explanations that you see for the disconnect here between their strongly-worded proxy here on one hand? I would say they're otherwise passive approach. We don't hear very much about them in general. Yeah. They don't have a PR department, they say, and they don't put a lot of emphasis into communications, but they do have values. I think that's really important. Their website has a very simple articulation of their core values, and they'd say it in one sentence.

They do the right thing. I think that they have stayed true to that in this. I think that while they may not have a robust PR practice, they have a really important key element of good communications, which is they are in touch with their values, and at least in this instance, they've been very good at communicating it.

We've been saying on this podcast that companies who value diversity need to get better about talking about that value, that priority, and here Costco, in less than 800 words, put forward a really strong, simple set of messages that could apply to and could be said by a lot of companies. They said diversity is good for business. It makes our employees happy. It makes our customers happy. Everything we're doing is legal. It's not discrimination.

I think another thing that has distinguished them in this episode is Costco. They're calling out the challengers for being disingenuous about the supposed risks. But I think in calling them out, I think they're focused specifically on their upcoming annual meeting. I don't think that they're participating in a larger discussion.

Even though the media might pull them in, it'll be interesting to see, this could be the moment that maybe they decide that they want to invest in an achieved communications officer or a corporate affairs function for dealing with these issues, because they are now being drawn into the fight, whether they were proactively trying to be part of the discussion based on their pure size, the revenue, number of employees that they have, they're now part of the discussion at this point.

They are leading us in to the season. This may not be the fight that they wanted to take, but it's here, right? They're one of the first companies to have their annual meeting here at the beginning of 2025. Yeah. And just by virtue of the calendar, their fiscal year ends at the beginning of September, where most companies end at the end of September. So they're just, again, maybe just by virtue of the calendar. They're first in line here.

I think you make a good point, which is they may decide to, after being under more scrutiny or at least having more attention because of this, they may decide to invest in more communications resources. I don't know that they need it or not. To me, the big question for the next couple of weeks is whether or not they stick to their

guns. Now that there is more attention, and I'm sure in the coming weeks, days there will be... It will be interesting to see what type of impact that their statement is going to have with those that oppose them, right? Because they're clearly not on Robbie Starbucks list at all, right? He's not going after them.

My thought on this is that one of the reasons that he's not is that they don't seem to be very heavily invested in their public reputation beyond their stakeholder reputation of employees, their customer base, and their investors. Any other group, including the larger public, I don't think they are as concerned. I say that is based on two pieces. They don't advertise very much, which that's one of the indicators for companies that are advertising more.

They're appealing to a wider range of stakeholders that have a much more volatile environment. That's one area. Then the second is that they don't participate in rankings at all, whether it's reputation rankings or rankings about corporate social responsibility. Yeah. I'd love to hear your take on that because I think you mentioned earlier that they had one of the lowest scores from the indices that we addressed on our first podcast episode.

Yeah. The Human Rights Campaign, Corporate Quality Index, where lots of companies scored very, very high, including some of the companies who have backed off on diversity commitments over the past six months, where I think Costco scored was like 20 out of 100, which is, you have to work kind of hard to get a score that low. I think that there's a lack of transparency, as you were pointing out earlier, just about their corporate structure, their operations.

They don't promote necessarily on their website that they have diversity initiatives. They clearly do because these activists know about it. I think they have in this filing, they seem to have caught this anti-wolk army off guard. The Robbie Starbucks of the World War caught flat-footed. I'm in a hand full of people on Twitter have called for a boycott, but near as I can tell, there's no serious effort underway, nothing that appears organized. The holiday has made this a pretty short runway.

I think that this actually might be as big a test for the anti-diversity crusaders as it is for Costco. Sure. The online activists were not ready. Robbie Starbucks, who we've mentioned many times on this podcast, is one of the leading critics and crusaders getting companies to change their policies. He started tap dancing when the news hit.

He just wanted to make clear that this wasn't his idea, and it wasn't going to break his winning streak because he hadn't targeted Costco, at least not yet according to him. He didn't give the proposal his wholehearted support, probably because he not sure if it's going to win. The thing that we need to remember here is that so far, the critics like Robbie Starbucks have not faced a real opponent in the issue.

The other nine companies that they targeted rolled over, some of them like Walmart before he even targeted them publicly. For me, this is also a test of this conventional wisdom that we've been reading in some conservative outlets. And also elsewhere, since November, that Trump's victory signaled supposedly that a majority of Americans are exhausted by DEI. But as we've talked about before, poll numbers just don't support that position. Workers are seeing DEI in a slightly more negative light.

But when people are asked specifically about diversity goals, they still tend to support them like 60, 40 in some polls. So I think that whether Costco intended it to be this way, the tone of the message, which I assume they do, if they don't have someone who is called Chief Communications Officer, they're clearly getting some good advice coming from somewhere, or maybe they're just really good at articulating their values. But they're- I think it's worth discussing here, right?

Because there's so many other, there's so many lessons that we can pull out from just looking at Costco's response here with their proxy statement, all about communications. I mean, there's so many things here, I would say from a communications mindset, right?

One of the things that we know for sure is that given the lack of advertising, given the fact that they- well, they not only don't have a communications person on their website, they don't have a Chief Communications Officer. And where the top ranked communications person is within their organization, I think is at best, maybe an assistant vice president, but I think right now it's a communications specialist.

But if you see everyone else on their website, it's all EVPs, SVPs, and not even their Chief Diversity Officers there, I think she listed according to her webpage is just, you know, vice president, which is this one level below. And that- okay, that's a reason for not having in there if they're holding across the line that they only put SVPs or higher. But from the ComSide, they're not participating in any of the reputation rankings.

They're not filling out any of the forums for CSR ratings or ways of demonstrating accountability. So clearly, public communications does not seem to be a priority for Costco, right? But here at this point, they're now drawn into it whether they like it or not. There's an opportunity for Robbie Starbucks or others to come in and criticize them. The question is, will they and what effect will they have if they do?

Well, whether it's an executive or a committee or a specialist in that company there have taken the right initial step here, which is in their communications, they are not coming from a place of fear. They're not operating out of fear. They're not being defensive out of fear. And that fear is what I think has driven a lot of the U-turns on diversity that we have seen. It was fear of customer backlash, but it wasn't a reaction to actual customer backlash.

And I don't think that Robbie Starbucks is going to jump into the middle of this because he knows it's not going to win. And it's more important to him to have a trophy company to add to his collection. I think the big wild card here is who, if anyone, jumps into the debate. A tweet from Trump or Elon Musk could change the dynamic completely. There are uncharted territory on that in general. Or he might wait till afterwards.

This certainly will not be the time to test it, given that they have a 70% institutional investor base and his ability to influence is probably not going to be that strong. But nevertheless, they do have two important qualities that Robbie Starbucks is going to go after, which is that one of the largest companies out there, which means that the bigger you are, the harder you fall.

And so if he's able to tap into challenging the revenue base or drawing support among their employees, those should be two items if he's really going after those. The thing that's working against him here is that they don't seem to care. They're not focused on being measured by the common metrics.

They're not participating in a lot of the program's places, measurements, surveys where people usually make those judgments about is a company, on the one hand, is a company diverse enough on the other hand, from the critics point of view, is a company to woke. I want to come back to your point about them being scared because they may not be scared, but I still don't think they're showing strong enough leadership.

They did what they had to do. It was a material requirement for their proxy statement. They had a strongly worded statement. We've not heard anything else other than see the statement there.

And they're certainly not defending their position in public. They're simply going back to that core statement that they made a couple of weeks ago. The medium is the message, right? Where you choose to have the debate and really make a big difference. There are times when you're going to make the case in the proxy and that's it, there's nothing more to be said. You define it and don't let people pull you off your game.

I think you could have a 500 person comms department or you could have a 200 person comms department and you could still decide we're just saying it once. We're just saying it in the proxy. All right. I have no experience here, so I'm going to have to take your word on it, right? I would say, and I'm no data on this, this is purely speculation that companies that are more engaged in the world based on the size of their communications team.

The more time, energy and resources that you have to invest in communications means the more time, energy and attention, you're going to end up in creating controversies and scandals and problems, right? If you, a lot of things are just going on in the world, but having a larger communications team means you're going to be able to see a lot more things that are going on. If you have a smaller team, you can see more things. You can see more things.

I think that that is a really important point because to your point earlier, they changed to the name of their DEI department to something else, right? They're able to read the room. That's a good skill. You don't necessarily need to do that through the communications department, but a lot of companies too, which is fine. I don't think that's in our will. We'll house yet right now at this point. I don't think we've done a very good job of training communicators to sit still. Yes, no, I agree.

I didn't roll off your back. But not just let it roll off your back, just say it and be done. I won't call anybody out by name, but I can think of companies with massive communications departments, right? And they are not able to just say one thing and let it go, right? Because their muscle memory is to just keep adding to it. And that's where companies get, in a situation here where there is a very specific time bound goal. We need to win on the 23rd.

But getting pulled off their message is going to be bad. And so whether it's because they had some strategy to do communications this way or maybe just they're just lucky that they don't. Sometimes when all you have is a hammer, everything looks like a nail. And you're just like, oh, we just, when we get a press request, we answer it. Well, that doesn't, that's not going to be strategically the right call in this situation.

The right thing is they have this well written thing and just point people back to that. That's it. We're done. And that's hard for sometimes for some organizations to do. Oh, yeah, yeah, yeah, yeah. And then you also have to add the fact of the question of, geez, what are we paying you for? Like, you know, they're, they're going to engage on communications, communication conflict because they got to show that they're doing something.

We've not figured out how that showing, we're doing something by doing nothing, right? And keep everybody calm, cool, collected and focused on your priorities. Well, what are you paying us for? You're paying us to deliver a message and make sure that it sticks, make sure that it lands, make sure that our reputation, but in this case, the way to do that is by just saying one thing once. And does that mean you probably need a smaller communication department? Maybe.

Yeah. But I'm wondering if this could be a part of their communication strategy as a whole. And I say that tongue in cheek because I don't think they, their communication strategies largely stay under the radar, right? Well, I mean, near as, near as we can tell, but I think this, this is, it's a defensive strategy in a way, but they've mounted, you know, such a compelling defense of their, of their initiatives that I think it, it, it, it should do the job.

I mean, I think that they're, look, I, I certainly don't want to pull them into a fight that they don't want to be part of. I mean, every company should be free to chart its own path in terms of the, the role that they want to play in society. Well, to your point, they're in it, whether they like it or not. So I think the thing for all of us looking at this and, and it's a, it's a moment of intrigue because it's not just Robbie Starbuck and his camp that's watching this.

I think the entire communications field is watching this for the ripple effect that it could have for, for the rest of the companies out there, specifically those that do invest in

public communications, have achieved communications officer. For me, this raises the question, can you function in society? Can you accomplish all that you want to accomplish as a company without investing in communications? Right? And I say that from, from the perspective of investing in comms, from like having a, communications leader on your senior leadership team, well, I think you can have an effective communications strategy.

You can run a really effective and really effective campaign without continually making more and more statements, right? So I think that what the, the, the strategy they're running, whether they've articulated this internally or not, I suspect that they have, but the strategy is they have a really strong position and they, you're not, you know, necessarily going to do, especially better than that. And, but getting more attention to the same 800 words is good for you.

And so those, that, that position that they, that they've laid out, if that keeps getting attention, then, then they're going to be, then they're going to be fine because what the critics will want to do is pull them off message. They'll want to draw attention to some other part of the argument or they're going to want to set up some, you know, some argument about why this is inefficient or discriminatory or something.

And I think that Costco is smart to just say, we have answered all the questions in this response and you can draw, you know, any answer that you need out of what we've already written. And that's a very, it's a position, again, it's a position of strength, not fear.

And the companies who cave to Robbie Starbuck seem to be motivated out of fear and their communications, I think, reflect that it's not a good look because, you know, what signal does that send to other critics or your competitors or, or whomever? It was, they were, they were, they were some bad examples going down without a fight. And maybe that was convenient for those companies. But letting the opponents, the antagonizers tell the story is not a good strategy.

And so I think Costco has chosen a really smart path in this. Well, I think one of the things that they share with, with Walmart on this, one of the few things is that they're trying to control the narrative and the sense of saying, this is what we're doing, right? This, this is our focus. And you know, in the case of Walmart, they said, look, this is something that's been planning to do for a long time. Costco didn't say that, but they did, they did make changes, right?

They did make changes in support of Robbie Starbuck's position, right? They changed their, the EI program to be people and communities as the, the larger label. So on some senses, they did do some backpedaling a little, they've made changes for sure. But they have certainly held strong in other ways and, and, and, and ways that are important to their customer base, to their employee base, to their investors. And without really paying much attention beyond that, right?

So I think they have their, their priority, straight in terms of knowing, you know, who's paying the bills, who's buying the product and so on. The big difference here between Costco and Walmart and I think all the other companies who were targeted in the second half of 24 is, Costco is rejecting the premise. Costco is saying that DEI initiatives or whatever you call them, align with their core values, they're critical to their success. They comply with the law.

It just, they've rejected the whole premise of this call, but you want anti woke. And I think that they are, they are holding strong on that. Whereas other companies and we saw this especially in the early days of these campaigns, they were like, oh, well, we realize that we've, you know, we've gone too far. We've done the wrong thing or I'm paraphrasing obviously.

But there was, there was some, there was some in the, in tone, if not words, they were acknowledging that they were reacting to some popular, again, pendulum swing against DEI initiatives. And I don't think that that's necessarily out there certainly the polling that we've seen doesn't reflect it. But there has been this conventional wisdom, I think, and no one has, has stood up to it. Costco is and we will see how it changes the, the conversation. So that's our show for this week.

We want to thank Shawn P Neal and the PeopleForward Network for making our podcast possible. If you'd like to tell us what you think or if you have a topic you'd like to suggest for our show, we'd love to hear from you. Our email address is podcast@ocrnetwork.com. Communication breakdown is a production of the observatory on corporate reputation. I'm Steve Dowling. And I'm Craig Carroll. Thanks for listening. We'll be back next week. [MUSIC]