Repeal The DEI Tax

Repeal The DEI Tax

by Vikram Mansharamani

The adoption of diversity, equity, and inclusion strategies at the expense of profit generation has imposed an unnecessary tax on millions of people. Few, if any, shareholders vote to forgo returns to promote social or diversity objectives, yet that’s exactly what’s happening in boardrooms across the country.

Business leaders across corporate America have been adopting policies and practices that prioritize social concerns over shareholder returns. Think Bud Light or Target.

Boards form ESG committees with DEI mandates, and management directs employees to dedicate time, effort, and money to ensure the company has set, tracked, and met publicly declared goals. It’s virtue signaling on steroids, and the side effects are lost profits, lower long-term shareholder returns, and a new form of diversity-driven socialism, all of which will eventually lead to higher prices for consumers.

Is it possible, then, to describe hiring initiatives that only make sense from a DEI perspective as anything other than a DEI tax on both shareholders and consumers? If a company hires the best people, regardless of skin color, gender, or religion, isn’t that just good business? And if leaders prioritize a certain skin color or gender, wouldn’t that be racism or sexism (not to mention illegal)? Every company in every industry should recruit from everywhere, including underrepresented communities, because that improves the chances of finding capable talent, which, ultimately, is good for shareholders.

Yet faith in the burgeoning new diversity religion is so strong that merely questioning it is now taboo. I once distributed Milton Friedman’s 1970 article “The Social Responsibility of Business Is To Increase Its Profits” to colleagues and was later told doing so was divisive and unhelpful. Almost every time I question this new theology, I am subjected to mini lectures about historical inequities and the urgent need to address them. And despite being a first-generation American who grew up in a working-class household, I’ve been repeatedly told to check my privilege and acknowledge that I’m an oppressor.

Of course, this may be nothing more than a grift, a ruse used by some people to enrich themselves. Contracts are awarded to the very board members who champion these quotas, and if anyone highlights or questions such double-dealing conflicts of interest, he or she will likely be silenced, punished, and shown the door. There is no room for heresy.

But in the end, companies that embrace the DEI agenda suffer subpar profitability, have less tolerance for diversity of ideas (and a corresponding higher risk of unionization), and generate lower long-run returns for shareholders. These companies tend to be hotbeds of go-along-to-get-along governance that replaces profitability and total shareholder return with alternative metrics that provide political or financial benefit to those who champion them. Achieving social objectives is often now more important than meeting customer needs, lowering costs through process improvements, or maximizing shareholder value. Purpose, the new religion expounds, is a higher calling than profits. Welcome to today’s version of stakeholder capitalism a la Atlas Shrugged.

It’s worth acknowledging that DEI is a distorted reincarnation of failed communist ideologies. When faith in collectivism collapsed following the implosion of the Soviet Union, socialist leaders fled to academia and recruited climate alarmists and anti-racists as next-generation revolutionaries. The movement replaced worker exploitation with social ills as the motivating outrage to circumvent market forces, redirect resources, and silence critics.

Let me be clear. I am an unabashed capitalist and firmly believe the pursuit of profits drives creative destruction and innovation that has improved the lives of billions of people on this planet. This does not mean that social and diversity objectives are unworthy or unimportant. But if business leaders restore their focus on maximizing shareholder returns, they will enable the company’s owners, in their individual capacities, to do what they wish with their profits. And over the long run, greater returns will enable greater social progress.

Too many companies today are focused on making social statements when they should be focused on making money. The sad reality is that these dynamics are more pervasive than people believe. As a result of passively ceding governance decisions to index funds and mutual fund managers committed to DEI, shareholders are being indirectly taxed and have no say in where the money goes.

This is taxation without representation, and it’s time for a shareholder revolution — one that holds boards accountable to the interests of the company’s owners.

Vikram Mansharamani, a former lecturer at Harvard and Yale, has taught classes on business ethics and corporate governance. He served on the board of Werner Enterprises from 2021-2024.