After the administration change in January 2025, businesses, non-profits, universities, and other organizations that receive federal funding were left reeling after an executive order declared that they must strike mentions of DEI (diversity, equity, and inclusion) from their websites and documentation and eliminate DEI programs or risk losing their grants and contracts.
Generally, private businesses are not mandated to follow such an executive order, regardless of whether the judicial system later deems it unlawful or not. Some organizations are refusing to comply with this order, either because they do not have federal contracts or they are comfortable losing them because it runs counter to their core beliefs.
If your business is a federal contractor, however, you may find it in a more compromising position if you do not want to risk losing your contracts. Here's how Texas SMBs can navigate federal DEI changes while still fostering a pro-diversity culture.
Texas is an incredibly large and diverse state. According to the last U.S. census taken in 2020, over 29 million people live in Texas, and the population is rapidly increasing. The state's diversity index also went from 54.9% to 67%, even if it is a majority-white state.
The Lone Star State is home to significant Latino and Hispanic communities, as the entire southern edge of the state sits on the Mexico border. Millions of people of different races, ethnicities, abilities, religious groups, genders, and ideologies call Texas home.
DEI (Diversity, Equity, and Inclusion) initiatives, rooted in affirmative action policies from the Civil Rights Act of 1964, are designed to level the playing field for historically underrepresented or marginalized groups by outlawing discrimination in employment, housing, and other life areas based on race, religion, sex, color, or national origin. While some critics view DEI programs as merely symbolic or as favoring certain groups, they fundamentally aim to correct ongoing inequities across gender, race, ethnicity, and disability spectrums, ensuring that all job applicants have equal opportunities, free from biases that a hiring manager may unknowingly harbor.
Texas is the eighth largest economy in the world, exceeding Canada and Russia, and generates $2.4 trillion annually, per the Texas Comptroller. Diversity in staff and customers is simply a fact of life for Texas businesses, but this does not stop federal laws from affecting them.
The demands from the federal government to revoke DEI initiatives are also having knock-on effects at state and local levels, with Governor Abbott mandating public schools to end DEI initiatives with SB 17. So far, there have been no attempts to regulate private businesses in this manner, but it may be on the horizon.
Diversity is virtually always at the helm of large and productive economies like Texas. Diverse workforces empower business leaders to reach a wider range of potential customers. Hence, federal DEI changes can have deleterious impacts on Texas SMBs that receive federal funding. The Trump administration has also proposed litigating large corporations for "illegal DEI" if they have DEI programs. Subsequently, some of the largest private employers in the U.S., like Target, Wal-Mart, and Amazon, have eliminated their DEI programs.
Federal contractors in Texas need to attract and retain quality talent, and Texas inherently has a diverse talent pool. If potential employees do not feel safe applying for a job at your company because they do not see any commitment to DEI, they will take their skills elsewhere.
Customers also value DEI initiatives: large corporations rolling back their DEI programs are finding themselves on boycott lists, with the most notable example of Target losing $12.4 billion in value after Black customers organized a sustained boycott and got other coalitions on board.
Customers, talent, and other stakeholders understand that small and medium-sized organizations are put in a more complicated situation if they are federal contractors. It can also be difficult to communicate that your company is a safe place to work and do business if federal contracts forbid you from publicly displaying DEI-related language on your website, marketing materials, and internal documentation.
A saving grace for Texas SMBs is that the executive order only states that federal contractors cannot commit affirmative action and must include specific terms in grants, contracts, or federal awards that they will comply with all applicable federal anti-discrimination laws and certify that they do not operate any illegal DEI programs.
While having the word "diversity" on your firm's careers page could be a red flag as far as federal contracts are concerned, the vagueness of the executive order provides leeway for federal contractors to have voluntary DEI programs. Executive orders also do not change existing laws regarding affirmative action, and the judicial branch may find this executive order unlawful.
To get around any red flags concerning DEI initiatives, carefully check the verbiage of public-facing and internal documentation, particularly as they pertain to hiring policies. You may need to replace "equity" and "equality" with "meritocracy."
Contact Affiliated HR & Payroll for guidance on adapting your DEI strategies to stay both compliant and inclusive.