By Sarah Nassauer

In a steady parade of companies retreating from their diversity efforts, Costco Wholesale is standing out by holding fast.

Ahead of its annual meeting next week, the warehouse retailer has urged its shareholders to reject a proposal to assess the risks that its diversity initiatives pose to the company's stock price. While boards typically recommend rejecting such proposals, Costco's directors also made a vigorous case for how its diversity, equity and inclusion measures contribute to its bottom line.

Costco's efforts to diversify its workforce and supplier base help attract talent and spur innovation in its merchandise, "promoting the 'treasure hunt' that our customers value," its board wrote. "Our commitment to an enterprise rooted in respect and inclusion is appropriate and necessary."

The pushback has grabbed attention. Earlier this month, Costco Chief Executive Officer Ron Vachris defended the company's practices to a customer who had sent an email on concerns that Costco hired based on "skin color" or "gender identification." Vachris responded in the exchange, viewed by The Wall Street Journal, that Costco has never used hiring quotas but is focused on giving all workers the same opportunities and high wages.

"If these are the policies you see as offensive, I must tell you I am not prepared to change," he wrote. Costco declined to comment further.

Major companies from McDonald's to Meta Platforms have faced pressure to reconsider diversity, equity and inclusion policies. That pressure has been amplified by anti-DEI boycott threats and an incoming Trump administration that is opposed to diversity programs.

In Costco's case, a conservative activist group is pushing the company to compile a report on the risks posed by its initiatives. "It's clear that DEI holds litigation, reputational and financial risks to the company," the activist group, the National Center for Public Policy Research, wrote in the shareholder proposal.

Costco's stance reflects the retailer's penchant for eschewing corporate bandwagons. The 300,000-employee company doesn't have a public-relations team. Nor has it chased speedy e-commerce growth, continuing instead to nudge shoppers into its cavernous stores to splurge on bulk socks and snacks.

Likewise, when rivals including Walmart and Target announced new racial-equity commitments after George Floyd's murder in 2020, Costco's then-CEO published a statement of solidarity but didn't introduce additional race-related policy moves.

Now Costco is part of an increasingly small club of companies touting the benefits of DEI policies. Walmart, Tractor Supply, Ford Motor and Deere are just some of the companies that have backed away from diversity efforts in recent months.

'A beloved company'

At a breakfast gathering of big-company human-resources leaders in New York on Tuesday, several of them called Costco's board statement a striking defense of DEI. One HR executive said the strength of Costco's brand empowered it to make such a statement. Customers pay an annual membership fee to shop at Costco, and more than 92% of U.S. members renew each year.

Since Costco's response, some conservative activists encouraged followers to boycott the retailer, but they acknowledged Costco's loyal following. That group includes the social-media agitator Robby Starbuck, who has pushed other companies to disavow some of their DEI, environmental and LGBTQ-community-support policies.

"They are not the worst of the worst, so they weren't my focus," said Starbuck. He added that it would take more than a shareholder proposal to spur change at Costco and that he might target the company in the future. "You better have your ducks in a row before you go after a beloved company," he said.

Some of his followers on X seemed to confirm as much. "This is SUCH a hard one for me!" one commented on a post suggesting that customers stop shopping at the retailer. "Costco is a place we spend a CHUNK of $$."

Shareholder proposals have, in general, failed to resonate at companies as much as anti-DEI pressure campaigns seemingly have. Apple this month recommended that shareholders vote down a similar proposal from the National Center for Public Policy Research. So did Walmart after a similar proposal from another group this past spring. It then announced in November that it would end some DEI efforts -- under pressure from Starbuck.

Costco's proxy statement went beyond rejecting the National Center for Public Policy Research's proposal. It said customer feedback showed its shoppers like to see their diversity reflected in Costco's workforce. It also accused the group of motives that had little to do with mitigating risk. In its proposal, the group cited lawsuits filed related to DEI policies and potential discrimination complaints from white employees as risk factors.

"The proponent's broader agenda is not reducing risk for the Company but abolition of diversity initiatives," the company wrote.

High wages, little diversity at the top

Costco's founders and many of its top executives donate to Democratic politicians, according to filings. The chain has long touted its workforce's relatively high wages. Last year Costco paid its CEO $12.4 million, roughly half as much as Walmart paid its CEO. The median Costco worker earned $47,000, compared with about $27,000 at Walmart, company filings show.

At a 2021 Senate hearing on raising the federal minimum wage, Costco's then-chief executive testified that paying its workers was a smart business choice that helps retain workers and attract shoppers.

Costco links a portion of executive bonuses to social objectives including DEI metrics and reports workforce data based on gender and race and ethnicity demographics. It has a chief diversity officer, a role that a number of companies -- such as Meta last week -- have decided to eliminate.

Those measures haven't led to much diversity in its highest ranks. At Costco, employees from cashier to CEO tend to stay with the company for a long time, slowly moving up the ranks. Top jobs are often filled by men who started at the company decades ago. Since the first Costco opened in 1983, none of its five highest-paid executives listed in its financial filings has included a woman, though its larger leadership team has. Out of 13 current members, two are women.

In 2024, 72% of top Costco managers were men and 81% were white, according to company data.

--Chip Cutter contributed to this article.

Write to Sarah Nassauer at Sarah.Nassauer@wsj.com

(END) Dow Jones Newswires

January 15, 2025 05:30 ET (10:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.