Boardroom Diversity in the Crosshairs as ISS Reverses Course

Diverse professionals walking through a corporate hallway.

ISS Pulls Diversity Standards from Director Election Guidelines—Is the Tide Turning?

A pivotal change is sweeping across corporate governance circles in the U.S. as Institutional Shareholder Services (ISS) announces that it will no longer consider board diversity when evaluating director election recommendations. The move aligns with rising political and legal scrutiny over Diversity, Equity, and Inclusion (DEI) programs.

So, what sparked this change? And what could this mean for companies, shareholders, and the future of boardroom diversity?

The Policy Shift by ISS: What Changed and Why?

As of 25 February 2025, ISS has stopped factoring gender, racial, and ethnic diversity into its U.S. director election vote recommendations under both its Benchmark and Specialty policies.

Why did ISS change course?

The answer lies in a significant political development:
On 21 January 2025, President Trump signed an executive order titled Ending Illegal Discrimination And Restoring Merit-Based Opportunity. This sweeping mandate:

  • Rescinds prior DEI-focused executive orders
  • Instructs all federal agencies to eliminate any preference, mandate, or activity tied to DEI
  • Demands new language in government contracts, requiring companies to:
    • Certify compliance with anti-discrimination laws
    • Confirm that they do not promote DEI programs that could be seen as violating federal law
  • Calls on the Attorney General to recommend ways to discourage private-sector DEI programs

Given that many publicly listed companies do business with the federal government, the pressure to comply with this directive is considerable.

ISS acknowledged that, due to this regulatory change:

  • It must halt consideration of self-identified board member attributes (such as gender or ethnicity) in director evaluations.
  • It will continue focusing on other core governance areas like independence, accountability, and responsiveness.

Executive Order Meets Disclosure Standards: What About the SEC?

Corporate America now finds itself walking a tightrope between transparency and compliance.

The SEC requires certain DEI-related disclosures, such as:

  • Form 10-K disclosures under Regulation S-K, which ask for human capital measures—often including diversity goals and statistics.
  • Proxy statements, which must:
    • Explain how a nominating committee considers diversity when selecting board candidates
    • Disclose relevant attributes and qualifications (including self-identified diversity)

Although these rules do not mandate companies to promote DEI, many have voluntarily included extensive DEI disclosures in recent years to respond to stakeholder expectations.

So, what now? Companies are asking themselves:

  • Should we revise or remove DEI references in our filings?
  • Could maintaining DEI programs or disclosures jeopardize federal contracts?
  • How do we reconcile shareholder expectations with new federal policies?

Rhetorical Pause: What Are the Real Questions Here?

  • Can governance truly be best practice if it overlooks diversity altogether?
  • Are companies protecting themselves or simply retreating under pressure?
  • If DEI goals are now considered risks, what does that say about progress?
  • Will shareholders accept this reversal—or push back harder?

Practical Steps Companies Are Considering

To navigate the evolving landscape, companies are:

  • Reevaluating proxy disclosures, particularly around DEI policies, targets, and diversity metrics
  • Consulting investor relations teams to gauge shareholder sentiment on DEI
  • Reviewing exposure to federal contracts, which could trigger compliance risks under the executive order
  • Exploring alternative language that frames diversity initiatives through a compliance or performance lens, rather than values or identity politics

A Personal Reflection: When Policy and Purpose Collide

This moment feels like more than a policy update, it’s a reckoning. The deliberate pullback on diversity considerations by ISS, influenced by executive orders, suggests that political winds now blow more forcefully through the boardroom than ever.

Yet, what does this mean for the future of governance? For years, diversity was framed not just as a moral imperative but a strategic advantage, improving decision-making, risk management, and organizational resilience. Reversing that direction, even under the banner of legal compliance, could have long-term consequences for corporate integrity and stakeholder trust.

To many, this feels like a defensive posture, not a principled stance. The challenge ahead lies in how companies respond, not just by following the rules, but by defining the values they’re willing to defend when it matters most.

Conclusion: Future-Proofing Legal Entity Compliance

In 2025, AI-driven entity management, automation, and structured governance will shape compliance success. Therefore, organizations that integrate:

  • AI-powered compliance tracking to automate regulatory monitoring and legal updates.
  • Centralized corporate governance platforms for real-time compliance oversight.
  • Automated corporate secretarial workflows to streamline entity record-keeping and approvals.

The future of entity management is digital, but only for businesses that actively combine technology with structured compliance strategies. By leveraging digital solutions, companies can enhance operational efficiency while maintaining compliance.

Klea is designed to help legal, tax, and compliance professionals who seek a modern solution to streamline corporate governance. More specifically, the software eliminates redundant administrative tasks, significantly reduces compliance risks, and ensures organisations maintain up-to-date entity records without requiring manual intervention. As a result, organisations that adopt Klea gain a significant operational advantage. Instead of focusing on routine administrative burdens, legal and compliance teams can dedicate their time to focus on higher-value strategic initiatives.

Klea transforms entity management by offering centralised governance, automated compliance, and secure collaboration tools. For this reason, businesses looking for an efficient, scalable solution can take the following actions:

Company secretarial software solutions play a crucial role in modern businesses that require structured governance, consistent compliance, and accurate legal entity management. With Klea, organisations can ensure corporate governance remains efficient, transparent, and risk-free.

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