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Happy New Year and welcome back to Communication Breakdown, a new podcast from the Observatory

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on Corporate Reputation.

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Thanks for joining us.

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I'm Steve Dowling in Silicon Valley.

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And I'm Craig Carroll in New York City.

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Happy New Year.

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Each week Steve and I take a look at strategies companies are using to shape headlines and

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sometimes save their skins.

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It's a post game show for PR Pros.

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This week Costco stands up to diversity critics.

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Other listeners know that since we started this podcast Craig and I have been tracking

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what companies say as they backtrack on diversity commitments.

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Specifically how they walk the PR tightrope of appeasing diversity critics while apparently

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changing as little as possible when it comes to recruiting and retaining employees from

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underrepresented groups.

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This trend has been gaining steam for the past six months as conservative activists apply

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pressure to companies like Ford, Mulsik Wars and Lowe's, home improvement, picking just

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before the holiday season when Walmart became the latest and biggest company to walk back

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previous commitments on supplier diversity and racial equity training, even promising

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to stop using terms like the EI and official communications.

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All the while we've been wondering when someone might actually defend their diversity initiatives

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in the face of these name and shame campaigns and over the holidays we got the answer.

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Costco wholesale.

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The membership only warehouse retailer with over 600 stores and 200,000 employees in the

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US.

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In their proxy filing that went virtually unnoticed for two weeks in December, Costco stood up

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and recommended that shareholders vote against a proposal that demanded Costco's board

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evaluate and report on what critics called the risks of maintaining DEI policies.

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But Costco's board is having none of it.

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Having diversity helps both the bottom line and company culture.

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They write in their proxy quote, "We welcome members from all walks of life and backgrounds.

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As our membership diversifies, we believe that serving it with that diverse group of

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employees enhances satisfaction."

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Louder please for the people in the back.

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Craig, the Costco board mounted a concise, well-reasoned defense and they called out their

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critics for inflicting burdens on companies with these anti-woke challenges.

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They weren't exactly forthright.

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They filed this with the SEC and kind of waited to see if anyone noticed, presumably when they

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weren't Christmast shopping at Costco.

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What's your takeaway given the way the company went about this?

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There's a number of things here.

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One, sure, it is the holidays.

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This is their annual meeting coming up.

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They probably wouldn't have said anything other than it's a material statement.

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They do have a proxy that they're having to deal with and they're not expecting it to

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go forward.

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But they have to make this statement and I think they did the minimal viable statement that

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they could make on it.

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I think what's important about this is that after this prolonged season of companies rolling

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over for anti-diversity activists, Costco is the first one to show some sort of resolve

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in the face of pressure.

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They're the first in a while to publicly stand by their diversity initiatives even though

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they didn't do much to really promote that position.

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I'm curious how much they're really paying attention to what's going on in general.

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I mean, certainly in something like this, this is not something that anybody can neglect.

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This has been an important issue for the past four or five years.

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They don't participate very much widely in other aspects, but I think this is one that's

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so in your face that they can't really not pay attention to this one.

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It's interesting because as you mentioned, they don't seem to thump their chest generally

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about corporate issues.

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It's pretty well known that they don't have a public relations department.

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So making a bigger deal out of this might have been out of character for them.

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So in that way, I guess it's there being consistent.

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And maybe because they aren't the type of company that goes out and says a lot of stuff about

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corporate issues, maybe that's how they are able to sneak under the radar.

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They are an unlikely target for the activists.

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But by taking a stand here, they can hold firm and I believe very genuine in their defense

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as it's written.

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There's a couple of things going on here.

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One, 70% of their investor bases, institutional investors, right?

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So the name of the organization writing the proposal.

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It's the National Center for Public Policy Research.

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They're a right wing think tank.

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They've challenged diversity programs at Ford Boeing, Intel, American Express, a whole

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bunch of other companies.

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But they're not very successful.

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I don't think they've managed to get anyone to take any of their proposals.

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Not to say that they're not taking it seriously, but they're not getting the votes.

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Yeah, the high water mark for them, I think is like 6, 7, 8% and most of them don't reach

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that threshold.

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If you get, I think under some rules, and I'm not entirely clear about all of these,

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you get more than 5%, it makes it easier to bring the proposal back in the following year.

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So they were able to do that, for instance, last year at Boeing on an anti-diversity proposal,

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they got 5.3%.

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That's pretty high.

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I think part of it here also is that, look, this is a statement that they're making, they're

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proxy statement.

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They're not making any more of a public statement to the general public, right?

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This is an SEC filing that they are required to make by law, and I think that's where they

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draw the limit in terms of their communication here on this.

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Yeah, and over the holidays, when they were asked by reporters, they just referred folks

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back to their statement, which is a solid PR strategy, even for a company that doesn't supposedly

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have a PR department.

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I think another aspect of that is that the dynamic, this time around, the dynamic with the

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Costco challenge is different because, as you said, the shareholder proposal, it's not likely

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to succeed.

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But if we step back and look at the ongoing challenges to these DEI programs and how they're

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playing out, the other companies got show trials.

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This one's going to actually have a jury.

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As you point out, they're almost 70% institutional investors.

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The company is recommending a vote against, and the shareholder proposals are an uphill

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climb, generally, on any topic.

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I think if the board opposes it, especially with so many institutional investors.

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As far as the headlines go, diversity opponents have been winning, basically without a fight

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for the past six months.

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Now you have this $400 billion company pushing back, and on January 23rd, when they have their

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annual meeting, the diversity opponents are probably going to lose.

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From a broad PR perspective, as the story plays out in the headlines, that puts a damper

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on the opponent's momentum.

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Maybe that will stiffen the spines of some other companies as the proxy season moves into

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full swing because I'm sure there will be other companies that have this challenge to their

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policies.

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Yeah.

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I think it'll be interesting to see how it plays out in terms of how much Costco continues

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to participate, certainly in public discussions here.

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They've made a very clear, strong business statement in their proxy for the business value

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of diversity and the impact on their employees and their customer base.

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But they haven't really appealed to societal issues or moral issues for any of the reason

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that they've done.

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For you, what are some possible explanations that you see for the disconnect here between

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their strongly-worded proxy here on one hand?

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I would say they're otherwise passive approach.

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We don't hear very much about them in general.

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Yeah.

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They don't have a PR department, they say, and they don't put a lot of emphasis into communications,

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but they do have values.

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I think that's really important.

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Their website has a very simple articulation of their core values, and they'd say it in

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one sentence.

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They do the right thing.

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I think that they have stayed true to that in this.

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I think that while they may not have a robust PR practice, they have a really important

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key element of good communications, which is they are in touch with their values, and at

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least in this instance, they've been very good at communicating it.

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We've been saying on this podcast that companies who value diversity need to get better

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about talking about that value, that priority, and here Costco, in less than 800 words, put

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forward a really strong, simple set of messages that could apply to and could be said by a lot

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of companies.

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They said diversity is good for business.

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It makes our employees happy.

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It makes our customers happy.

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Everything we're doing is legal.

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It's not discrimination.

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I think another thing that has distinguished them in this episode is Costco.

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They're calling out the challengers for being disingenuous about the supposed risks.

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But I think in calling them out, I think they're focused specifically on their upcoming annual

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meeting.

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I don't think that they're participating in a larger discussion.

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Even though the media might pull them in, it'll be interesting to see, this could be the

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moment that maybe they decide that they want to invest in an achieved communications officer

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or a corporate affairs function for dealing with these issues, because they are now being

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drawn into the fight, whether they were proactively trying to be part of the discussion based

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on their pure size, the revenue, number of employees that they have, they're now part

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of the discussion at this point.

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They are leading us in to the season.

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This may not be the fight that they wanted to take, but it's here, right?

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They're one of the first companies to have their annual meeting here at the beginning

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of 2025.

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Yeah.

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And just by virtue of the calendar, their fiscal year ends at the beginning of September,

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where most companies end at the end of September.

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So they're just, again, maybe just by virtue of the calendar.

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They're first in line here.

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I think you make a good point, which is they may decide to, after being under more scrutiny

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or at least having more attention because of this, they may decide to invest in more communications

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resources.

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I don't know that they need it or not.

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To me, the big question for the next couple of weeks is whether or not they stick to their

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guns.

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Now that there is more attention, and I'm sure in the coming weeks, days there will be...

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It will be interesting to see what type of impact that their statement is going to have

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with those that oppose them, right?

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Because they're clearly not on Robbie Starbucks list at all, right?

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He's not going after them.

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My thought on this is that one of the reasons that he's not is that they don't seem to be

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very heavily invested in their public reputation beyond their stakeholder reputation of employees,

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their customer base, and their investors.

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Any other group, including the larger public, I don't think they are as concerned.

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I say that is based on two pieces.

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They don't advertise very much, which that's one of the indicators for companies that are

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advertising more.

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They're appealing to a wider range of stakeholders that have a much more volatile environment.

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That's one area.

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Then the second is that they don't participate in rankings at all, whether it's reputation

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rankings or rankings about corporate social responsibility.

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Yeah.

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I'd love to hear your take on that because I think you mentioned earlier that they had

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one of the lowest scores from the indices that we addressed on our first podcast episode.

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Yeah.

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The Human Rights Campaign, Corporate Quality Index, where lots of companies scored very,

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very high, including some of the companies who have backed off on diversity commitments

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over the past six months, where I think Costco scored was like 20 out of 100, which is,

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you have to work kind of hard to get a score that low.

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I think that there's a lack of transparency, as you were pointing out earlier, just about

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their corporate structure, their operations.

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They don't promote necessarily on their website that they have diversity initiatives.

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They clearly do because these activists know about it.

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I think they have in this filing, they seem to have caught this anti-wolk army off guard.

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The Robbie Starbucks of the World War caught flat-footed.

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I'm in a hand full of people on Twitter have called for a boycott, but near as I can tell,

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there's no serious effort underway, nothing that appears organized.

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The holiday has made this a pretty short runway.

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I think that this actually might be as big a test for the anti-diversity crusaders as it

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is for Costco.

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Sure.

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The online activists were not ready.

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Robbie Starbucks, who we've mentioned many times on this podcast, is one of the leading critics

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and crusaders getting companies to change their policies.

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He started tap dancing when the news hit.

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He just wanted to make clear that this wasn't his idea, and it wasn't going to break his

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winning streak because he hadn't targeted Costco, at least not yet according to him.

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He didn't give the proposal his wholehearted support, probably because he not sure if it's

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going to win.

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The thing that we need to remember here is that so far, the critics like Robbie Starbucks

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have not faced a real opponent in the issue.

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The other nine companies that they targeted rolled over, some of them like Walmart before

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he even targeted them publicly.

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For me, this is also a test of this conventional wisdom that we've been reading in some conservative

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outlets.

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And also elsewhere, since November, that Trump's victory signaled supposedly that a majority

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of Americans are exhausted by DEI.

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But as we've talked about before, poll numbers just don't support that position.

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Workers are seeing DEI in a slightly more negative light.

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But when people are asked specifically about diversity goals, they still tend to support

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them like 60, 40 in some polls.

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So I think that whether Costco intended it to be this way, the tone of the message, which

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I assume they do, if they don't have someone who is called Chief Communications Officer,

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they're clearly getting some good advice coming from somewhere, or maybe they're just really

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good at articulating their values.

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But they're-

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I think it's worth discussing here, right?

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Because there's so many other, there's so many lessons that we can pull out from just

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looking at Costco's response here with their proxy statement, all about communications.

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I mean, there's so many things here, I would say from a communications mindset, right?

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One of the things that we know for sure is that given the lack of advertising, given the

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fact that they- well, they not only don't have a communications person on their website,

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they don't have a Chief Communications Officer.

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And where the top ranked communications person is within their organization, I think is

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at best, maybe an assistant vice president, but I think right now it's a communications

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specialist.

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But if you see everyone else on their website, it's all EVPs, SVPs, and not even their

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Chief Diversity Officers there, I think she listed according to her webpage is just, you

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know, vice president, which is this one level below.

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And that- okay, that's a reason for not having in there if they're holding across the line

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that they only put SVPs or higher.

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But from the ComSide, they're not participating in any of the reputation rankings.

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They're not filling out any of the forums for CSR ratings or ways of demonstrating accountability.

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So clearly, public communications does not seem to be a priority for Costco, right?

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But here at this point, they're now drawn into it whether they like it or not.

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There's an opportunity for Robbie Starbucks or others to come in and criticize them.

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The question is, will they and what effect will they have if they do?

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Well, whether it's an executive or a committee or a specialist in that company there have

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taken the right initial step here, which is in their communications, they are not coming

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from a place of fear.

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They're not operating out of fear.

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They're not being defensive out of fear.

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And that fear is what I think has driven a lot of the U-turns on diversity that we have

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seen.

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It was fear of customer backlash, but it wasn't a reaction to actual customer backlash.

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And I don't think that Robbie Starbucks is going to jump into the middle of this because

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he knows it's not going to win.

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And it's more important to him to have a trophy company to add to his collection.

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I think the big wild card here is who, if anyone, jumps into the debate.

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A tweet from Trump or Elon Musk could change the dynamic completely.

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There are uncharted territory on that in general.

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Or he might wait till afterwards.

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This certainly will not be the time to test it, given that they have a 70% institutional

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investor base and his ability to influence is probably not going to be that strong.

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But nevertheless, they do have two important qualities that Robbie Starbucks is going to

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go after, which is that one of the largest companies out there, which means that the bigger

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you are, the harder you fall.

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And so if he's able to tap into challenging the revenue base or drawing support among their

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employees, those should be two items if he's really going after those.

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The thing that's working against him here is that they don't seem to care.

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They're not focused on being measured by the common metrics.

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They're not participating in a lot of the program's places, measurements, surveys where people

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usually make those judgments about is a company, on the one hand, is a company diverse enough

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on the other hand, from the critics point of view, is a company to woke.

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I want to come back to your point about them being scared because they may not be scared,

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but I still don't think they're showing strong enough leadership.

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They did what they had to do. It was a material requirement for their proxy statement.

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They had a strongly worded statement.

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We've not heard anything else other than see the statement there.

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And they're certainly not defending their position in public.

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They're simply going back to that core statement that they made a couple of weeks ago.

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The medium is the message, right?

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Where you choose to have the debate and really make a big difference.

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There are times when you're going to make the case in the proxy and that's it, there's

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nothing more to be said.

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You define it and don't let people pull you off your game.

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I think you could have a 500 person comms department or you could have a 200 person comms department

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and you could still decide we're just saying it once.

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We're just saying it in the proxy.

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All right.

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I have no experience here, so I'm going to have to take your word on it, right?

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I would say, and I'm no data on this, this is purely speculation that companies that are

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more engaged in the world based on the size of their communications team.

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The more time, energy and resources that you have to invest in communications means the

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more time, energy and attention, you're going to end up in creating controversies and scandals

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and problems, right?

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If you, a lot of things are just going on in the world, but having a larger communications

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team means you're going to be able to see a lot more things that are going on.

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If you have a smaller team, you can see more things.

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You can see more things.

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I think that that is a really important point because to your point earlier, they changed

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to the name of their DEI department to something else, right?

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They're able to read the room.

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That's a good skill.

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You don't necessarily need to do that through the communications department, but a lot of

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companies too, which is fine.

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I don't think that's in our will.

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We'll house yet right now at this point.

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I don't think we've done a very good job of training communicators to sit still.

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Yes, no, I agree.

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I didn't roll off your back.

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But not just let it roll off your back, just say it and be done.

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I won't call anybody out by name, but I can think of companies with massive communications

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departments, right?

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And they are not able to just say one thing and let it go, right?

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Because their muscle memory is to just keep adding to it.

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And that's where companies get, in a situation here where there is a very specific time bound

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goal.

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We need to win on the 23rd.

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But getting pulled off their message is going to be bad.

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And so whether it's because they had some strategy to do communications this way or maybe

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just they're just lucky that they don't.

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Sometimes when all you have is a hammer, everything looks like a nail.

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And you're just like, oh, we just, when we get a press request, we answer it.

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Well, that doesn't, that's not going to be strategically the right call in this situation.

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The right thing is they have this well written thing and just point people back to that.

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That's it.

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We're done.

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And that's hard for sometimes for some organizations to do.

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Oh, yeah, yeah, yeah, yeah.

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And then you also have to add the fact of the question of, geez, what are we paying you

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for?

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Like, you know, they're, they're going to engage on communications, communication conflict

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because they got to show that they're doing something.

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We've not figured out how that showing, we're doing something by doing nothing, right?

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And keep everybody calm, cool, collected and focused on your priorities.

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Well, what are you paying us for?

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You're paying us to deliver a message and make sure that it sticks, make sure that it lands,

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make sure that our reputation, but in this case, the way to do that is by just saying

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one thing once.

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And does that mean you probably need a smaller communication department?

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Maybe.

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Yeah.

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But I'm wondering if this could be a part of their communication strategy as a whole.

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And I say that tongue in cheek because I don't think they, their communication strategies

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largely stay under the radar, right?

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Well, I mean, near as, near as we can tell, but I think this, this is, it's a defensive strategy

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in a way, but they've mounted, you know, such a compelling defense of their, of their

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initiatives that I think it, it, it, it should do the job.

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I mean, I think that they're, look, I, I certainly don't want to pull them into a fight that

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they don't want to be part of.

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I mean, every company should be free to chart its own path in terms of the, the role that

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they want to play in society.

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Well, to your point, they're in it, whether they like it or not.

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So I think the thing for all of us looking at this and, and it's a, it's a moment of intrigue

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because it's not just Robbie Starbuck and his camp that's watching this.

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I think the entire communications field is watching this for the ripple effect that it could

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have for, for the rest of the companies out there, specifically those that do invest in

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public communications, have achieved communications officer.

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For me, this raises the question, can you function in society?

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Can you accomplish all that you want to accomplish as a company without investing in communications?

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Right?

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And I say that from, from the perspective of investing in comms, from like having a,

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communications leader on your senior leadership team, well, I think you can have an effective

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communications strategy.

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You can run a really effective and really effective campaign without continually making

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more and more statements, right?

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So I think that what the, the, the strategy they're running, whether they've articulated this

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internally or not, I suspect that they have, but the strategy is they have a really strong

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position and they, you're not, you know, necessarily going to do, especially better than that.

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And, but getting more attention to the same 800 words is good for you.

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And so those, that, that position that they, that they've laid out, if that keeps getting

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attention, then, then they're going to be, then they're going to be fine because what

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the critics will want to do is pull them off message.

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They'll want to draw attention to some other part of the argument or they're going to want

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to set up some, you know, some argument about why this is inefficient or discriminatory or

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something.

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And I think that Costco is smart to just say, we have answered all the questions in this

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response and you can draw, you know, any answer that you need out of what we've already

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written.

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And that's a very, it's a position, again, it's a position of strength, not fear.

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And the companies who cave to Robbie Starbuck seem to be motivated out of fear and their

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communications, I think, reflect that it's not a good look because, you know, what signal

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does that send to other critics or your competitors or, or whomever?

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It was, they were, they were, they were some bad examples going down without a fight.

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And maybe that was convenient for those companies.

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But letting the opponents, the antagonizers tell the story is not a good strategy.

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And so I think Costco has chosen a really smart path in this.

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00:24:51,400 --> 00:24:55,720
Well, I think one of the things that they share with, with Walmart on this, one of the few

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things is that they're trying to control the narrative and the sense of saying, this is

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what we're doing, right?

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This, this is our focus.

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And you know, in the case of Walmart, they said, look, this is something that's been planning

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to do for a long time.

399
00:25:09,640 --> 00:25:12,760
Costco didn't say that, but they did, they did make changes, right?

400
00:25:12,760 --> 00:25:17,120
They did make changes in support of Robbie Starbuck's position, right?

401
00:25:17,120 --> 00:25:23,440
They changed their, the EI program to be people and communities as the, the larger label.

402
00:25:23,440 --> 00:25:29,920
So on some senses, they did do some backpedaling a little, they've made changes for sure.

403
00:25:29,920 --> 00:25:35,440
But they have certainly held strong in other ways and, and, and, and ways that are important

404
00:25:35,440 --> 00:25:40,240
to their customer base, to their employee base, to their investors.

405
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And without really paying much attention beyond that, right?

406
00:25:42,960 --> 00:25:46,720
So I think they have their, their priority, straight in terms of knowing, you know, who's

407
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paying the bills, who's buying the product and so on.

408
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The big difference here between Costco and Walmart and I think all the other companies

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who were targeted in the second half of 24 is, Costco is rejecting the premise.

410
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Costco is saying that DEI initiatives or whatever you call them, align with their core values,

411
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they're critical to their success.

412
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They comply with the law.

413
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It just, they've rejected the whole premise of this call, but you want anti woke.

414
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And I think that they are, they are holding strong on that.

415
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Whereas other companies and we saw this especially in the early days of these campaigns,

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they were like, oh, well, we realize that we've, you know, we've gone too far.

417
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We've done the wrong thing or I'm paraphrasing obviously.

418
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But there was, there was some, there was some in the, in tone, if not words, they were

419
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acknowledging that they were reacting to some popular, again, pendulum swing against DEI

420
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initiatives.

421
00:26:48,320 --> 00:26:51,040
And I don't think that that's necessarily out there certainly the polling that we've

422
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seen doesn't reflect it.

423
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But there has been this conventional wisdom, I think, and no one has, has stood up to it.

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Costco is and we will see how it changes the, the conversation.

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So that's our show for this week.

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We want to thank Shawn P Neal and the PeopleForward Network for making our podcast possible.

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If you'd like to tell us what you think or if you have a topic you'd like to suggest for

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our show, we'd love to hear from you.

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Our email address is podcast@ocrnetwork.com.

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Communication breakdown is a production of the observatory on corporate reputation.

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I'm Steve Dowling.

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And I'm Craig Carroll.

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Thanks for listening.

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We'll be back next week.

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[MUSIC]

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