Introduction
Morgan Stanley, a global financial services firm, has long emphasized diversity, equity, and inclusion (DEI) in its corporate culture. However, President Trump’s January 2025 executive order, targeting what it deems “illegal DEI” practices, has prompted significant shifts. The Morgan Stanley DEI approach is now evolving, with the firm adjusting its language and focus in response to new regulatory pressures. This think piece explores how these changes are unfolding and what they mean for small businesses, particularly in adopting merit-based approaches.
Background on DEI in Corporate America
DEI programs have been integral to corporate strategies, aiming to enhance workplace diversity, equity, and inclusion. For Morgan Stanley, these initiatives included quantitative goals, such as increasing representation of women and minorities.
However, recent shifts show a move away from explicit DEI language, with the 2025 annual report replacing a diversity chapter with a “human capital” section, mentioning “inclusion” less frequently. This reflects a broader trend among financial institutions like Citi and JPMorgan Chase, adjusting to regulatory and cultural pressures.
Details of Trump’s January 2025 Executive Order
On January 21, 2025, President Trump signed Executive Order 14192, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” aiming to terminate DEI practices deemed illegal under civil rights laws. The order revokes previous executive orders like EO 11246, which mandated affirmative action in federal contracting, and directs agencies to cease promoting DEI in government processes. It also encourages private sector compliance, with reports due within 120 days outlining potential investigations into large corporations and nonprofits for DEI practices violating anti-discrimination laws.
The order defines “illegal DEI” as practices that prioritize identity over merit, such as quotas or preferences based on race, sex, or other protected traits, aligning with a view that such programs can foster discrimination against individuals based on merit. However, the vagueness of this definition has led to legal challenges, with a federal judge issuing a preliminary injunction in February 2025, later lifted by an appeals court on March 14, 2025, allowing enforcement amid ongoing lawsuits.
Morgan Stanley DEI Adjustments
As a federal contractor, Morgan Stanley is subject to these changes. Recent reports suggest the firm is de-emphasizing DEI, with its latest SEC filings removing explicit diversity subheadings and emphasizing meritocracy. The company has stated, “Meritocracy is at the heart of Morgan Stanley’s talent development.” This aligns with the order’s focus on rewarding “individual initiative, skills, performance, and hard work,” potentially scaling back programs like the Institute for Inclusion, which previously supported underserved communities. While no direct statement from Morgan Stanley on the order was found, industry trends suggest compliance through reduced DEI targets and increased focus on legal risk management.
Implications for Small Businesses
Small businesses, particularly those with federal contracts, must navigate similar adjustments.
| Aspect | Impact |
|---|---|
| Federal Contractors | Must comply with order, review DEI for legal compliance, potentially eliminate quotas. |
| Non-Contractors | May voluntarily adjust DEI to align with merit-based culture, reduce legal risks. |
| Cost Implications | Lower costs from reduced DEI programs, focus on merit-based hiring and promotions. |
| Competitive Advantage | Enhanced fairness in hiring, potentially attracting talent based on skills, not identity. |
| Legal Risks | Reduced risk of lawsuits for perceived discrimination, aligning with civil rights laws. |
This shift aligns with a perspective valuing individual opportunity and limited government intervention, as small businesses can focus on performance rather than mandated diversity targets. This shift aligns with a perspective valuing individual opportunity and limited government intervention, as small businesses can focus on performance rather than mandated diversity targets. The Morgan Stanley DEI approach, which emphasizes merit-based hiring and talent development, may help businesses foster innovation and efficiency while reducing regulatory risks.
Legal Challenges and Future Uncertainty
An unexpected aspect is the ongoing legal battles, with a federal judge initially blocking parts of the order in February 2025, though an appeals court lifted this block in March 2025, allowing enforcement. This uncertainty could affect how small businesses implement changes, potentially delaying decisions until legal clarity emerges.
Conclusion and Forward-Looking Perspective
The Morgan Stanley DEI response to President Trump’s executive order highlights a fundamental shift toward merit-based systems, emphasizing individual achievement over group identity. This transition reflects a growing trend among major corporations and financial institutions, signaling a departure from traditional DEI initiatives that prioritized diversity quotas and identity-based hiring practices. By focusing on skills, performance, and individual merit, Morgan Stanley and other companies are aligning with the executive order’s objectives while also mitigating potential legal risks.
For businesses, particularly federal contractors, compliance with the new regulations will require adjustments in hiring, promotion, and workplace policies. Organizations that previously structured DEI programs around quotas or identity-based initiatives may need to reconsider their approach to ensure they align with merit-based principles. This shift could lead to a more competitive and efficient workforce, where talent and expertise become the primary criteria for professional advancement. However, companies must navigate these changes carefully, balancing legal compliance with maintaining an inclusive and equitable work environment.
Small businesses that rely on federal contracts will need to assess their DEI policies to avoid regulatory scrutiny. Non-contracting businesses may also find it beneficial to voluntarily adopt merit-based models, reducing the potential risks of lawsuits and compliance challenges. This could result in lower costs associated with DEI training and implementation, allowing businesses to allocate resources toward growth and innovation.
While legal challenges to the executive order continue, the broader trend suggests that corporate and small business policies will increasingly focus on individual talent and performance. If this shift continues, businesses may see enhanced economic competitiveness and workplace equity based on merit, fostering a workforce that rewards initiative and excellence over mandated diversity goals.
FAQs
How is Morgan Stanley DEI changing in response to Trump’s executive order?
Morgan Stanley DEI initiatives are shifting towards a merit-based approach, scaling back explicit DEI language in reports, and removing diversity-specific subheadings. The company is emphasizing “human capital” and individual performance rather than identity-based hiring.
What does Trump’s 2025 executive order mean for corporate DEI programs?
The order ends federal DEI mandates, revoking previous policies requiring diversity targets and affirmative action in federal contracting.
Are small businesses required to eliminate DEI programs?
Federal contractors must ensure compliance, but non-contractors can voluntarily adjust their policies to avoid potential legal scrutiny.
What legal challenges has the executive order faced?
A federal judge blocked parts of the order in February 2025, but an appeals court lifted the injunction in March 2025, allowing enforcement.
Will Morgan Stanley’s Institute for Inclusion be affected?
While no direct announcement has been made, a reduced focus on DEI may impact the program’s scope and funding.
How are other financial institutions responding to the order?
Banks like Citi and JPMorgan Chase are also scaling back DEI language and adjusting hiring policies to align with the new regulatory environment.
What impact will this shift have on workplace diversity?
Companies may focus more on individual skills and performance, which could lead to more merit-based hiring but fewer structured diversity initiatives.
Should small businesses proactively adjust their DEI policies?
Businesses with federal contracts must ensure compliance, while others may choose to follow industry trends to reduce legal and financial risks associated with DEI-related lawsuits.
