Businesses Face Uncertain Enforcement Landscape Under the New Trump Administration, Congress and State AGs

The same day Pam Bondi was sworn in as attorney general of the United States, she issued 14 directives to all Justice Department employees. One of them promises to not only eliminate diversity, equity and inclusion initiatives held by government contractors but instructs DOJ’s civil rights division to use its enforcement tools to “encourage the private sector” to follow suit and “end illegal discrimination and preferences.” The move closely aligns the executive departments with President Donald Trump’s populist policy agenda — one that, among other things, vows to end DEI programs, reduce government regulation and reprioritize defense and national security.

Bondi’s directive to the DOJ is an obvious warning to the private sector: Big business is on the radar.

But the Bondi memorandum is just one example of a shift in enforcement priorities among Republican policymakers. Ordinarily, a Republican majority in Congress, a Republican-controlled Senate and a Republican presidency would cue the business community to breathe a sigh of relief in anticipation of a deregulatory era. While that may still be true, the traditional view that the private sector can expect Republicans to take a universally business-friendly approach to regulation and enforcement no longer holds. Republican attorneys general are increasingly lining up against business when the fight is coupled with a populist message. In some cases, this means joining forces with their Democratic counterparts, who are traditionally viewed as much more willing to use their enforcement tools to target big business. But Republican AGs are also increasingly engaging in investigative and enforcement actions that align with their politics and ideology, including scrutinizing DEI and related policies. 

This trend creates a new and complicated playing field in which both Republican and Democratic AGs are eyeing business as prime enforcement targets. Business leaders and general counsel, particularly those with business operations in multiple states, would do well to pay attention to the competing enforcement priorities.

Anticipated Trends

The Trump administration is already actively cutting back on federal regulatory enforcement. In the last few weeks, President Trump has taken steps that have effectively shuttered the Consumer Financial Protection Bureau, the agency with the most expansive authority over financial institutions. Less regulation at the federal level likely means all state AGs, regardless of political affiliation, will continue to expand their reach and visibility, and they are expected to focus on environmental regulation, consumer protection and antitrust issues. It is expected that state AGs will also likely focus a lot of attention on the technology, healthcare and finance industries.  

As they did under prior presidential administrations, state AGs will again be a check on executive action in areas that fall along predictable partisan lines, but this time it will be Democrats bringing the legal challenges and Republicans defending them. Democratic AGs successfully sued and blocked a number of Trump administration actions during his first term, and they’ve been preparing for months for a potential Trump 2.0. Although these efforts will constrain resources, Democratic AGs will also see themselves as filling an enforcement void at the federal level and will look to ensure that their efforts to counter the Trump administration do not come at the expense of the environmental and consumer-focused actions they view as central to their role as their states’ chief law enforcement officers. 

Republicans AGs will also remain active notwithstanding the like-minded Trump administration coming to power at the federal level. Instead, Republican AG offices will find themselves with resources to spare as lawsuits against Biden administration policies wind down. It is expected that they will turn some of their freed-up resources toward investigations and enforcement actions against the private sector, with a particular emphasis on issues that resonate with their political base. For example, Republican AGs will likely continue their efforts to dismantle environmental, social and governance initiatives and DEI programs, and focus on weeding out discriminatory treatment of political conservatives. It is also expected that Republican law enforcement officials, both state and federal, will closely scrutinize corporate connections to China.  

Texas AG Ken Paxton is a prime example of Republican AG alignment of enforcement initiatives with a populist message. Last month, he and 18 other state AGs sent a letter to Costco demanding that the company immediately cease its DEI policies. The week prior, he gave BlackRock, Goldman Sachs, JP Morgan Chase, Bank of America and Citigroup the “opportunity” to provide detailed information and designate employees for interviews in connection with the financial institutions’ ESG and DEI commitments. The target companies have four to six weeks to respond, after which the attorneys general coalition will decide whether or not to pursue enforcement actions based on the information provided.

In addition, Missouri AG Andrew Baily sued Starbucks last month for alleged race and sex discrimination in connection with the coffee giant’s training and advancement opportunities. The lawsuit claims Starbucks has violated state and federal law by imposing hiring quotas, segregating employees by race and sex and singling out preferred groups for extra training and employment benefits in its aim to advance racial and social equity. Businesses that sponsor identity-based professional networks or resource groups for their employees should take note and evaluate their compliance with state and federal antidiscrimination laws, especially if they do business in Republican-led states.

Yet while businesses may wish to scale back DEI or ESG policies in response to the Republican offensive against these initiatives, any decision to reverse course in these areas could be met with pushback by Democratic AGs with competing political priorities. In recent years, the business community has been caught in a similar predicament with respect to debates over ESG investing, with  Republicans claiming that ESG considerations necessarily conflict with the obligation to maximize investor profits, while Democrats fault companies for so-called “greenwashing” — overstating the impact of policies and actions they claim are  environmentally friendly.

Key Considerations

Given the complexities of the current political landscape, there are steps companies can take.

First, businesses should be well-versed in the policy and enforcement initiatives of each state AG in the relevant jurisdictions where they do business. This is particularly important where they do business in multiple states.

Note that, unlike members of Congress in the minority party who are often sidelined, all state AGs, regardless of party affiliation, are in full control of their offices. After the most recent elections, the partisan split will be 28 Republican AGs and 23 Democrats, so neither party can be ignored.

Second, businesses should be prepared for a fight when it comes to social policy issues. In the current political climate, state AGs of both party affiliations are motivated to identify the best targets for making a political statement through an enforcement action. And where politics is at play, state AGs may be less likely to reach a settlement agreement with the targeted companies, opting instead to litigate the political issues to the bitter end in both the courts of law and the court of public opinion.

Third, businesses should consult experienced legal counsel about the added challenges of navigating the currently polarized state AG community and their increasingly offensive enforcement strategies before having to evaluate their policies for the first time in litigation.