Amid a flurry of executive actions President Trump is taking to dismantle diversity, equity and inclusion (DEI) initiatives within the federal government, the Trump administration is also turning its attention to private companies and institutions.

President Trump signed an executive order the day after he was sworn in to his second term that not only rescinded DEI policies in the federal government, but also “[encourages] the private sector to end” what the order calls “illegal DEI discrimination and preferences,” claiming in part that DEI policies “violate the text and spirit of our longstanding Federal civil-rights laws.”

“Hardworking Americans who deserve a shot at the American Dream should not be stigmatized, demeaned, or shut out of opportunities because of their race or sex,” the order said.

Several legal experts who advise companies and institutions regarding their DEI policies told ABC News that while the Trump administration doesn’t have the legal authority to mandate that private businesses abandon their DEI policies, the executive order’s language uses the threat of potential legal action against certain companies with DEI policies to ostensibly force them to do so.

‘It’s a powerful threat’

Part of Trump’s Jan. 21 executive order directs the attorney general, “within 120 days of this order, in consultation with the heads of relevant agencies and in coordination with the Director of [the Office of Management and Budget],” the latter of which oversees the performance of all federal agencies, to “submit a report … containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”

The order instructs the federal agencies to “identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars,” as well as “litigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest.”

Those agencies are further directed to identify “key sectors of concern” and “the most egregious and discriminatory DEI practitioners” within each agency’s jurisdiction, and to develop “a plan of specific steps or measures to deter DEI programs or principles.”

The possibility of a legal battle with the federal government over DEI is already causing concern for many private businesses, experts told ABC News.

“It’s a powerful threat that companies are responding to it by taking another very close look at their programs to make sure that they are comfortable with them,” said labor attorney Jason Schwartz, a partner and co-chair of the Labor and Employment Practice at Gibson Dunn in Washington, D.C., and who leads the firm’s DEI task force.

“Nobody wants to be on that Donald Trump DEI blacklist,” Kenji Yoshino, a professor of constitutional law at NYU and the director of NYU’s Center for Diversity, Inclusion and Belonging, and who also advises Fortune 500 companies on DEI matters, told ABC News. “I worry that there’s a very smart move and savvy move on the part of the executive branch to cast a fear through this kind of gesture of ‘we are going to single you out,’ or targeting so that a lot of companies are going to withdraw or pull back more than they needed to pull back, strictly legally.”

“[Companies] just don’t want to be one of those nine,” Yoshino added, referring to the number of the executive order’s “potential civil compliance investigations.”

“Until those nine are announced, it’s going to cause others to be risk-averse,” said Yoshino. “So there’s a kind of, you know, preemptive compliance, you know, or obedience going on.”

How companies are responding

Schwartz told ABC News that since Trump signed his executive order, companies have been scrambling to seek legal counsel regarding their DEI policies and whether they need to be revised.

“The phone is literally ringing off the hook,” he said, referring to the calls his firm is receiving. “Companies are very concerned. They want to make sure, obviously, that they stay on the right side of the law.”

Yoshino said that the phones at NYU’s Center for DEI likewise have been “ringing off the hook” with calls from companies seeking advice on how to proceed with their DEI initiatives. For now, he advises that concerned parties take a measured approach.

“The reflexive response is often to be like, ‘Oh, if we shut it down, we will minimize risk,’ and we regard that to be short sighted, both because there are smart ways to tweak these programs to lower the risk, or even lower to zero, eliminate the risk while still getting the same results,” Yoshino told ABC News.

“And alternatively, if you eliminate all your DEI policies, you’re then going to get sued from the other side,” he cautioned, noting that marginalized groups could argue that rolling back DEI “leads to a less inclusive, more discriminatory environment.”

Several large corporations – including Amazon, Meta, McDonalds, Walmart and Ford – announced before Trump was sworn in for his second term that they were ending, scaling back or otherwise reevaluating some of their DEI-related programs or initiatives.

However, according to Yoshino, whose office has been tracking the impact of Trump’s actions on DEI, even some companies who are stepping away from some DEI initiatives are retaining some policies or programs committed to inclusion, and that the majority of companies on the Fortune 500 list “still have pro-DEI statements on their websites.”

Some companies also are publicly standing by their DEI commitments, with leaders at Goldman Sachs, Costco and JPMorgan Chase & Co recently speaking out in support of their diversity programs amid pressure from anti-DEI activist shareholders to roll back their policies.

“I do think that it’s really important not to overreact,” Yoshino told ABC News.

What comes next?

While it’s unclear what might be “litigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest” against private companies, as the executive order states, as well as what might be the outcome of any such actions, Yoshino and Schwartz both noted that anti-DEI litigation efforts in the U.S. have been escalating since the Supreme Court’s June 2023 landmark ruling that effectively ended affirmative action in higher education.

Since the Supreme Court decision, conservative legal advocacy groups have been ramping up litigation against private companies over their DEI initiatives, Schwartz said, noting that with Trump’s executive order, those groups have now “moved their operation into the White House.”

“They now have the full force and power of the United States government where they can bring these cases,” Schwartz added.

Yoshino agreed, telling ABC News that the president is now putting the “muscle of the executive branch behind the impact of that decision.”

Yoshino said that while the Supreme Court case addressed the higher education admissions process and was not about diversity and inclusion efforts in the private sector, “it gave us such a clear window into how [the Supreme Court] was thinking about the issue of race discrimination.”

The Supreme Court ruled that “in the same way that you can’t discriminate against a person of color, you also can’t discriminate against a white individual,” according to Yoshino. “That contrasts that with the previous jurisprudence that said you’re allowed to use a [race] classification in narrow circumstances so long as your intent is to lift up a historically subordinated group.”

According to Schwartz, while the Trump administration is “not creating new laws” regarding the legality of DEI through his executive order, the Department of Justice is gearing up to bring cases against private companies by arguing that existing laws “already prohibit many of the DEI programs that exist.”

Schwartz also pointed to the Equal Employment Opportunity Commission (EEOC) as a federal agency that is likely to help advance the White House’s anti-DEI efforts. The federal agency, which has the authority to investigate and prosecute cases of alleged employment discrimination, is now led by Trump appointee Andrea Lucas, who said in a statement upon being named EEOC acting chair Jan. 21 that her priorities are “consistent with the President’s Executive Orders,” and include “rooting out unlawful DEI-motivated race and sex discrimination.”

“Our employment civil rights laws are a matter of individual rights. We must reject the twin lies of identity politics: that justice is measured by group outcomes and that civil rights exist solely to remedy harms against certain groups,” Lucas’ statement continued. “I am committed to ensuring equal justice under the law and to focusing on equal opportunity, merit, and colorblind equality.”

ABC News’ Kiara Alfonseca and Sabina Ghebremedhin contributed to this report.