Last summer, following a wave of protests and advocacy for social justice, hundreds of corporations released statements expressing their unwavering commitment to diversity, equity and inclusion. For many, these statements were unusually direct expressions of their corporate values and purpose, evincing an emerging model of corporate governance that focuses less on short-term profit maximization and more on balancing an array of stakeholder interests in order to generate value for the corporation in the long term. These environment, social and governance (ESG) interests, have become increasingly important to everyone, from institutional investors, to regulators, consumers, and employees, each of whom are paying closer attention to whether a company’s words match its deeds.
In July 2020, a plaintiffs firm filed a novel shareholder derivative suit against Facebook’s board of directors, attempting to create legal liability for corporate failures on diversity. The suit alleged that, despite the company’s lofty public statements about the importance of diversity, the failure of Facebook’s board to appoint Black board members or executive officers caused reputational and competitive damage to Facebook. Moreover, to the degree that these statements were contained in proxy materials, the statements (as measured by minority representation in leadership and by public allegations of racial discrimination against the company) were false and misleading. Between July and September, the firm had filed virtually identical federal suits against the boards of Oracle, Qualcomm, NortonLifeLock, The Gap and Monster, each alleging that board members breached their fiduciary duty (among other claims of mismanagement) and violated the federal securities laws. Other prominent plaintiffs firms have since followed suit, suing AMD, Cisco, Danaher and OPKO derivatively for their purported failures on diversity.