July 14, 2020
Shareholder Derivative Suits Launched Over Diversity Concerns
Board diversity has been an area of focus for investors for a while now but with recent social unrest, board diversity is being scrutinized even more. With attention on diversity, a pair of recent shareholder derivative suits have been launched against two tech companies over diversity concerns. First, this D&O Diary blog reports that an activist investor has launched a suit against Oracle’s directors alleging the directors breached their fiduciary duties by failing to diversify the company’s board and failing to address diversity and equality issues.
Separately, a Law360 blog describes a suit targeting Mark Zuckerberg and several other Facebook directors with claims of breach of fiduciary duty, abuse of control and unjust enrichment for allegedly deceiving “stockholders and the market by repeatedly making false assertions about the company’s commitment to diversity.”
As noted in the D&O Diary blog, these lawsuits show how concerns raised in the wake of current social unrest can indirectly lead to claims against corporate boards – saying activists are likely to bring further lawsuits against corporate boards as they seek to advance diversity objectives, introducing a potential new area of D&O litigation. Both complaints seek several forms of relief, including:
That at a certain number of directors resign prior to their next annual meeting, and the companies should include Black or minority nominees as replacements; that the defendants should return all of their 2020 compensation; that the companies should require their board receive annual diversity training. In Oracle’s case, the shareholder also requests that the company set specific goals on the number of Black individuals and minorities to hire over the next five years; and that the company publish an annual Diversity Report. In Facebook’s case, the shareholder also requests Zuckerberg be replaced as company chairman, the company create a $1 billion fund to hire Blacks and other minorities and maintain a mentorship program, tie executive pay to achievement of diversity goals and replace Facebook’s auditor.
California Assembly Introduces Another Bill with Potential Director Quota
We’ve blogged before about California’s board gender diversity quota. Recently, as reported in Keith Bishop’s blog, a bill similar to California’s board gender diversity law has been introduced in the California Assembly. The bill would impose a requirement on public companies headquartered in California to have a minimum number of directors from an “underrepresented community” no later than the end of 2021. The bill defines a “director from an underrepresented community” to mean an individual who is African-American, Hispanic, or Native American.
California was the first state to introduce legislation requiring publicly-held companies headquartered in the state to diversify all-male boards. California’s board gender quota law has been challenged in lawsuits and earlier this year, I blogged about a federal court dismissal of one lawsuit – although the dismissal was promptly appealed. Meanwhile, another case challenging California’s board gender diversity law is ongoing in California state court – here’s Keith Bishop’s blog discussing the status of that case.
Tomorrow’s Webcast: “Coronavirus: Next Steps For Disclosure & Governance”
Tune in tomorrow for the webcast – “Coronavirus: Next Steps For Disclosure & Governance” – to hear to hear Ning Chiu of Davis Polk, Meredith Cross of WilmerHale, Keir Gumbs of Uber and Dave Lynn of Morrison & Foerster and TheCorporateCounsel.net discuss lessons learned about securities law compliance and corporate governance issues brought on by Covid-19 and considerations going forward.
– Lynn Jokela