TheCorporateCounsel.net

April 13, 2023

DEI Disclosures Are Creating Fodder for Plaintiffs

As Meredith recently flagged on our “Proxy Season Blog,” shareholder proposals on workforce diversity disclosures, civil rights audits and other diversity-related topics have continued to proliferate – and have been averaging 44% support over the past few years, according to Morningstar data. However, the additional disclosures that companies are making in response to stakeholder appetite for the information don’t come without risk: this recent report from David Hood at Bloomberg Law says that in the past three years, nearly 40 companies have faced lawsuits over allegedly misleading statements about diversity and equity commitments.

According to David, the plaintiffs’ allegations tend to fall into two main buckets:

– Failing to live up to stated DEI aspirations caused shares to lose value; and

– Disclosed DEI actions were outside the company’s mission to return value to shareholders

The fact that these allegations could in some cases be at odds with each other shows just how carefully you need to handle DEI initiatives and disclosures. The Bloomberg article also notes that this is an active area for employment litigation, with “reverse discrimination” lawsuits getting more attention – which is a topic we discussed last fall at our 1st Annual Practical ESG Conference. Here are a few “risk reduction” takeaways from the article and from Ngozi’s PracticalESG.com blog on “pitfalls to avoid” in DEI training:

1. Consider aspirational policies & statements, rather than strict quotas

2. Encourage DEI trainings – but make them voluntary, frequent, linked to the corporate strategy, expertly facilitated, and digestable

3. Implement initiatives with an eye towards your specific company’s needs. The goal should be to help your employees feel included and empowered to accomplish the company’s mission, not to solve all the problems in the world.

4. Recognize programs and efforts will continue to evolve

We’re continuing to share practical guidance about ESG implementation and disclosures – including DEI programs – on PracticalESG.com. And we’ve just posted the agenda for our “2nd Annual Practical ESG Conference“! This event is happening virtually on September 19th, which is the day before our 3-day “Proxy Disclosure & 20th Annual Executive Compensation Conference.” You can bundle the two events together for an additional discount. Our “Early Bird” rate ends soon, so register now for the best price.

Liz Dunshee