TheCorporateCounsel.net

It’s not news that a number of companies are taking a careful look at their diversity-related disclosures and practices this year. One of the many complexities with this process is that – similar to when the programs and disclosures were created – it’s a cross-functional effort. It can be challenging to keep track of all the separate categories of risks that companies are facing, but if you’re called on to summarize the litigation risks relating to securities and corporate law, this Winston & Strawn article does a nice job – and it also gives recommendations for mitigating these risks. Here are the takeaways:

1. Disclosures must reflect corporate practices. Companies have responded to the changing DEI landscape in different ways when it comes to their public disclosures. Many are carrying out audits, reviews, and revisions of their DEI-related programming and policies. In that process, some companies have stripped mention of DEI-related terminology or perceived buzzwords from their disclosures. Others have added more specific risk disclosures addressing risks of reputational harm, litigation, or regulatory scrutiny concerning the company’s actual or perceived DEI practices or compliance with evolving DEI-related requirements. The most important thing is for the company’s disclosures to match its practices. A significant change in how a company publicly discusses DEI will invite risk if its internal practices have not similarly changed.

2. Disclosures should specify particular risks. As a general matter, more robust and more specific risk disclosures are likely to serve a company well in defending against investor claims. Target demonstrates that DEI-related risk disclosures will not guarantee success at the motion to dismiss stage; however, if a company is aware of specific, DEI-related risks, a matching risk disclosure is likely to serve as a powerful defense—certainly more so than nondisclosure. To be sure, simply insofar as companies continue to pursue DEI-related policies, that in itself may constitute a risk for the companies to consider disclosing, depending on the circumstances.

3. Where possible, identify DEI-related statements as forward-looking. Companies should endeavor to properly identify DEI-related statements as forward-looking or opinions to the extent they are subjective, aspirational, and/or aimed toward the future. All such statements should be clearly identified as such.

4. Ensure proper oversight relating to DEI risks. Company management and directors need to ensure they are appropriately supervising DEI-related risks and that their oversight is described accurately in the company’s proxy statement and other disclosures.

– Liz Dunshee