August 10, 2020
Authored by: R. Randall Wang and Vicki Westerhaus
A well-known plaintiffs’ law firm recently filed derivative lawsuits against four prominent companies, alleging false proxy disclosures and breaches of fiduciary duties. The allegations focus on the absence of Black directors and executive leadership, and in some cases other persons of color, and very few Black employees, and purported false statements about the companies’ commitment to diversity.
The allegations of proxy statement misstatements, which include breaches of the duty of candor, vary somewhat among the complaints, but generally focus on:
- Statements touting the board’s consideration of diversity in the nominating process;
- Statements regarding the importance of diversity and inclusion in the company’s employment practices;
- The absence of terms limits and the failure to discuss their effect on the nomination of Blacks and minorities; and
- The failure to consider diversity and inclusion goals in executive compensation decisions and the lack of disclosure of the company’s unlawful discriminatory hiring and pay practices.
The complaints typically cite disclosures in the corporate governance and CD&A sections of the proxy statement, but in some cases also focus on company responses to shareholder proposals that relate to diversity and employment practices.
The allegations of breaches of fiduciary duties focus on directors’ failure to oversee compliance with anti-discrimination laws, citing class action settlements and/or government investigations regarding gender or other discrimination, and failing to ensure the inclusion of diverse candidates as directors, citing board committee charters and proxy disclosures. Some of the complaints also challenged director and/or executive compensation as excessive or unjust in light