UPTICK IN SHAREHOLDER DERIVATIVE LAWSUITS RELATING TO DIVERSITY IN LEADERSHIP

Since the summer of 2020, corporations and boards of directors have seen an increase in various shareholder derivative lawsuits premised on lack of diversity in leadership across a wide range of personal characteristics.  A common theme within these lawsuits is that the organization publicly misled shareholders by touting the organization’s commitment to diversity and inclusion, all the while failing to hire diverse leadership or board members.  
 
Generally, plaintiff shareholders allege that the board of directors breached their fiduciary duties by failing to hire diverse leaders, and their public statements projecting a commitment to diversity were crafted merely to avoid public backlash.  Additionally, plaintiff shareholders target directors’ and officers’ compensation alleging directors and officers derived a direct benefit from the lack of diversity.  In support of their allegations, plaintiff shareholders commonly cite research indicating that organizations with greater diversity enjoy increased profitability, in turn leading to greater shareholder value.

These shareholder derivative lawsuits follow a growing trend supporting greater diversity of all facets, not only in the general workplace, but also among boardroom composition. In January 2020, Goldman Sachs indicated it would no longer take a company public unless the company had, at a minimum, one diverse board member.  Additionally, in February 2020, Warren Buffett, through his annual letter to Berkshire Hathaway shareholders, called for a greater inclusion of women directors and noted that the strides already made were simply a “work in progress.”  These cases should be given close attention, as their outcomes may lead to similar claims against other organizations.