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More companies may be exposed to D&O suits over diversity



Following a scuffle in recent complaints against companies due to lack of diversity at the board level, more companies that do not have black board members or senior officials should expect disputes that could lead to claims on board members and officers, experts say. 19659002] Although it is unclear whether the suits are primarily used as a tool for change rather than for financial compensation, companies are facing increased urgency to improve diversity during recent violent clashes due to racial justice, they say.

Legislative Assemblies in Some States

At the same time, other companies promise commitments to put black people on their boards.

Companies that have been sued in recent months include Danaher Corp., The Gap Inc., Norton LifeLock Inc., Qualcomm Technologies Inc., Facebook Inc. and Oracle Inc.

For example, the lawsuit against Danaher in Washington calls for three New people, including two Africans, an American and another racial minority, are appointed to its board and the company invests $ 1

50 million in economic and social justice programs for the African American community that aim to address historical racial differences.

"I expect to see more," said Priya Cherian Huskins, San Francisco-based partner and senior vice president at broker Woodruff Sawyer & Co.

H. Vince McKnight Jr., Washington-based executive partner at the prominent Sanford Heisler Sharp LLP charity, said that although his company has so far not filed any such lawsuits, "under the right circumstances, we may."

While the issue of increasing racial diversity is not new to companies, it has "new urgency now due to the racial justice movement, and there is a lot of pressure on companies to consider things that may have been accepted in the past", says Kevin LaCroix , Vice President of Beachwood, Ohio, for RT ProExec, a division of RT Specialty LLC

The lawsuits have parallels with disputes that arose due to the #MeToo movement, which led to state legislation that required boards to have female members, says Alexandra Jennings, Vice President of EPIC Insurance Brokers & Consultants in Portland, Oregon.

The California Women on Boards Act 2018 requires that publicly owned California companies have one or two female board members of their size by December 31, 2021.

It is not clear if the suits "will be successful from a perspective "They have already succeeded in shedding light on the issue," said Mrs Huskins. 19659002] "I'm curious to see if these lawsuits will succeed," said Jeffrey D. Polsky, San Francisco-based co-chair of Fox Rothschild LLP's Labor and Employment Department.

"They do not claim discrimination per se, they claim securities fraud. They say that when companies represented, they addressed diversity in public announcements, it was untrue, he said." I do not know if success means winning the lawsuit, or that persuade companies to multiply their boards more. ”

Courts are reluctant to contradict boards' business judgments without a clear example of unfairness, says Philip K. Miles III, a labor and employment attorney and shareholder with McQuaide Blasko Inc. of State College, Pennsylvania.

PR perspective, how much do these companies want to fight for their rights to have an all-white board, "he said." I imagine they will try to find some way to resolve these lawsuits without incurring too much litigation costs. "

Ms Jennings said from a D&O perspective that the critical issue is how the insurance market will react to the lawsuits, especially given the challenges it already faces with higher claims and higher prices. The disputes can also affect the labor market's liability insurance market if it leads to incorrect termination costs, she added.

Environmental, social and corporate governance suit "already affects the D&O insurance environment" and "really contributes to the growing D&O premiums we see for listed companies," Huskins said.

Companies "should make genuine efforts to diversify, not only pay lip service to the idea, not only talk about their good intentions, but also try to have boards that more closely reflect their communities," Polsky said. happens overnight, but they should be able to show progress. "

Amy Epstein Gluck, a partner with FisherBroyle's LLP in Washington who advises entrepreneurs on compliance with anti-discrimination laws," You "I have to put your money where your mouth is

In order to avoid potential complaints due to lack of board diversity, organizations should first determine what statements have generally already been made, both internally and externally, about racial diversity and “confirm "These revelations are accurate and not just ambitious," Huskins said.

Sometimes company employees writing about this issue are "meaningful but underinformed when it comes to disclosure issues. It is important for someone who understands the legal landscape to review the statements the company has made," Huskins said.

Nomination committees and steering committees should review how to address the issue, she said, noting that major shareholders are also pressing companies to address board diversity.

Meanwhile, the Board Challenge, a group of public and private companies and organizations, launched a pledge to add a black director to the U.S. Board of Directors by next year.

In addition, the communications and consulting firm Teneo in New York, the Ford Foundation in New York, and the Executive Leadership Council, a Washington-based organization for development of black leaders, the board launched the Diversity Action Alliance, an initiative to increase the representation of and ethnically diverse board members on corporate boards beginning with black board members.

On the legislative front, on August 30, California lawmaker A.B. 979, which would require state-traded companies in the state to have at least one minority director by the end of 2021. The governor is expected to sign it.


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