In the latest in a series of lawsuits that recently have been filed against corporate directors based on board diversity issues, a Qualcomm shareholder has filed a derivative lawsuit against the company’s board, alleging that the company’s directors violated their duties to the company and shareholders by falling short of stated objectives on diversity and inclusion and by falling to include a single African-American either on the board or among the company’s senior officers. The lawsuit against Qualcomm follows similar lawsuit filed earlier this month against Oracle and Facebook. A copy of the July 17, 2020 complaint against the Qualcomm board can be found here.
On July 17, 2020, a plaintiff shareholder filed a shareholder derivative lawsuit in the Southern District of California against the company’s board of directors, as well as against the company itself as nominal defendant. The complaint asserts claims against the defendant directors for breach of fiduciary duty; aiding and abetting breach of fiduciary duty; abuse of control; unjust enrichment; and violation of Section 14(a) of the Securities Exchange Act of 1934.
The complaint alleges that despite the company’s various public statements about the importance of diversity and inclusion, the company’s board includes no African-Americans (though it does include three women), and there are no African-Americans among the company’s top executives. Even the company’s Chief Diversity Officer is white. The company’s workforce is only 1.5% African American and the company has made no progress in increasing the number of African American employees since 2017. The problem, the complaint alleges, is that not just been lack of diversity but also discrimination against African Americans.
While the company has done little to reform its practices, the complaint alleges, it has continued to “issue platitudes about its supposedly strenuous efforts to increase diversity.” The company’s statements about diversity “have deceived stockholders and the market,” and the board’s conduct in that regard has breached the directors’ duty of candor and also violated the federal securities laws.
The complaint seeks a number of different remedies, including that at least three of the company’s directors should immediately resign prior to the Company’s next annual meeting and the Company’s should nominate three new candidates to serve in their stead, and that the three persons should include two Black and another minority persons. The complaint also seeks to have all of the directors’ 2020 compensation returned and donated to organizations working on the advancement of Black people. The complaint also seeks to have the company create an $800 million fund to hire Black individuals and other minorities, promote minorities within the company, and establish a mentorship program. The company should also require annual training for the Board and senior management on diversity and inclusion issues, and require that up to 30% of executive compensation be tied to the achievement of diversity goals. The complaint also seeks to have the company’s current (white) Chief Diversity Officer fired and replaced by an African-American person.
Like the complaints previously filed against Oracle and Facebook, this new complaint against Qualcomm is not directly tied to the current racial justice protests. There is no mention in the complaint to the Black Lives Matter movement. There is no reference to the complaint to the death of George Floyd or of the demonstrations and civil unrest that followed his death. However, the three complaint undeniably are linked to the current racial justice movement and are obviously being filed now because of the heightened visibility of racial diversity and inclusion issues as a result of the protests and demonstrations. Indeed, the complaint opens with a quotation of a management liability consultant saying that we are “a country suffering from racial inequality” and “this issue has become a matter that will impact every corporation doing business in this country.”
The plaintiff’s lawyer who filed the Qualcomm complaint certainly subscribes to the management consultant’s view. The plaintiff’s lawyer is in fact responsible for filing all three of the recent lawsuits. Although Qualcomm, unlike Oracle and Facebook, is not located in Silicon Valley, it is a technology company located in California. As I noted in my post about the new Facebook lawsuit, the lawyer has been quoted as saying publicly that he intends to pursue similar claims against other Silicon Valley firms. The Qualcomm lawsuit suggest he will not limit himself to Silicon Valley firms.
In trying to identify which other firms might be targeted by lawsuit like the ones filed against Oracle, Facebook, and Qualcomm, it is worth taking a few minutes and reviewing the list of company’s named in a June 17, 2020 Newsweek article entitled “The 20 Largest U.S. Companies Without a Black Person on the Board” (here). Qualcomm and Oracle make the list (a fact that is noted in both of the complaints recently filed against the companies’ boards). The other companies are in a wide variety of other industries, such as Procter and Gamble, CSX, and The TJX Companies. The companies’ inclusion on the list certainly suggests that the other companies could be the subject of a board diversity lawsuit like the ones recently filed against Oracle, Facebook, and Qualcomm.
Even though these lawsuits have only just been filed, and even though the lawsuits are the handiwork of a single attorney focused on the board diversity issue, the fact is that with three lawsuits so far, the filing of these lawsuits arguable represents one of the important and emerging D&O claims trends of 2020. While the pandemic remains the most important story of 2020 (so far), another important development has been the rise of the racial justice movement following the death of George Floyd. In both cases, the developments have now resulted in D&O litigation. The likelihood is that we will see more of both types of litigation as the year progresses.