In yesterday’s post, I noted that earlier this week, a plaintiff shareholder had filed a board diversity lawsuit against the Gap. Turns out, that the same day yet another company was also hit with a board diversity shareholder derivative lawsuit, this time involving the board of directors and Chief Executive Officer of the medical and industrial product company Danaher Corporation. The Danaher lawsuit is in many ways substantially similar to the prior lawsuits that have been filed against companies that have no African-Americans on their boards of directors; however, the Danaher lawsuit is the first filed against a company outside California (Danaher is based in the District of Columbia), and it was filed by a different law firm than the one that had filed all of the prior board diversity suits. The complaint in the Danaher action can be found here.
On September 1, 2020, a plaintiff shareholder filed a shareholder derivative lawsuit in the United States District Court for the District of Columbia against the Danaher’s Board of Directors and against its CEO. The gist of the complaint is its allegation that “Defendants have publicly represented Danaher as a company that effectively promotes diversity throughout its ranks,” yet Danaher has “failed to nominate or appoint even a single African American person to a directorship at the Company. Rather than addressing the issue, the Defendants have caused the Company to issue platitudes” claiming that “diversity is among the Company’s top priorities.”
The compliant notes that the company has been targeted in the press for the absence of African Americans on its board; for example, Danaher was one of the company’s named in a June 2020 Newsweek article listing the 20 largest American companies without a Black Person on the board. The absence of African American board members is because, the complaint alleges, the company’s diversity efforts stopped short of the board.
Instead of actually embracing diversity, the Defendants “have instead misled Danaher’s shareholders and the public by making false and misleading assertions about the Company’s commitment to diversity and have acted inconsistent with their obligation to act in the best interests of Danaher and its shareholders.”
The complaint alleges that the company has been harmed by the Defendants’ “conscious, continuing failure to actually do what they repeatedly told shareholders they would do – embrace racial diversity throughout every level of Danaher’s organization.” The complaint asserts claims against the defendants for breach of fiduciary duty, unjust enrichment, and violation of the federal securities laws. The complaint further asserts that pre-suit demand on the board is excused because there directors are each all implicated in the alleged dereliction of duty.
By way of relief, the complaint seeks an award of money damages against the defendants for the harm their actions caused the company; for an accounting of the unjust enrichment the defendants obtained as a result of their conduct; nominating three new persons, including two African Americans and one other racial minority, to replace three current Danaher directors; the investment of $150 in economic and social justice programs in the African American community; the filling of 15% of all new U.S. positions with African-Americans; finance 100 education scholarships for African American students; the development of a program to ensure fair and equitable hiring across the company; and the creation of a public facing dashboard reporting, among other things, on the company’s progress hiring African American women, and placing African Americans in officer positions and on the Danaher board.
This lawsuit is in many ways quite similar to the board diversity lawsuits filed in the last several months against Oracle (here), Facebook (here), Qualcomm (here), NortonLifeLock (here), and The Gap (here). However, as I noted at the outset, there are several ways this lawsuit is different. For starters, it is the first of these board diversity lawsuits filed against a company based outside of California.
Even more interestingly, the Danaher lawsuit was filed by a different law firm than the firm that filed all of the previous board diversity suits – the prior lawsuits were filed by the Bottini and Bottinit law firm, while the Danaher lawsuit was filed by the Robbins Geller Rudman & Dowd law firm. Up to this point, this board diversity law firm phenomenon looked like a somewhat quixotic quest by a single lawyer acting as a self-appointed agent for board diversity change. The fact that another law firm – and a firm as prominent as the Robbins Geller firm – could suggest that this board diversity lawsuit phenomenon may represent more substantial D&O claim threat than one lawyer’s quest might represent.
Indeed, the involvement of multiple firms suing various corporate boards based on these board diversity issues suggests the possibility that other companies lacking African American directors could also be targeted. Clearly, at least the plaintiff lawyers involved so far have concluded that, in light of the current racial justice movement, these kinds of lawsuits represent an opportunity to pursue claims against corporate boards based on long-standing corporate practices – or perhaps long-standing corporate inaction. The current heightened focus on diversity and inclusion issues casts a harsh light on the lack of African Americans in corporate leadership and put pressure on companies and other organizations to take remedial steps.
Just to reiterate here what I noted in connection with the lawsuit recently filed against the board of The Gap, the filing of these lawsuits does show how the current racial justice movement in the U.S. not only has important implications for the social and political context for businesses in this country, but also creates dynamics – including the threat of litigation—that puts pressure on business to reexamine past practices. In particular, the racial justice movement does shine a harsh light on the absence of African Americans on the boards of many companies and does put pressure on companies to increase board diversity, in ways that may not have existed in the past. At a minimum, these lawsuits demonstrate that among other things lack of board diversity may represent a D&O claim risk.
I suspect before all is said and done, many other companies lacking African American directors may find themselves targeted by one of these lawsuits.