The board of directors and several executives of Pinterest have been hit with a shareholder derivative lawsuit brought by an institutional investor alleging that the defendants breached their fiduciary duties by causing or permitting the company to engage in a pattern of race and gender discrimination and retaliation, harming the company’s reputation and workforce. As discussed below, the Pinterest lawsuit is the latest in a series of lawsuits alleging that companies’ boards have violated their duties to their companies or the companies’ shareholders with respect to their oversight of diversity, equity and inclusion issues.


The Lawsuit

On November 30, 2020, the Employees’ Retirement System of Rhode Island, a Pinterest shareholder, filed a shareholder derivative lawsuit in the Northern District of California against certain directors and officers of the company, as well as against the company itself as nominal defendant. A copy of the complaint can be found here. The individual defendants include Benjamin Silberman, the company’s co-founder, CEO, and Chairman; and Todd Morganfeld, the company’s CFO; and seven other individual directors.


The complaint alleges the lawsuit arises from the company’s “systematic culture, policy, and practice of illegal discrimination on the basis of race and sex.” The complaint alleges that the company’s top executives “personally engaged in, facilitated or knowingly ignored the discrimination and retaliation against those who spoke up and challenged the Company’s White, male leadership clique.” The complaint alleges that as a result of the defendants’ “illegal misconduct,” the company’s “financial position and its goodwill and reputation among its largely female user base (which Pinterest’s success depends upon) were harmed and continue to be harmed.”


The complaint’s allegations of discrimination and retaliation relate primarily to the company’s actions with respect to three female senior executives, two of whom are black. Two of the women, Ifeoma Ozoma and Aerica Shimizu Banks, filed lawsuits, later settled, in which they alleged that they had received discriminatory compensation, and were retaliated against and ultimately fired for seeking equitable compensation leveling and pay. Ozuma and Banks later shared their experiences on Twitter and in media interviews. A third woman, Francoise Brougher, who had been the company’s COO, filed her own lawsuit alleging discrimination and retaliation, claiming that she had been routinely excluded from job duties based on her sex and also that she  had been underpaid relative to similarly situated male executives.


In August 2020, after Brougher filed her complaint, Pinterest employees staged a virtual walkout, demanding, according to the complaint, “greater transparency in compensation and increased diversity among Pinterest’s leadership.” In a website, the walkout’s organizers allegedly asserted that the three female executives’ experiences were “not isolated cases.” The complaint alleges further that in media reports following the walkout other former Pinterest employees allegedly “described Pinterest as a discriminatory and toxic place to work,” including multiple Black employees “who complained of being fired or pushed out of the Company with no real explanation after receiving positive reviews and exceeding performance goals.”


The complaint alleged that the defendants “breached their fiduciary duties to the Company by perpetrating or knowingly ignoring the long-standing and systemic culture of discrimination and retaliation at Pinterest.” The complaint alleges further that the even when confronted with evidence of race and gender discrimination, the defendants “did nothing to address this misconduct.” The complaint singles out Silberman, the company’s founder, CEO and Chairman, who allegedly “perpetuated and approved the discrimination at the Company, wholly abdicating his fiduciary duties.”


The complaint alleges that the defendants’ alleged misconduct caused the company to incur costs to resolve and defend legal claims, as well as reputation, goodwill, and workplace harm. The complaint asserts substantive claims against the defendants for breach of fiduciary duty; waste of corporate assets; abuse of control; and for violations of Section 14(a) of the Securities Exchange Act, based on alleged proxy statement misrepresentations concerning the reason for the executives’ termination, as well as about the alleged lack of oversight and internal controls. The complaint seeks recovery of damages on the company’s behalf, as well as the requirement of actions to “address systemic patters of discrimination.”



Readers will recall that over the last several years, a number of company boards have been hit with lawsuits alleging that the boards violated their duties in permitting, tolerating, or turning a blind eye to sexual harassment and other sexual misconduct at the companies, in the wake of stories that emerged as a result of the #MeToo movement. While the new lawsuit against Pinterest alleges board misconduct, the allegations are slightly different than those in the #MeToo-related board suits. The Pinterest lawsuit is not based on underlying allegations of harassment, it is rather based on underlying allegations of race and gender discrimination.


The Pinterest lawsuit has only just been filed and it remains to be seen whether or not the claim will succeed or whether the allegations in the complaint will be substantiated. Regardless of its ultimate success, the lawsuit potentially represents a significant new direction in board litigation arising out of alleging employment practices misconduct in the workplace. The #MeToo-related litigation focused on one particular aspect of alleged workplace misconduct, sexual harassment. The Pinterest complaint focuses on discrimination, rather than harassment, and specifically asserts claims of board liability based on gender pay disparity.


When the various #MeToo-related board liability lawsuits were coming in, I was concerned that this type of workplace environment board  litigation could take a much more ominous turn if the lawsuits were to move beyond sexual misconduct allegations and expand to include gender pay disparity issues. The reason for my concern was based on a perception that gender pay disparity is a more widespread issue, and that gender pay disparity is an issue that potentially could ensnare many companies. Obviously, part of the basis of this concern is my perception that gender pay disparity is a serious issue. To that extent, if lawsuits like the one filed against the Pinterest board help companies focus on addressing these issues, that is clearly a good thing. But along the way, it could mean that some companies might find themselves facing board litigation arising out of pay equity concerns – as well as litigation brought by those who claim to have received inequitable compensation.


For those of you who might be wondering what the plaintiff might be hoping for from this lawsuit, I think one clue might be provided by the recent Alphabet settlement of the lawsuit involving underlying allegations of sexual misconduct and hostile workplace at Google. That case, readers will recall, settled for the company’s agreement to adopt certain corporate therapeutics, including most notably Alphabet’s agreement to provide funds of $310 million over ten years to address diversity, equity, and inclusion issues at Google. One reason I feel confident in conjecturing that this might be the kind of thing the plaintiff has in mind here is that the plaintiffs’ lawyers who filed the Pinterest complaint were co-counsel in the Alphabet/Google lawsuit.


It has been a tough week litigation-wise for Pinterest. In addition to the shareholder derivative lawsuit, Pinterest was separately hit last week with an unrelated securities class action lawsuit. The November 23, 2020 securities suit complaint, a copy of which can be found here, was filed in the Northern District of California against the company, Silberman, and Morganfeld (the company’s CFO). The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between May 16, 2019 and November 1, 2020.


The securities class action complaint alleges that the defendants misrepresented or failed to disclose that “(i) the Company’s addressable market in the U.S. was reaching its maximum capacity; (ii) which significantly decelerated Pinterest’s future ability to monetize on U.S. average revenue per user; (iii) Pinterest was at an increased risk of losing advertising revenue; (iv) and as a result, Defendants’ public statements were materially false and misleading at all relevant times or lacked a reasonable basis and omitted material facts.” The complaint alleges that the company’s share price declined 17% when the company announced disappointing results in October 31, 2020. The complaint, which does not refer to any of the allegations or circumstances referenced in the derivative complaint, alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks to recover damages on behalf of the class.


And Finally: If you have not yet seen it, you will want to take a few minutes and read the article from the November 30, 2020 issue of The New Yorker entitled “How Venture Capitalists are Deforming Capitalism” (here). Although the specific focus in the article is the WeWork debacle, the article’s larger message has to do with dysfunction in the Venture Capital business. Interesting, and disturbing.