The shareholder derivative lawsuit filed against the directors of Danaher Corporation is the latest board diversity lawsuit to fail to survive initial pleading hurdles. In a June 28, 2021 order (here), District of Columbia District Court Judge Trevor N. McFadden granted the defendants’ motion to dismiss the shareholders’ claims, based on his determination that the plaintiffs had failed to establish that pre-suit demand on the board would have been futile. In making his rulings on the motion, Judge McFadden made several interesting and noteworthy observations about the plaintiffs’ board diversity allegations.



As discussed here, on September 1, 2020, plaintiff shareholders 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.”


Instead of actually embracing diversity, the plaintiffs allege, 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 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 the directors are 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 the nomination of three new persons, including two African Americans and one other racial minority, to replace three current Danaher directors; the investment of $150 million 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; as well as other relief.


The defendants moved to dismiss the plaintiffs’ complaint, based on the plaintiffs’ failure to make a pre-suit demand on the board to take up the lawsuit as well as the plaintiffs’ failure to establish that demand would have been futile. The plaintiffs argue that the failure to make pre-suit demand is excused because there is not a majority of independent directors who could have considered the demand owing to the directors’ substantial likelihood of liability.


The June 28, 2021 Opinion

In a detailed June 28, 2021 opinion, Judge McFadden, applying Delaware law, granted the defendants’ motion to dismiss based on his determination that the plaintiffs have not shown that the directors are interested – that is, face a substantial likelihood of liability – as to any of the plaintiffs’ three claims. Judge McFadden granted the motion without prejudice, meaning that the plaintiffs’ may seek to replead their allegations.


In addressing the plaintiffs’ breach of fiduciary duty claims, Judge McFadden addressed the crux of the plaintiffs’ claims – that is, that the company’s board breached their duties because the board has no African American directors. Judge McFadden said “That there are no African Americans on Danaher’s Board does not inherently mean that the Board is not diverse. The Board could be racially diverse in other ways. And there are other types of diversity besides racial diversity.” He added that while he must at the motion to dismiss stage take the plaintiffs’ allegations as true, “the Court rejects their cramped and archaic understanding of diversity.”


Judge McFadden also addressed the plaintiffs’ allegation that by failing to institute a diverse board, the board breached their fiduciary duty by failing to maximize shareholder wealth. He noted that in making these allegations the plaintiffs rely heavily on studies purporting to show that companies with more diverse boards earn higher profits. Judge McFadden noted with respect to these allegations that while a director’s fiduciary duty can encompass earning a profit, the directors’ duties do not “bind[] directors to any single course of profit-maximizing,” as Delaware law “grants directors substantial leeway to make business decisions and act in a corporation’s best interest.”


Judge McFadden also drew an interesting comparison between the plaintiffs’ contention the directors failed to maximize profits and the plaintiffs’ own prayer for relief, which seeks to have the company make massive investments in company diversity initiatives and in various other more generalized racial equity and inclusion initiatives. Thus, while the plaintiffs on the one hand contend that the board must maximize profit, the relief the plaintiffs seek is “just the opposite” – that is, it reflects a conviction that “corporations need to promote certain values, despite the costs.”



By my count, there were a total of ten of these shareholder derivative board diversity lawsuits filed last year and early this year. Out of the ten, four have now had motion to dismiss rulings. In each of those four cases, the motions to dismiss have been granted – in addition to this case, the motion was granted in the substantially similar board diversity lawsuits filed against Facebook (about which refer here), The Gap (here), and Oracle (here). Not only is the track record for the plaintiffs in these cases uniformly bad so far, but there seems to be some momentum building; for example, in his ruling in this case, Judge McFadden expressly referred to the prior dismissals in the Facebook and Oracle board diversity lawsuits as providing support for his ruling in this case.


In one sense, Judge McFadden’s ruling is just one more decision knocking down a board diversity lawsuit. However, there is another sense in which Judge McFadden’s ruling is particularly interesting and even perhaps important.


There is a sense woven throughout his opinion that the plaintiffs’ claims fundamentally do not cohere. His remarks about the plaintiffs’ “cramped and archaic understanding of diversity” suggests a perception that the basic premise of the complaint – that directors breach their duties by failing to have African Americans on their boards – is flawed. By the same token, his observation that there is a basic inconsistency in the plaintiffs’ saying that the directors’ failed to maximize profits but that the remedy for this failure is for the company to be compelled to make massive expenditures supporting certain social values also shows that the plaintiffs’ claims do not hang together.


There is a substantial similarity in the various board diversity lawsuits that have been filed, and it could be argued that what Judge McFadden said of the plaintiffs’ claims in this lawsuit could also be said of the plaintiffs’ claims in the other lawsuits. I am certain that defendants in the other cases will make certain that the courts considering their cases have Judge McFadden’s words before them in assessing the claims in their courts.


The board diversity lawsuits that were filed late last year and earlier this year in the wake of the social justice movement in this country were one aspect of larger initiatives to address board composition. California’s board diversity legislation and Nasdaq’s board diversity guidelines represent other initiatives as part of this general effort to encourage greater board diversity. However, several recent developments suggest that the movement toward greater board diversity is becoming more complicated.


As noted above, the board diversity litigation has not proven to be successful. As discussed here, the Ninth Circuit recently reversed a district court’s ruling that a company shareholder lacks standing to challenge California’s board gender diversity statute. It just seems like there are some roadblocks developing. Which is not to say that the board diversity initiatives ultimately will not be successful; it rather means that the likeliest path toward greater board diversity will have to come from shareholder action through board elections and through market pressures.


All of this is a larger topic, but at a minimum it is looking less and less likely that greater board diversity will be achieved through litigation.


One final note: the dismissal in this case was without prejudice. The plaintiffs have the opportunity if they choose to try to replead. I personally wonder why they would do that but it is their prerogative and there is of course the corresponding possibility that an amended complaint would be more successful. My point is that the disposition of this case is not yet final, and there could be further to be heard from this case.