In a recent post, I noted that while companies may face investor and regulator pressure to address ESG-related issues, ESG-related actions can also entail operational and financial risks — and litigation risks, as well. In the latest example of a company whose ESG-motivated actions went awry, leading to securities litigation, Wells Fargo has been sued in a securities class action lawsuit after media reports that its efforts to diversify its work force led to fake job interviews, allegedly contrary to the company’s disclosures concerning its diversity efforts. A copy of the June 28, 2022 complaint against Wells Fargo can be found here.



According to the recently filed securities lawsuit complaint, in 2020, Wells Fargo, as part if its efforts to diversify its work force, instituted a “Diverse Search Requirement,” also referred to as a diverse slate hiring policy. The policy specified that at least 50% of job interview candidates must, according to the complaint, “represent a historically underrepresented group with respect to at least one diversity dimension (including race/ethnicity, gender, LGBTQ, veterans, and people with disabilities)” for most posted positions in the U.S. with compensation greater than $100,000 per year. In addition, at least one interviewer on the hiring panel was required to represent a historically underrepresented group with respect to at least one diversity dimension.


On May 19, 2022, the New York Times published an article entitled “At Wells Fargo, a Quest to Increase Diversity Leads to Fake Job Interviews.” The article cited interviews with seven current and former Wells Fargo employees, including a former executive in the company’s wealth management division. The article reported, among other things, that “for many open positions, employees would interview a ‘diverse’ candidate,” but that “often, the so-called diverse candidate would be interviewed for a job that had already been promised to someone else.” The wealth management division executive claims that he was fired after “complaining to his bosses” about the practice.


On June 6, 2022, Reuters, in an article entitled “Wells Fargo Pauses Diverse Slate Hiring Policy After Reports of Job Interviews” (here), which among other things reported that the company was “pausing” its diverse pool hiring practices, and stated that the bank planned to review its diverse slate guidelines.


On June 9, 2022, the New York Times published an article reporting that federal prosecutors are investigating whether Wells Fargo violated federal laws by conducting fake job interviews in order to meet the Company’s Diverse Search Requirement.


Also on June 9, 2022, Wells Fargo issued a press release in response to the New York Times articles, confirming that the company had “temporarily paused the use of its diverse slate guidelines” and that during the pause, the company will be “conducting a review so that hiring managers, senior leaders and recruiters fully understand how the guidelines should be implemented – and so we can have confidence that our guidelines live up to the promise.” (It should be noted that in its June 9 press release Wells Fargo set out its extensive efforts and accomplishments relating to diversifying its work force.) According to the complaint, following these disclosures, the company’s share price declined over 8%.


The Lawsuit

On June 28, 2022, a plaintiff shareholder filed a securities class action in the Northern District of California against Wells Fargo and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the company’s shares between February 21, 2021 and June 9, 2022.


The complaint alleges that during the class period the defendants made false or misleading statemets or failed to disclose that: “(i) Wells Fargo had misrepresented its commitment to diversity in the company’s workplace; (ii) Wells Fargo conducted fake job interviews in order to meet its Diverse Search Requirement; (iii) the foregoing conduct subjected Wells Fargo to an increased risk of regulatory and/or governmental scrutiny and enforcement action, including criminal charges; (iv) all of the foregoing, once revealed, was likely to negatively impact Wells Fargo’s reputation; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.”


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.



Although, as I have noted previously on this site, there is no consensus about what the “S” in ESG stands for, most speakers usually are referring to Diversity, Equity & Inclusion (DEI) practices. In response to developments in recent years, many companies have adopted proactive DEI practices, and companies that have not face pressure and scrutiny from investors (including institutional investors) and activists, among others.


However, the recent case filed against Wells Fargo shows that companies that adopt and publicly disclose DEI programs may also face scrutiny and investor concerns. At a minimum, and arguably similar to any other practice or policy a company publicly adopts, the company faces the risk of execution error, when actual events do not measure up to the announced practice or policy. Similarly, a company publicly adopting DEI policies (and potentially any other practice under the Social heading of ESG) also runs the risk of falling short of stated goals or failing to measure up to its own principles or policies.


The point here is that while there is a general perception that companies that fail to address ESG issues may face investor pressure and even litigation risk, there may be insufficient appreciation that companies that are proactive and that take ESG-motived actions or adopt ESG-oriented policies could still face investor scrutiny, pressure, and even litigation.


I emphasize this point because it is important context for the current discussion in the D&O industry about whether companies with proactive ESG policies make better D&O risks and should receive advantageous terms. It is not enough that companies are proactive on ESG issues; they must also effectively execute their policies and meet their targets. In other words, there are still ESG-related litigation risks associated with companies that are proactive on ESG issues; the risks are just of a different kind than the risks associated with a company that is not proactive. Before all is said and done, I suspect there could be plenty of claims involving both types of risk.