As companies enact measures to increase diversity, equity, and inclusion (DEI) in their workplaces, they face a growing new risk: shareholder activism. This activism, it seems, is evolving into a noteworthy tool employed in ever-increasing challenges to DEI policies. The activist measures appear in various forms – shareholder proposals, demands for books and records, and even litigation.
What’s fascinating about these methods is not merely their existence but the sweeping impact they can have on corporate initiatives. A closer examination of two shareholder activist methodologies – the advancement of shareholder proposals and the initiation of shareholder litigation, sheds some light on the landscape.
Shareholder proposals, one form of activism, often focus on altering corporate governance to align with the proponents’ values and beliefs. These proposals can cover a wide range of DEI elements, including board diversity or affirmative action programs.
Shareholder litigation, on the other hand, raises the stakes significantly. These cases often revolve around alleged breaches of fiduciary duty based on DEI policy implementation. The claim here is typically that directors and officers had prioritized symbolic DEI gestures over substantive value creation, therefore breaching their fiduciary duties.
Both shareholder proposals and litigation pose tangible threats to companies’ DEI measures. They demand that companies balance the need for DEI initiatives with the potential for legal challenges brought on by shareholders unsatisfied with the pace, extent, or nature of these changes.
The takeaway here is clear: as companies innovate their strategies for DEI, they must simultaneously prepare for potential challenges from shareholders. In this dynamic scenario, awareness and readiness can be the best form of defense.
For a more in-depth analysis, you may wish to explore the details of a recent client alert provided by Jenner & Block. You can find the full text here.