A U.S. District judge recently dismissed a shareholder lawsuit against the Starbucks Corporation board of directors that may shed some light on how far corporate boards can go when implementing policies regarding discrimination, diversity and inclusion.
The lawsuit, filed on behalf of the National Center for Public Policy Research, challenged whether Starbucks’ policies involving setting goals for the hiring of African Americans and other people of color, awarding contracts to “diverse” (meaning non-white) suppliers and tying executive compensation to achieving those diversity goals amounted to racial discrimination. The case was ultimately deemed “frivolous” by the court. As Reuters reports, Chief U.S. District Judge Stanley Bastian admonished the plaintiff, stating, “If the plaintiff doesn’t want to be invested in ‘woke’ corporate America, perhaps it should seek other investment opportunities rather than wasting this court’s time.”
Although this case was dismissed, corporate boards should expect additional challenges to their diversity policies through the courts in the future.
What Can Boards Learn?
Perhaps fueled by the U.S. Supreme Court’s recent ruling striking down affirmative action in college admissions, corporate boards should be aware that like the Starbucks board, they could be sued by conservative groups that oppose corporate diversity policies. Corporate boards that believe in diversity may want to consider the following:
• Follow current laws to the letter. When crafting its diversity policies Starbucks did not violate any anti-discrimination laws or any laws governing the awarding of contracts to suppliers. Making sure that policies cannot be judged illegal under current law is critical to defending yourself against these types of lawsuits. A thorough review of your diversity policies could be a prudent move, as well.
• Evidence Is key. The shareholder lawsuit against Starbucks was dismissed partly because there was no hard evidence that its diversity policies hurt the company or shareholders. Corporate boards should make sure that any policies they enact do not have a negative effect on the company’s bottom line. Boards may have to investigate to make sure that this is true. Additionally, if the board can present evidence that its diversity policies have had a positive effect on company revenues, recruiting or reputation, this may strengthen its defense against such lawsuits.
• Adopt policies that have passed scrutiny. The fact that the lawsuit against Starbucks’ board was dismissed demonstrates that their policies were acceptable. There is nothing wrong with examining the policies that peer companies have in place and adopting some of their approaches. Adding your own scrutiny to their policies and making adjustments to the challenges your specific corporation faces could be helpful in avoiding future lawsuits.
