A California court invalidated a state law requiring that boards of directors of public companies based in California include members from under-represented groups, including persons of several races and ethnic groups and those who identify as gay, lesbian, bisexual, or transgender. The April 1, 2022 decision in Crest v. Padilla, No. 20ST-CV-37513, by Judge Terry Green of the Los Angeles Superior Court, was issued in one of several cases attacking California laws designed to increase diversity on corporate boards of directors, a significant goal of the ESG movement.
Another shareholder derivative suit claiming diversity shortcomings within the company was dismissed last week: A judge in the Northern District of California dismissed allegations that Cisco Systems Inc. falsely and improperly represented itself as an industry leader in diversity.
Another diversity-based derivative suit was dismissed this week by a federal district court, joining a list of decisions that have rejected similar shareholder allegations.
This most recent decision, from the District of Delaware, dismissed claims alleging Qualcomm Inc. had allowed unlawful and discriminatory practices to exist within its executive ranks. Though the complaint was initially filed in the Southern District of California, Qualcomm’s Bylaws contain a forum-selection provision designating Delaware as the exclusive forum for derivative litigation, and thus the case was transferred to Delaware in March 2021.
In December, the NASDAQ proposed new listing rules that—if implemented—would require companies to (i) disclose information about the diversity of their directors on an annual basis and (ii) have at least two diverse directors, or else provide an explanation why they do not.
By “diverse directors,” the rules contemplate “one [director] who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+.” In turn, underrepresented minorities, as defined by the proposed rules, encompass as individuals who self-identify as: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities.