A federal District Court in Washington recently dismissed a shareholder derivative action by a conservative advocacy group challenging Starbucks’ initiatives relating to diversity, equity, and inclusion (“DEI”). The decision in National Center for Public Policy Research v. Schultz held that the plaintiff did not fairly and adequately represent the interests of Starbucks and its shareholders in launching the challenge and had not pled particularized facts showing that Starbucks’ Board of Directors had wrongfully refused the plaintiff’s demand to dismantle the company’s DEI initiatives.

In an era of politicization of DEI and other ESG-related concerns, the ruling sends a signal that at least some courts will refuse to become “political attachés” in the culture wars and will not involve themselves with partisan attacks on “reasonable and legal decisions made by the board of directors of public corporations.” Decisions of this type should provide some comfort to corporations and boards as they consider how to address those complicated social and workplace issues.

Earlier this spring, yet another lawsuit alleging a company failed to adequately promote diversity was dismissed for a failure to properly allege demand futility.

In City of Pontiac Police & Fire Ret. Sys. v. Jamison, the plaintiff, a shareholder of Tractor Supply Company, had alleged that the company and members of its Board falsely stated in securities filings that they were committed to promoting diversity.  The plaintiff alleged that diversity maximizes shareholder wealth and that the lack of racial diversity at Tractor Supply contributed to economic disparities at the company.  Because, according to the plaintiff, the defendants had failed to sufficiently promote diversity within the company while, at the same time, made statements in Tractor Supply’s 2020 proxy statement that the Board was “committed to the principles of diversity and inclusion,” they had violated Section 14(a) of the Exchange Act.