As Ngozi wrote, the National Center for Public Policy Research (NCPPR)’s anti-ESG case against Starbucks’ board of directors was dismissed with prejudice and faced scathing criticism from the presiding judge. The failure of this case marks a win for corporate DEI programs, but this doesn’t mean corporate DEI is in the clear.
According to a recent Cooley memo, the case was a derivative action brought by the NCPPR. A derivative action is a shareholder suit where shareholders can sue a company’s directors and officers on behalf of the company. In this case, the NCPPR only owned 56 out of about 1.15 billion shares. The case began when the NCPPR sent a letter to Starbucks demanding an end to the company’s DEI policies. When the company refused, the NCPPR sued arguing that the refusal violated the directors’ and officers’ fiduciary duty.
The NCPPR’s case alleged that Starbucks’ DEI program was illegal and that by refusing to end it, the directors and officers put the company at risk of violating the law. This point played out in the courtroom in an embarrassing fashion. Cooley states that:
“Counsel for the plaintiff argued that ‘the business judgment rule does not shield knowingly violating the law.’ There, the Court interjected, asking whether he had any legal citations indicating that Starbucks did ‘violate the law? Your opinion is they violate the law, and that’s fine. Do you have any courts that have agreed with you?’ As plaintiff’s counsel waffled, the Court said: ‘So the answer is ‘No’? Is the answer ‘No’? I’ll take the answer ‘No.’’”
Ouch. However, this exchange leads to a larger point. What if the DEI policy did violate the law? Then the NCPPR may have had a valid case. What if this lawsuit were to arise in a state like Florida which has passed legislation restricting corporate DEI? Additionally, other conservative advocacy groups are advancing anti-DEI litigation and given the Supreme Court’s stance on affirmative action in college admissions, it isn’t out of the realm of possibility that we may see a world where this lawsuit could move forward on federal grounds.
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