Rethinking Disclosure Requirements in This Shifting Political Landscape

In the wake of the Trump administration's continued attempts to eliminate corporate DEI programs and initiatives, public companies are finding themselves stuck between a rock and a hard place. Investors are beginning to bring actions alleging that public companies are not fully disclosing the risks of creating, continuing, or canceling DEI initiatives. Companies that have become the target of such lawsuits have been on both sides of the debate, including Costco, Lululemon, John Deere, and Target. 

Shareholder actions brought against Target illustrate a framework for how companies can face backlash for both supporting or suppressing DEI initiatives by failing to adequately address the associated social and political risks of doing so. In Craig v. Target Corporation, a federal judge in Florida ruled late last year that investors had sufficiently alleged that Target failed to adequately disclose the business risks (and thus, potential financial losses) of engaging in a marketing and product sales campaign that promoted Pride Month-themed merchandise. Then, in January of this year, stockholders filed a new action, City of Riviera Beach Police Pension Fund v. Target Corporation, alleging that Target had falsely touted its oversight of social and political issues and risks of its DEI initiatives.  

DEI is only the beginning. Activist investors will likely also target public corporations' stances on their ESG programs, their use of immigrant visas, and potentially any corporate social messaging or marketing campaigns.  

Corporate executives and compliance programs must ensure that their disclosures and their disclosure processes consider the shifting political landscape in order to avoid being targets of investor actions. In doing so, public companies must evaluate risks posed not only by taking a stance that is adverse to the Trump administration but also one that abandons their own programs and values to avoid government scrutiny.