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Gung-Ho On Diversity? Well, You Might Get Sued.

Vivia Chen

August 7, 2020

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It must be the heat. Because I can’t believe I actually slogged through one of those law review-type articles. But this one—by two Wachtell Lipton Rosen & Katz corporate lawyers, no less—piqued my interest.

Corporate America better stop hyping its commitment to diversity—or it could be staring at a lawsuit, warn Wachtell partner David Katz and consulting lawyer Laura McIntosh. 

They write:

“A recent lawsuit by a shareholder of Oracle Corporation has opened a new line of attack on companies that have been slow to diversify their board membership and executive leadership team. The complaint alleges that Oracle’s failure to appoint racially diverse directors and officers—while making public statements avowing a commitment to racial diversity—constitutes securities fraud.”

Speaking as a journalist who’s been covering diversity issues forever and has seen scant progress, I’m all for newfangled ways to strong-arm institutions to do the right thing. We’ve been using the carrot method for decades to get corporations and law firms to address diversity—and we know what that’s gotten us: bupkus. If there’s one thing that’ll perk up management ears, it’s liability! 

The Oracle plaintiff must feel the same way. The suit alleges that Oracle made false statements in its proxy statements and that its directors “deceived stockholders and the market by repeatedly making false assertions about [Oracle’s] commitment to diversity.” The complaint asserts that Oracle directors “breached their duty of candor and have also violated the federal proxy laws,” noting that the company lacks African American directors or officers.

Sound familiar? 

If there’s one thing we all know, it’s that corporate America is infinitely hypocritical when it comes to race and gender issues. Indeed, is there an institution out there that doesn’t profess to value diversity and inclusion, even when its management is white and male? And in the aftermath of the murder of George Floyd, when companies and law firms are tripping over themselves to make the most heartfelt anti-racism statement, expect that hypocrisy to crescendo.

So what does the plaintiff in Oracle want? “Data-driven results,” Katz and McIntosh write. They include replacing three directors with minority directors, instituting a $700 million fund to promote diversity and publishing an annual diversity report about the hiring, advancement, promotion and pay equity of minorities at Oracle. Plus, setting specific quotas for minority hiring over the next five years and tying 30% of executive compensation to attaining diversity goals.

As you’d expect from a law firm that serves the mightiest of corporate titans, the Wachtell lawyers look askance at some of those demands:

“Neither the adversarial process of litigation, nor the dictatorial posture of mandates, generally creates a highly productive relationship between a company and its investors. Quotas are a blunt instrument, generally using demographic diversity as a proxy for true diversity.”

I agree “quotas are a blunt instrument”—but I’d argue that’s exactly the necessary medicine. While it sounds reasonable that boards and leadership are in the best position to fashion their own diversity initiatives, where has that taken us in the last two or three decades?

In any case, is this Oracle matter relevant to entities like law firms or non-public companies? You bet, says a Big Law partner in Dallas who’s been active in promoting diversity. “This is a very creative way to force companies to clean their glass houses. I’m not sure it’ll have the same oomph for private companies or firms but it all flows downhill so start with the top of the food chain—public companies.”

The big question: Any chance this case will succeed? My hunch: Hell no. I mean, if there’s liability for corporate hypocrisy, that’d be the end of American capitalism.

But the Wachtell lawyers believe this case has the potential to be a game changer even if the plaintiff fails: “The premise of the lawsuit, and the relief sought, are likely to provoke significant debate and some degree of change, regardless of the outcome of the litigation.”

For whatever reason, the Wachtell pair also sound quite hopeful about corporate commitment to diversity: “In the current moment, there is a sense that U.S. corporations are more committed than ever to increasing the diversity of their boards and leadership. Each should have the latitude to implement its own initiatives, as neither platitudes nor quotas will be adequate to achieve this goal.”

Well, I agree platitudes won’t get us there. 


Related Posts:

Yes, Cravath Still Has Zero Black Partners  

Am Law 100 Firms That Are Failing Women

vchen@alm.com

Twitter: @lawcareerist

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The Careerist takes an inside look at how lawyers shape their careers and manage their lives. The blog aims to dissect developments in the profession, provide useful information and advice, and give lawyers a platform to voice their views. The goal is to provide a fresh, provocative take on the state of lawyering.

About Vivia Chen

Vivia Chen

Vivia Chen, The Careerist's chief blogger, has been covering the business and culture of law firms for a decade. A former corporate lawyer, Chen is fascinated by those who thrive (as well as those who don't) in the legal profession. Her take: Success in the law (and life) doesn't always travel a linear path. If you have topics you'd like to discuss or information to share, contact her: VChen@alm.com

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