Sunday, September 25, 2022

Podcast on "The Shareholder Solution to Corporate Race Discrimination"

I recently had a chance to listen to an episode of the Institutionalized podcast discussing efforts by the American Civil Rights Project to combat the embrace of neo-racism by corporate America. (Cf. "In his new book, Woke Racism: How a New Religion Has Betrayed Black America, Professor John McWhorter argues that a neoracism, disguised as antiracism, is hurting Black communities in this country.")  In the course of that podcast, Dan Morenoff, Executive Director of the American Civil Rights Project, discussed a relevant recent litigation filing against Starbucks. A copy of the complaint can be found in the ACRP press release here, and here is an excerpt from that release:

Yesterday [8/30/22], for the National Center for Public Policy Research, a longtime Starbucks shareholder, the American Civil Rights Project sued Starbucks’ officers and directors. That suit – NCPPR v. Schultz et al. – seeks both to bar those officers and directors from continuing to implement racially discriminatory policies and to hold them responsible for the harms those policies have done to shareholders. This step follows the parties’ exchange of letters.  In March, the ACR Project wrote the defendants and Starbucks demanding the immediate retraction of seven racially discriminatory policies. In July, the defendants responded that Starbucks’ directors had “determined that it is not in the best interest of Starbucks to accept the Demand and retract the Policies.” That response compelled the ACR Project’s filing. The complaint argues that Starbucks’ policies violate applicable state and federal civil rights laws, creating material corporate liabilities.... “Corporate America has embraced illegal, discriminatory policies that almost all Americans oppose …,” said ACR Project Executive Director Dan Morenoff…. [Meanwhile,] Director of the National Center for Public Policy Research’s Free Enterprise Project Scott Shepard explained, “NCPPR is proud to stand up for the countless small shareholders who feel powerless to challenge Starbucks’ disregard for civil rights. It cannot be in the best interests of shareholders for Starbucks to violate a huge array of civil rights law by discriminating on the basis of race. Its officers and directors ought to be ashamed of themselves and must be held liable.”… The ACR Project’s previous demands to the Coca Cola Corporation and the Lowes Companies, Inc. ended in each abandoning its illegally discriminatory policy, without litigation.

A Wolters Kluwer summary (here) provides some additional details on the Starbucks suit:

Specifically, the plaintiff alleges that the DEI policies violate 42 U.S.C. § 1981, which codifies the Civil Rights Act of 1866 to prohibit racial discrimination in contracting. The policies obligate Starbucks to base its contracting decisions on race by adopting race-based goals for hiring employees and nominating directors; excluding some employees from career development programs based on their race; basing executive compensation on the racial composition of the workforce; choosing suppliers based on the race of their owners; and reallocating advertising funds away from vendors owned by non-minorities toward minority-owned and -targeted media companies. All these policies exclude individuals and businesses from contracts on a “but-for” basis because of their race, the complaint argues. The complaint also alleges that some of the policies violate Title VII's prohibitions on race-based employment decisions, as well as the civil rights laws of multiple states .... In addition to seeking declaratory judgment that the policies violate the above laws, the complaint also asks for a declaratory judgment that they expose Starbucks to material liabilities to private plaintiffs and governmental authorities, including the potential for uncapped damages and punitive damages…. The plaintiff alleges that the many D&O defendants breached their fiduciary duties in adopting and implementing the policies. Some or all of them knew or should have known the policies were illegal, and any who didn't could only have failed to know by failing to inquire, in breach of their duties of due care. Alternatively, the defendants learned the policies were illegal no later than March 2022, when they received the ACR Project's demand letter. The complaint also raises an alternative theory for breach of fiduciary duty, which is that the policies' adoption constituted self-dealing at the expense of Starbucks and its shareholders. The D&O defendants allegedly enjoyed the social benefits of promoting the policies, while the corporation and shareholders bear the expenses and liabilities.

Stefan J. Padfield | Permalink


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