How social movements and investor pressure aim to improve workplace conditions
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John van der Luit-Drummond is editor of International Employment Lawyer

Shareholder lawsuits brought to address workplace issues is a relatively new trend, but one that continues to grow in importance since the #MeToo and Black Lives Matter movements began highlighting sexual harassment and racial discrimination within the world’s largest and best-known employers.

A derivative lawsuit against Google’s parent company made headlines in 2020 after it was alleged that the Alphabet board failed to prevent sexual harassment and hid executives’ misconduct. The suit ended in a $310m settlement and a pledge by the technology giant to address diversity and gender equality issues.

But Google is not alone. In the past five years, companies including broadcasters CBS and Fox News, and social media site Pinterest, have faced mounting pressure from institutional and activist investors seeking more progressive workplace policies that do not just protect investments but workers’ rights too.

Continuing the trend into 2021, McDonald’s investors filed two lawsuits against the company in late July and early August; the first, a derivative suit, accused the company’s board and legal advisers, Morgan Lewis & Bockius, of mishandling sexual harassment and racial discrimination within McDonald’s restaurants, while the second sought documents related to the fast-food chain’s handling of top executives’ alleged sexual misconduct.

McDonald’s is not the only employer facing shareholder revolt due to workplace harassment claims, however. Victoria’s Secret parent company, L Brands, recently settled two derivative suits that accused its board of allowing a “culture of harassment”, and, as previously reported, Activision Blizzard is facing a federal securities fraud claim and a derivative shareholder lawsuit brought by investors with the aim of forcing the video games developer to reform its corporate governance and internal procedures.

With a focus on diversity, equity, and inclusion (DEI), and respectful-workplace initiatives, Bonnie Levine, a shareholder at Ogletree Deakins in Atlanta, Georgia, says that while there is an increase in shareholders pressuring companies to act on harassment and discrimination claims, the phenomenon is part of a broader trend involving all workplace stakeholders.

“Most often we are seeing pressure from all stakeholders – both the traditionally powerful, such as shareholders, boards, and executives, as well as customers, clients, employees – that are reflective of a shift in power resulting from social media influence, as well as a market trend in recognition that companies are best poised to excel when the composition of their decision-makers reflects the lived experiences of the consumers and communities they serve,” she says.

This trend has “cascaded” following George Floyd’s murder in 2020, adds Levine, with a continued momentum she describes as “an ostensible effort to mount a cumulative response to social movements, such as Black Lives Matter and #MeToo, that were particularly disruptive to the workplace, threatening to expose boilerplate policies or procedures as ineffective and diversity efforts as performative”. 

Disclosing all your racial breakdown reflexively and without proper context may ultimately cause the most disrespect to the individuals it is designed to protect

Requests for transparency and disclosure of workforce demographics – such as race, ethnicity, or gender, as well as pay gaps and records of internal complaints – are the most commonly sought investor demands, explains Levine, adding that these requests usually lead to the setting of future targets and accountability measures within companies.

“This can take the form of diversity information requests when seeking contract proposals; compensation incentives for executives for achievement of diversity-related goals; requests as part of due diligence in transactions; public-facing diversity targets or goals and descriptions of past success or failure. Lately, these types of requests have become part of ESG (environment social and governance) reports,” she adds.

So, what advice should employers heed when facing dissatisfied investors? First, as a DEI practitioner, Levine discourages companies from labelling investors bringing such claims as “activists”, because of the potentially negative connotation that description brings.

“While the climate is intense, and some of the tactics we see could be fairly described as short-sighted or reactionary in nature, by and large I am hopeful that what we are seeing reflects a long-term pivot where these will become minimum standards, such that demands or pressure will no longer be necessary – attention to these important matters will be par for the course and requests will no longer be labelled ‘activism’,” she says.

Next, when facing demands for action, Levine advises employers to avoid reactionary, rash measures that fail to honour the data subjects themselves. “For example, the metric of how many harassment complaints there have been can be misleading; in organisations where people feel the safest to report harassment, you will actually see more recorded complaints of it,” she explains.

“Additionally, disclosing all your racial breakdown reflexively and without proper context may ultimately cause the most disrespect to the individuals it is designed to protect – racial minorities are the most easily identifiable in small data sets, and out of respect to these individuals (as well as privacy laws for multinational companies), I recommend that employers do a data audit/data protection impact assessment.”

Nevertheless, pressured by disgruntled shareholders to make changes – as well as a hungry press waiting in the wings to report on exasperated investors – companies will feel the need to do something to meet the demands for immediate action. “My suggestion is to set and stick to calendar deadlines with deliverables that are achievable and honouring the true essence of DEI, which is a listening exercise,” says Levine.

“Ask employee populations for feedback enough times and in enough ways – with enough recognition that employees lower in the power structure have every reason not to tell you what they really think – and you build organisational trust from stakeholders at all levels. This is a long game, and an important one.”

Social movements, and the shift in power that comes with social media, has caused a bit of a panic, particularly in US organisations

However, as several recent developments have shown (and with varying degrees of success), investors applying pressure to company boards is not limited to concerns over harassment, discrimination, and DEI-related issues.

Aimed at broadening the influence of hourly workers, a shareholder resolution in May – backed by investors such as Oxfam America and proxy adviser Institutional Shareholder Services – demanded Amazon put an employee on the Seattle-based corporation’s governance board. Shareholder demands are nothing new to Amazon, whose employees had previously used their company-issued stock to applied pressure on the e-commerce giant in an attempt to reduce its contributions to climate change.

Meanwhile, at another Silicon Valley titan, unionised workers threatened to strike earlier this year unless Alphabet failed to adopt workplace reforms – including new protections for whistleblowers and the nomination of an independent board member with human rights and civil rights experience – presented at the company’s June shareholder meeting.

Also in May, investors of Wendy’s approved a proposal requiring the company to disclose evidence of whether its existing policies protect workers in its food supply chain from human rights violations – including harm from covid-19 – and whether the world’s third-largest hamburger fast-food chain mandates coronavirus safety protocols for workers.

The vote came on the heels of two letters sent to the restaurant group in April – one from more than 100 investors representing $1 trillion in assets, the other from a coalition of six US state treasurers – demanding that Wendy’s join the Fair Food Program to help the company mitigate risk and compliance in the agricultural industry.

Although Wendy’s had previously filed a No Action request with the Securities and Exchange Commission (SEC) to have the resolution omitted from the proxy vote, the company shifted gears after the SEC denied the request, ultimately urging investors to vote yes.

“With a global reckoning over racial justice, and a pandemic that disproportionately harms Brown and Black farmworkers, this is an issue every food retailer must address,” said Sister Margaret Magee of the Franciscan Sisters of Allegany, New York, who presented the resolution for a vote.

“This shareholder approval makes clear that investors are seeking evidence that human rights systems are actually working to protect essential workers in the food supply chain,” said Mary Beth Gallagher, executive director of Investor Advocates for Social Justice, which spearheaded efforts around the resolution.

Considering the activity seen in recent years, and that the long-term impact of the covid-19 pandemic on working practices has yet to be felt, it seems likely that shareholder actions – activist or otherwise – are set to become a mainstay of the legal landscape.

“I am hopeful [this trend] will continue and will become more standard, and less frenetic!” remarks Levine. “Social movements, and the shift in power that comes with social media, has caused a bit of a panic, particularly in US organisations which have historically had zero accountability to their at-will employees – whereas works councils and employment contracts provide some level of accountability abroad, something that US organisations tend to be painfully unaware of.”