Disney is now being asked to open its books and records to reveal the degree to which its board and management have been walking the diversity walk. On June 16, 2020, plaintiff and Disney shareholder Jonathan Lustig filed a complaint with the Court of Chancery of the State of Delaware to compel Disney to produce roughly five years’ worth of board minutes and materials that show how issues regarding gender pay, promotion equity and other diversity and discrimination matters have been communicated to and considered by the board. Disney had declined to produce documents in response to an initial demand in May. In support of his complaint, Lustig and his attorneys point to a 2019 class action complaint filed against the company alleging gender pay discrimination, as well as other claims of gender discrimination and sexual harassment that have been asserted against the company.

In recent years, it has not been unusual for companies to make statements regarding their commitment to diversity in annual meeting proxy statements, annual reports, and voluntary sustainability or corporate social responsibility reports. Too often, however, the company’s internal investor, public relations or marketing department have drafted general statements about their company’s commitment to diversity without considering whether there are company practices to match. In the past, this type of “window dressing” disclosure may have served to “check the box” with certain investors, but as Disney is now discovering, some investors are asking companies to provide proof of their commitment to these values. For example, some investors are now asking companies to make their EEO-1 data public. While historically, EEO-1 simply showed the breakdown by race and gender of the number of employees in ten general categories, in 2018, employers were temporarily required to provide salary information by sex and race/ethnicity by counting the number of employees in each of twelve salary ranges in each of the EEO-1 categories, which frequently highlights the disparities in pay between men and women. While the current administration suspended that requirement, there is nothing to stop investors from making demands for such data even if it is not currently being required. Without a doubt, some public companies are about to find themselves between a rock and a hard place – disclose demographic information and prove that their diversity statements are not necessarily reflected in practice, or refuse to disclose and hope they do not receive investor engagement, or demands, for more transparency.

There are some simple steps companies can take to help in the prevention of their disclosures being used against them:

• Use an annual board agenda chart. Companies often scatter statements regarding their commitment to diversity throughout their public disclosures and governance documents. Some of these statements may directly or indirectly commit the board to reviewing the company’s diversity efforts, but absent an annual board agenda chart that clearly requires management to report to the board on diversity at a particular regular meeting each year, these commitments may fall by the wayside.
• Get legal and IR/PR/marketing on the same page. Lack of communication between the parties charged with various parts of a company’s disclosure is a recipe for disaster. Getting all parties who oversee disclosures, including both required and voluntary disclosures and marketing materials, as well as those who are involved in establishing the company’s litigation strategies on the same page can save a company from an embarrassing hiccup. It is better to acknowledge upfront that your company has challenges with pay equity and promotions than to have a shareholder or a group of employees point it out in a class action lawsuit.
• Get independent help. Reviewing your corporate culture to match your diversity walk to your diversity talk often requires difficult but crucial conversations. An independent voice can help a company navigate these conversations and steps and come out on the other side in a better position to tell its diversity story and back it up.