Human Capital Disclosures May Waken Plaintiffs
Last summer, the Securities and Exchange adopted amendments to Item 101 of Regulation S-K requiring, to the extent the disclosure is material to an understanding of a registrant’s business taken as a whole, a description of a registrant’s human capital resources, including any human capital measures or objectives that the registrant focuses on in managing the business. Although the SEC's adopting release never uses the word "diversity", many companies are responding to the SEC's new human capital disclosure mandate by discussing the diversity of their workforces. Rather than engendering kudos, these disclosure may birth litigation.
For example, a plaintiff recently filed a derivative lawsuit against several directors and officers of Micron Technology, Inc. alleging that they breached their fiduciary duties by personally making and/or causing Micron to make materially false and misleading statements which failed to disclose, among other things, that:
despite public assertions to the contrary diversity was not a key priority of the company;
despite assertions to the contrary the company was not meaningfully diversifying its workforce; and
despite assertions to the contrary the company was not diversifying its leadership or its Board of Directors;
Diversity disclosures may be in the cross hairs of plaintiffs for several reasons. First, plaintiffs are likely to misconstrue statements of diversity as representations rather than goals or objectives. Second, self-identifications of diversity may be challenged if they are perceived to be inconsistent with other facts. Third, racial, ethnic and other diversity terms are not consistently defined. Finally, company statements regarding their diversity efforts may actually constitute violations of laws banning discrimination.
On an etymological note, there is no such word as "kudo". The word "kudos", meaning glory or fame, is derived from the ancient Greek singular noun with the same meaning, "κῦδος" . The "s" ending causes many English speakers erroneously to assume that "kudos" is a plural form of "kudo".