May 19, 2022

Volume XII, Number 139

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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".

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 47
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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