In the past year, there has been a concerted effort by certain plaintiff firms to weaponize environmental, social, and governance (“ESG”) principles to attack corporate boards. On March 19, 2021, the United States District Court for the Northern District of California in Ocegueda v. Zuckerberg, Ca. No. 3:20-cv-04444-LB (N.D. Cal. Mar. 19, 2021), struck a blow against these efforts by granting defendants’ motion to dismiss. In dismissing plaintiff’s complaint, the Court applied fundamental principles of corporate law which set a high pleading bar a plaintiff must clear to impose ESG initiatives on a public company through litigation. Hopefully, courts will continue to carefully apply these principles to deter this litigation strategy. Indeed, the adoption of ESG initiatives is fundamentally a business decision involving the board of directors and the stockholders, a decision that does not belong in the courtroom.

Background

In the second half of 2020, numerous complaints were filed in federal courts across the country, generally asserting that the boards of directors of defendant public companies (1) breached their fiduciary duties by failing to nominate a diverse set of candidates for election to the board of directors, in contravention of the companies’ statements in favor of diversity, (2) breached their fiduciary duties by ignoring red flags of allegedly unlawful discriminatory employment practices within their organizations, and/or (3) violated the federal proxy laws and regulations by failing to disclose the companies’ allegedly discriminatory practices in the companies’ annual proxy statements seeking the election of the directors. These claims were derivative in nature, and sought both to recover damages for the corporations on whose behalf the complaints were purportedly brought and to impose corporate governance reforms.

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