Litigation and Alternative Dispute Resolution

The importance of implementing and executing robust diversity and inclusion (D&I) policies is a rising priority for companies worldwide as they come under scrutiny by the media and investors. The legal framework continues to evolve to reflect this shift in societal values and expectations. This increased focus has resulted in D&I policies becoming a more important factor in investment decisions and accordingly several shareholder disputes have been brought against companies for their failure to implement or adhere to D&I commitments.

With the rise of greenwashing litigation and securities class actions in Australia,¹ Australia may see an increase in shareholder disputes related to companies D&I policies in the coming years. This article explores the likelihood of Australia seeing an increase in these types of disputes, with guidance from developments in the United States.

Australia’s legal landscape

In Australia, the legal landscape surrounding shareholder D&I class actions remains untested. Australia does not have any laws specifically mandating companies have D&I policies. However, existing anti-discrimination laws are likely to influence how companies approach the implementation of such policies and broadly encourage D&I. In particular, federal anti-discrimination laws permit acts of “positive discrimination” aimed at encouraging greater access to opportunities for certain groups of disadvantaged people.²

We also note two trends that are likely to result in an increase in Australian companies adopting D&I policies:

1. Media coverage criticising companies for inadequate D&I commitments;³ and
2. Studies reporting the benefits of having a more diverse and inclusive workplace.⁴

Potential grounds for disputes

Shareholders could potentially sue a company’s directors and officers for inadequate implementation of D&I policies where it results in:

1. Misleading and deceptive conduct: If the company has made statements to the market about its D&I commitments and policies which are false or misleading, the company may have breached the Australian Consumer Law and/or ASIC Act;
2. Breach of fiduciary duty: If directors and officers fail to exercise reasonable care and skill or act in good faith and in the best interest of the company, they may breach the fiduciary duty they owe to investors. Any breach may be supported by evidence indicating it resulted in:
   1. Reputational damage to the company: Public backlash against discriminatory practices or a lack of diversity could hurt the company’s image, impacting stock prices.
   2. Breach of laws and regulations: If a company is found to have contravened the law, such as anti-discrimination laws, it could lead to fines and penalties, impacting profitability.
   3. Lack of talent acquisition and retention: A company which fails to be inclusive and diverse is likely to find it harder to attract and retain highly skilled staff, impacting innovation and productivity.

Read the entire article.