Corporate activism exposes companies to costly legal action, as shareholders and employees surely notice.
By Kevin STOCKLIN
Efforts by Disney executives to re-brand a company known for family entertainment into a political advocate for sex education in elementary schools and producer of sexualized content for children are taking the company into turbulent waters that may now go beyond irate parents to include shareholder actions, employee lawsuits, and civil rights violations.
On March 11, Disney CEO Bob Chapek steered the entertainment company into the political arena, proclaiming that a Florida law, which bans sex-ed in kindergarten through third grade and requires schools to notify parents about sexual issues related to their children, is “yet another challenge to basic human rights.” Disney will henceforth work to “combat similar legislation in other states,” Chapek stated.
Simultaneous with this declaration, a Disney executive producer revealed her “not-at-all-secret gay agenda” of “adding queerness” into children’s programming wherever possible. Disney also pledged to fight a Texas law that prohibits transgender surgeries on minor children.
Only 27 percent of Americans, however, agreed with Disney’s position that “discussions of sexual orientation or gender identity should be legal in K-3 classrooms” and polls consistently indicate that Americans support the provisions in Florida’s law by a margin of two-to-one. In the wake of pushback from parents and with few other companies stepping up to join Disney’s campaign, its executives have since gone quiet, perhaps hoping this episode might simply blow over. But shareholders, employees, and state officials are not letting it go so easily.
In retaliation for Disney’s campaign against its laws, the Sunshine State revoked the special self-governing status that Disney World has enjoyed in Orlando for more than 50 years. And more storm clouds appear to be brewing on Disney’s horizon.
In an April 5 letter on behalf of shareholders to Disney’s board of directors, Reed Rubinstein, former deputy attorney general in the Trump Administration, demanded a corporate investigation into Chapek’s “wasting of corporate assets,” including material harm to Disney’s brand and reputation, as well as Disney’s violation of employees’ civil rights by fostering a discriminatory and hostile work environment.
Rubenstein’s letter states that Disney must explain “why the Company supports lessons on sexual orientation and gender identity for five-year-old children, while simultaneously opposing parental notification,” and how executives came to the conclusion “that ‘adding queerness’ to children’s programming will enhance the Company’s reputation” or appeal to its core U.S. and foreign customers, many of whom are parents.
The letter further warns that Disney’s “systemic discrimination against religious believers” and “a hostile work environment to silence them and/or drive them out of the Company” violates the U.S. Civil Rights Act of 1964 and the Florida Civil Rights Act, which prohibit religious discrimination, as well as the California Labor Code, which prohibits political coercion by employers.
In an anonymous open letter and a separately published article, Disney employees charged that conservatives and religious employees have been forced to “watch quietly as our beliefs come under attack from our own employer” and that Disney has “fostered an environment of fear that any employee who does not toe the line will be exposed and dismissed.” Letters like these are often a precursor to lawsuits, legal analysts say.
For shareholders whose investment has been impaired by the politicization of their company, legal action could come in the form of a shareholder derivative lawsuit, by which shareholders sue corporate directors and officers who have neglected their fiduciary duty or are deliberately acting in a way that harms the company. For employees who face discrimination, it is increasingly taking the form of civil rights suits.
“Bob Chapek is in a heck of a lot of trouble,” said Scott Shepard, a law professor and director of the Free Enterprise Project. While left-wing activism is now trendy for CEOs, Shepard predicts that executives who have pushed a political agenda over corporate interests “are going to face legal consequences.”
“They’ve been convinced by their DEI departments that somehow it wasn’t coming, but it is coming. They have been saying there’s no risk in being discriminatory because of equity,” Shepard said. “Equity is not the law and it’s not going to protect them.”
Disney’s story is looking like a cautionary tale for other activist companies. In the brave new world of ESG and “stakeholder capitalism,” in which corporations prioritize social-justice and environmental goals, dissenting shareholders, employees, and customers are starting to push back.
This week, the Boardroom Initiative, a shareholder coalition led by former McDonalds CEO Ed Rensi, demanded a civil rights audit at Bank of America, following reports that the bank was making staff undergo a divisive race-based training program. The coalition, which includes the Free Enterprise Project, 2nd Vote, and the Job Creators Network Foundation (JCNF), acquired enough shares of Bank of America to force a shareholder vote on this issue.
“Woke capitalism hurts 401ks, not just the big guys on Wall Street,” said Elaine Parker, JCNF president. “And the people who are invested in those are everyday ordinary Americans, retirees living on fixed incomes.
“All of them right now are facing the highest inflation we’ve seen in 41 years, and now you’ve got [executives] that are literally hurting the value of their own companies at the expense of their shareholders,” Parker said. “Disney lost 10 percent of their share value” since launching their campaign against Florida’s education law.
On April 19, on behalf of Florida pension funds, which are shareholders in Twitter, Florida Gov. Ron DeSantis announced that he would “hold this Twitter board of directors accountable for breaching their fiduciary duty” in their rejection of Elon Musk’s offer to buy Twitter at a price well above its market value.
Florida and other shareholders accused Twitter’s board of choosing ideology over its fiduciary duty in order to protect management and “enforce orthodoxy” at the social media site, which has more than 200 million active users worldwide. Twitter’s CEO Parag Agrawal has stated that Twitters’ mission is “not to be bound by the First Amendment,” but to foster what Twitter’s management considers “a healthy public conversation,” which often includes banning users whose views management doesn’t like. Musk has stated that if he gains control, the platform will be “an inclusive arena for free speech.”
Under Twitter’s current management, the shares, which one analyst called a “serial under-performer,” had fallen by more than 30 percent over the past year. Accepting Musk’s offer would have given shareholders a 38 percent gain over where the stock was trading before he started his takeover effort on April 1. Arm-twisting from shareholders succeeded yesterday in getting Twitter’s board to accept Musk’s bid.
The ongoing fight for shareholder rights promises to be an uphill battle, however. Executives and board members are usually shielded from liability by the “business judgement rule,” explained Richard Morrison, a senior fellow at the Competitive Enterprise Institute. “As long as there is no actual financial corruption or self-dealing going on, judges are generally loath to second-guess management decisions by CEOs” if they appear to be made in good faith.
Self-dealing occurs when corporate officers use company assets for their own personal gain, and has generally applied when managers enrich themselves financially. But the extent of current political activism by CEOs is unprecedented and has raised the question among some legal analysts as to whether using the company to promote one’s personal beliefs could be considered self-dealing as well. If self-dealing occurs, corporate officers could be personally liable for shareholder losses.
In addition to shareholder actions, employees and even customers are now bringing lawsuits.
In October, a federal jury awarded $10 million to Novant Health employee David Duvall, a white male, in support of his claim that he had been fired because of the company’s racial and gender policies. And last week, Shawnee State University agreed to pay $400,000 plus attorney fees to Nick Meriwether, a professor at the school, to compensate him for violating his freedom-of-speech rights in their attempt to force him to use approved pronouns.
“I think we’ll see more of this litigation coming,” said Jeremy Tedesco, a senior council for Alliance Defending Freedom, a legal organization that advocates for religious liberty and freedom of speech. Corporations are “getting more and more aggressive and activist,” he said. “They are going to cross those lines and employees are going to have opportunities to push back.”
A case in point is United Airlines, which implemented racial and gender quotas for pilots last year. In April 2021, United announced that “we plan for 50 percent of the 5,000 pilots we train in the next decade to be women or people of color.”
“Corporations are being very brazen about their race discrimination,” said Daniel Lennington, an attorney at the Wisconsin Institute for Law & Liberty. “A lot of companies have adopted racial quotas in hiring, which are illegal and have been for decades.”
On April 13, Emily Mais, a former assistant principal, filed a lawsuit against the Albemarle County School Board in Virginia, alleging severe harassment and a hostile work environment because she “questioned the implementation in the school district of a radical program that scapegoats, stereotypes, labels, and ultimately divides people based on race.” Mais is represented in her suit by Alliance Defending Freedom.
Race-based training programs, which have been widely implemented among large corporations, “often chill expression, they often force people to express ideas they disagree with, and they certainly run the risk of creating hostile environments,” Tedesco said.
Under Title VII of the Civil Rights Act of 1964, “you have protections as employees of a private company against both religious and race-based discrimination and the creation of a hostile work environment,” he said. “Companies need to have those legal protections in mind when they’re adopting and implementing these training programs.”
In addition to federal law, many state laws also prohibit racial, gender, religious and in some cases political discrimination. On March 10, Florida passed the Stop WOKE Act, which seeks to protect workers from having racial and gender ideology imposed on them in training programs.
Civil rights laws also protect customers. In April, Comcast also became subject to a racial discrimination lawsuit because of a policy that bars white people from participating in their RISE program, which provides grants, marketing and technology services to companies owned by women and “people of color.”
The plaintiff, Christopher Moses, stated that he and his wife started a small business, All American Clean, but found that their business was ineligible for Comcast’s program. “The only people excluded are white men—which disqualified our business,” Moses said.
Many argue that private companies should be free to do business with whomever they want, but Lennington, who represents Moses, points out that “people used to say that about swimming pools and hotels: ‘If a swimming pool is a private company, why can’t they prevent black people from swimming?’”
“We’ve already had this fight in our culture,” Lennington said. “It’s called the Civil Rights Movement. And what came out of that fight was the idea that we treat everyone equally regardless of the color of their skin. So no, they are not free to discriminate, as a legal matter or as a moral matter.”
What might worry corporations more than morality, however, is the legal industry. To date, there are only a handful of non-profit legal organizations willing to take on discrimination cases for conservative or religious employees. But if they continue to win cases and set precedents, class-action lawyers will likely step in to reap the profits against large corporations.
At the moment, however, conservatives are facing off against giant institutions including the world’s largest asset managers, like BlackRock and State Street, and America’s largest public pension funds, which are pushing companies to back progressive causes. According to a Financial Times report, “conservative groups have had very little success at persuading other mainstream institutional investors to join them.”
But conservatives say size isn’t everything. In the past year, legal challenges have blocked the use of racial criteria in the Biden administration’s Restaurant Revitalization Fund and his Farmer Loan Forgiveness Program. Hospitals in Minnesota, Utah, New York, Illinois, Missouri, and Wisconsin have also begun to use race as a factor in determining who gets priority for health care, but conservatives were able to get Minnesota hospitals to backtrack on this practice.
“A small group in Florida just shut down the entire airline mask mandate,” Lennington said. “You could characterize it as David and Goliath, but when the law is on your side anyone can beat them. That’s the whole point of equality under the law.”
Disney, Comcast, Bank of America, United Airlines, and Twitter were contacted regarding this article, but did not respond.
