Shareholder Lawsuit May Force Execs to Disclose Risks of Social Justice Campaigns

People walk past a Target store in New York City on June 6, 2023. Samira Bouaou/The Epoch Times

A shareholder lawsuit against Target, America’s sixth-largest retailer, is seeking to make management accountable for losses that shareholders suffered as a result of the company’s social and political campaigns. 

The investors bringing the suit charge not only that Target’s political ventures cost shareholders billions of dollars but that management misled investors about the risks they were taking. If successful, the case could prove a major precedent regarding company obligations to shareholders in the current era of “stakeholder capitalism.”

According to the lawsuit, “Target Corporation … and its Board of Directors betrayed both Target’s core customer base of working families and its investors by making false and misleading statements about Target’s Environmental, Social and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) mandates that led to its disastrous 2023 children-and-family themed LGBT-Pride campaign.”

The plaintiffs charge that Target marketed this campaign at children, selling transgender “tuck-friendly” women’s swimsuits with “extra crotch coverage” in XXS sizes. In addition, they claim, Target’s CEO Brian Cornell and its board of directors “deceived Target investors” regarding the risks of a campaign that used shareholders’ money to pursue “divisive political and social goals—and ultimately cost investors billions.”

“The Campaign provoked immense consumer backlash and boycotts that caused Target’s sales to fall for the first time in six years and wiped out over $25 billion in Target’s market capitalization—leading Target’s stock to experience its longest losing streak in 23 years,” the lawsuit charges.

Plaintiffs in the case say that they want corporate executives to inform investors about the risks of the political causes they take up, and to take responsibility if those causes end up hurting the owners of the company.

“I would like to see companies held accountable to their shareholders for the actions they choose to engage in from a social perspective,” Robert Netzly, CEO of Inspire Investing, a plaintiff in the lawsuit, told The Epoch Times. “I would like companies that are watching from the sidelines and seeing Target being held accountable to really take a hard look at their own decisions.”

“They can’t just support whatever they want to support with shareholder dollars, and take unreasonable risks, and expect not to have any sort of repercussions when those risks go south,” Mr. Netzly said.

Risks With Progressive Campaigns

This legal action comes at a time when many companies, including Disney and Anheuser-Busch, have suffered significant losses in sales and market value after aligning their company brands with politically progressive agendas. In an admission of this, Disney stated in its most recent 10-K filing that the company’s left-wing social justice activism has become one of the key risks for its investors. 

“Consumers’ perceptions of our position on matters of public interest, including our efforts to achieve certain of our environmental and social goals, often differ widely and present risks to our reputation and brands,” Disney stated in legalese. “Consumer tastes and preferences impact, among other items, revenue from advertising sales, … affiliate fees, subscription fees, theatrical film receipts, the license of rights to other distributors, theme park admissions, hotel room charges and merchandise, food and beverage sales, sales of licensed consumer products or sales of our other consumer products and services.”

Following a number of headline social-justice campaigns, Disney has seen a decline in revenue in many of these categories, which critics argue is the result of some “consumer tastes” not appreciating the left-wing tone of Disney’s movies, TV shows, theme parks, and public campaigns. 

In November, Nelson Pelz, who owns $3 billion in Disney shares, stated that Disney has lost $70 billion in market value since last February and that “Disney’s share price has underperformed proxy peers and the broader market over every relevant period during the last decade.”

The recent corporate trend of political activism stems from the rise of the ESG movement, also called “stakeholder capitalism,” “sustainable investing,” and “conscientious capitalism,” which has been portrayed by its advocates as an essential tool for corporate risk management.

This movement, which has had the support of the world’s largest asset managers, banks, and insurance companies, has advocated for corporations taking progressive positions in areas like fossil fuel production, racial and gender equity, gun control, and abortion rights. But critics say that, rather than mitigating risk, the ESG movement has often increased risk for companies and their shareholders.

“As companies like Disney and Target and Bud Light push to integrate ESG values into their business, it’s exposing the fact that this is not risk management; this is risk creation,” Mr. Netzly said. “They’re doing this because of ideological issues, not for any sort of risk mitigation.”

“If those companies decide to wade into these waters of pushing divisive social issues, knowing that there is a risk, at a minimum they have to disclose that,” he said. “But then they also have to be held accountable for those risks materializing, as they did for Target and Budweiser.”

Companies Must Disclose ESG Risks

Informing investors about the most important risks they are facing has long been required for listed companies, according to U.S. securities law. 

“For any major retailer, like Target or AB InBev, the owner of Bud Light, they need to be forthright about the risks they are running by listening to pretty radical pressure groups,” Jonathan Berry, managing partner of the law firm Boyden Gray and an attorney for the plaintiffs, told The Epoch Times.

“I think a lot of public companies are waking up to the need to make more accurate and fulsome disclosures of their political and social activities that could be leading to customer blowback.”

The suit alleges that Target’s 2021 and 2022 annual reports failed to mention that it was subject to the risk of consumer boycotts because of its ESG/DEI initiatives; that Target’s 2022 and 2023 proxy statements “falsely and misleadingly” stated that Target’s management was overseeing the risks from Target’s pursuit of ESG/DEI campaigns; that Target launched its social-justice campaigns in order to advance shareholder value; and that “Target and its CEO & Board Chairman Brian C. Cornell misleadingly downplayed the scope of consumer boycotts after they began.”

A woman protests outside of a Target store in Miami, Fla., on June 1, 2023. The protesters were objecting to “Pride Month” merchandise at Target. Joe Raedle/Getty Images

Tim Schwarzenberger, portfolio manager at Inspire Investing, said he met with Target’s investor relations team regarding the consumers’ boycott following the retailer’s pride campaign.

“We relayed our concerns,” he told The Epoch Times. “It was very clear that they weren’t taking our concerns seriously.

“After the backlash happened, there were also statements that the CEO Brian Cornell made, that really downplayed the severity of the issue,” Mr. Schwarzenberger said. 

Traditionally, American courts have been reluctant to support shareholder lawsuits against management if managers can claim in good faith that they believed their actions would benefit the company.

However, if executives acknowledge the risks they are taking with political campaigns and then still engage in those campaigns, the question arises whether company managers can be held personally liable for losses to shareholders that result.

Blurring the Lines Between Business and Politics

These issues are arising at a time when the purpose of companies, and the role and responsibilities of management to the owners are being challenged.  

In a Wall Street Journal op-ed, co-written by Mr. Berry and former Attorney General William Barr, the authors argue that Delaware, where most companies are currently incorporated, appears to be altering its interpretation of corporate law to add the pursuit of political causes to the obligations of corporate management. 

“Delaware earned its reputation by scrupulously deferring to companies’ good-faith pursuit of shareholder value, freeing up executives to focus on business,” the authors wrote. “That era may soon be over.” 

Increasingly, Delaware is “falling in line with other blue states in embracing ESG, which rejects shareholder value as corporate law’s lodestar.” 

This could have the effect of further politicizing America’s corporations. Or it could encourage them to incorporate outside of Delaware.

According to Mr. Barry, Texas, Georgia, Utah, and Wyoming recently set up their own designated business courts, indicating that they may be looking to lure companies away from Delaware.

The Epoch Times reached out to Target to comment but has not received a response.