The U.S. District Court for the Middle District of Florida on Wednesday blocked Target’s motion to dismiss a conservative advocacy group’s lawsuit regarding the retailer’s DEI practices. The court also denied the corporation’s request to move the case to Minnesota, where it is headquartered.
America First Legal filed the lawsuit, Craig v. Target Corp., against Target and its board of directors in August 2023, claiming the board had misled investors about the financial risks of its DEI and ESG practices. Specifically, the lawsuit alleged that Target’s 2023 Pride campaign tanked the brand’s profits and that Target failed to warn of the risk of “adverse reactions.”
Investor conflict over DEI may be a trend
According to AFL, Target failed to include the risks of its Pride campaign in its official disclosure documents. They argue it was foreseeable that customers would be upset by a DEI “mandate,” due to past customer and investor backlash related to such initiatives.
Meanwhile, Target’s disclosure did mention that failure to reach DEI goals may impact business outcomes. This sentiment is not uncommon: Thought leaders in the labor space such as Great Place to Work have long sought to demonstrate the financial benefits of a more diverse workforce.
Notably, another major retailer faces a recent lawsuit regarding diversity and inclusion, stockholder malcontent, and a hit to profit: Lululemon.
A shareholder filed a lawsuit against Lululemon’s officers and directors Nov. 18, alleging the company failed to uphold the ideals of its IDEA, or Inclusion, Diversity, Equity and Action, program, resulting in discrimination.
What the motion denial means, looking ahead
A statement from Reed D. Rubinstein, AFL’s senior vice president, called the decision a “warning,” suggesting the firm will continue to go after publicly traded companies that do not disclose the market risk of DEI and ESG initiatives in their shareholder documents.
“Our federal securities laws mandate fair and honest disclosure of the market risk created by management when it uses shareholder resources, including consumer goodwill, to advance idiosyncratic and extreme social or political preferences,” he said in a press release.
HR Dive reached out to America First Legal for further comment and did not hear back by the time of publication.