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.”
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.”
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.”
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.”
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.”
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.
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.
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.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.
