The Impact of Diversity and Inclusion on Management Liability

In recent years, senior leadership teams have been held increasingly accountable for their organizations' failures by shareholders, stakeholders and the general public. Specifically, organizations's diversity and inclusion practices have garnered additional scrutiny.


Certain social initiatives - such as the Black Lives Matter and #MeToo movements - have helped elevate awareness on the importance of promoting diverse representation and adopting effective inclusion measures within the workplace. As such, senior leaders who fail to uphold these practices risk severe repetitional damages, potential lawsuits and an increased likelihood of directors and officers liability claims.


Keep reading to better understand the ramifications that senior leaders could face from poor diversity and inclusion measures, the latest legislation regarding such measures, and top tips for fostering diversity and inclusion within the workplace.


Consequences of Lacking Diversity and Inclusion in the Workplace


First and foremost, senior leaders who fail to promote diversity and inclusion are missing out on various organizational advantages, By establishing diverse representation and maintaining an inclusive environment, organizations can benefit from unique employee perspectives, a deeper talent pool, increased innovation and boosted workplace morale. In fact, a recent study from McKinsey & Company found that organizations with diverse workforces are 25% more likely to outperform their less diverse counterparts.


Apart from missing out on key organizational benefits, it has become increasingly common for senior leaders to face lawsuits due to poor diversity and inclusion practices - namely, shareholder derivative lawsuits. Such suits entails a shareholder suing specific senior leaders on behalf of an organization for their alleged failures.


These lawsuits have stemmed from allegations that senior leaders breached their fiduciary duties by:


- Not following through on previously stated commitments related to developing workplace diversity and inclusion initiatives.


- Misrepresenting the diversity of senior leaders or failing to ensure diverse leadership altogether.


- Retaliating against individuals who voice workplace diversity and inclusion concerns.


Several major U.S. organizations have been impacted by these lawsuits in recent years - including Facebook, Oracle, Gap, Cisco and Pinterest. Such cases carry not only severe repetitional damages but also substantial legal and defense costs.


Additionally, these lawsuits can lead to D&O claims. As a result, underwriters in the D&O market are expected to ask more questions and seek additional documentation regarding policyholders' diversity and inclusion practices.