Companies are struggling with how to deal with calls for them to get more involved in social and political issues. It puts them in tough spots. One side or the other, progressive or conservative, decries either the business’s silence or its speaking out (its “wokeness”). A Delaware judge’s ruling provides some guidance on how companies might navigate this terrain.

It’s an important topic both for reputation and because it has led, and will lead, to lawsuits. The immediate case concerns a shareholder’s response to the high-profile feud between The Walt Disney Co. and Florida Gov. Ron DeSantis. Delaware Vice Chancellor Lori W. Will handed down her decision in Disney’s favor on June 27 (hat tip to Kevin LaCroix at the D&O Diary blog).

In March 2022, DeSantis signed into law the Parental Rights in Education Act, which bans teachers from kindergarten to third grade (and possibly higher) from discussing sexual orientation or gender identity. Critics call it the “Don’t Say Gay” bill.

Flip-Flop

When the measure was first taken up, Disney said it wouldn’t stake out a position. Then came the backlash, including from its employees. The company flip-flopped and came out against it. This was after the full board held a special meeting on “Political Engagement and Communications,” according to Will’s decision.

DeSantis threatened to retaliate by revoking Disney’s self-governing special district, home to the Walt Disney World Resort. The stock price fell. Shortly after the bill became law, a Disney shareholder sued the company, requesting “books and records” related to its public opposition. At the case’s heart is whether a board’s embrace of such hot-button issues can be a breach of its fiduciary duty to shareholders.

In her decision, Will ruled that directors can deal with matters not strictly shareholder related if they address the business’s long-term value. She said it’s for boards, not courts, to decide. The judge found that Disney seriously considered the Florida bill — meaning there was no wrongdoing. The level of seriousness may be an important factor in trying to fend off such lawsuits.

‘Divisive Thoughts’

“Although choosing to speak (or not speak) on public policy issues is an ordinary business decision, this case exemplifies the challenges a corporation faces when addressing divisive topics — particularly ones external to its business,” Will wrote. “Individual investors have diverse interests — beyond their shared goal of corporate profitability — and viewpoints that may not align with the company’s position on political, religious or social matters. Yet stockholders invest with the understanding that the board is empowered to direct the corporation’s affairs.”

This includes, according to the ruling, maintaining a happy staff. In an aspect particularly relevant to companies trying to decide how to navigate tough issues, the judge disagreed with the shareholder’s argument that the board ignored the potential negative consequences of opposing the legislation.

“Perhaps the board could have avoided political blowback by remaining silent,” she wrote. “At the same time, doing so could have damaged the company’s corporate culture and employee morale. The weighing of these key risks by disinterested fiduciaries does not evidence a potential lack of due care, let alone bad faith.”

Photo Credit: Donna R. Theimer AIFD/Shutterstock

Sign up for our free weekly newsletter on crisis communications. Each week we highlight a crisis story in the news or a survey or study with an eye toward the type of best practices and strategies you can put to work each day. Click here to subscribe.