A new lawsuit against social-media site Pinterest raises a potential crisis area for publicly traded companies: legal action from shareholders over race and sex bias. It’s just one more reason for organizations to get their diversity house in order. The suit also provides an inside view of a company roiling from such accusations.

In recent months, Pinterest, which provides virtual pinboards, has been hit with a raft of allegations about race and sex discrimination at the company. It began when two former employees, Ifeoma Ozoma and Aerica Shimizu Banks, both African American women, publicly accused the company of bias, including lower pay. They settled lawsuits against the company. In August, Francoise Brougher, ex-COO — i.e., the former No. 2 executive — also sued, alleging sex discrimination and retaliation.

The new litigation, a so-called shareholder derivative action, which is brought by investors on behalf of the company against its management and directors, was filed Mon., Nov. 30 in federal court in San Francisco.

The suit accuses several Pinterest executives, including CEO Ben Silbermann, of knowingly engaging in or ignoring the behavior and retaliating against those who complained (all very bad crisis management). In doing so, they breached their fiduciary duties to the company, which has harmed both its financial position and its reputation, according to the complaint.

“This case arises from Pinterest’s systematic culture, policy, and practice of illegal discrimination on the basis of race and sex,” writes the investor, the Employees’ Retirement System of Rhode Island. The complaint notes that Pinterest has a largely female customer base, yet another reputational reason to be sensitive to such accusations.

Ozoma and Banks had left Pinterest over the bias issue in May. They went public with their allegations after the company put out a statement in favor of the Black Lives Matter movement, which they saw as hypocritical, according to the complaint. That’s another crisis lesson: See that your words are in line with your actions.

Further Allegations

CEO Silbermann sent employees an email denying the claims, but after a media onslaught that uncovered further bias accusations, Silbermann changed his tune and admitted to mistakes, according to the complaint. The company apparently has an ongoing internal probe.

In August, Pinterest employees staged a “virtual walkout,” saying the three women’s accusations weren’t isolated cases. Its organizers launched a website, changeatpinterest.com. Publicity about the “toxic” workplace has led to a user boycott, a public petition, and reputational harm, according to the complaint.

In response to the derivative suit, a Pinterest spokesperson issued a pretty much boilerplate statement in which the company said that its “leadership and board take their fiduciary duties seriously and are committed to continuing our efforts to help ensure that Pinterest is a place where all of our employees feel included and supported.”

Kevin M. LaCroix, who writes The D&O Diary blog widely read by securities lawyers, noted that the suit joins a rash of sex-bias litigation that arose from the #MeToo movement against company management and boards.

“Regardless of its ultimate success, the lawsuit potentially represents a significant new direction in board litigation arising out of alleging employment-practices misconduct,” he wrote.

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