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2022 Predictions: Increased litigation will propel diversity up the D&O agenda

By Leo Tootell​, Management Liability and Financial Institutions Broker at New Dawn Risk

Events of recent months have highlighted the fact that the D&O market is an ever-evolving and increasingly challenging space.

Among recent changes in the market was a wave of SPAC-related litigation, which followed a fourfold increase of SPAC IPOs from 2019 to 2020, according to SPAC Analytics.

However, no emerging D&O risk has more potential for litigation than Environmental, Social and Governance (ESG) risks – especially with respect to the social pillar.

The Black Lives Matter movement has focused attention on the diversity of company boards, particularly in relation to Nasdaq’s SEC-approved diversity targets for listed companies, and California’s new law mandating minimum requirements for board-level inclusion of women and under-represented groups.

We have already seen claims arise where requirements have not been met. In a suit filed against Qualcomm (and dismissed last month), the company was accused of a “materially false and misleading” statement in claims made about the diversity of its board. Similar lawsuits were also filed against NortonLifeLock and OPKO Health, which were also ultimately dismissed. While this is undoubtedly frustrating for those alleging a lack of diversity on company boards, in the near future we predict that the tide will turn in plaintiffs’ favour.

Since early 2021, it was expected that diversity could be the next big D&O risk, but recent developments suggest diversity-related suits could be a bigger exposure for companies than originally thought, since it will now be an expected standard for boards.

In the UK, the FCA has launched a new consultation on proposals “to boost disclosure of diversity on listed company boards and executive committees”, which will in effect mandate disclosure and publication of the composition of company boards.

Moving into 2022, if diversity isn’t placed at the top of the board agenda, alongside a commitment to consistency and transparency, then exposure to diversity-related suits could potentially be catastrophic.