Securities Regulation Daily Shareholder suit alleges diversity failures are hurting Qualcomm’s bottom line
Monday, July 20, 2020

Shareholder suit alleges diversity failures are hurting Qualcomm’s bottom line

By Lene Powell, J.D.

According to a new lawsuit, tech giant Qualcomm’s lack of racial diversity among leadership has harmed its reputation, goodwill, and bottom line.

A new shareholder lawsuit in the Southern District of California alleges that directors and officers of Qualcomm Incorporated have breached their fiduciary duty to the company by failing to ensure diversity in the company’s leadership and misrepresenting progress toward greater diversity. The shareholder alleges this lack of diversity has caused economic losses in the form of expenditures on investigations and decrease in reputation, goodwill, and market capitalization. The lawsuit seeks monetary damages, creation of a $800 million fund to hire and promote minority individuals, and corporate governance reforms including replacing three directors and the Chief Diversity Officer with persons of color (Kiger v. Mollencopf, July 17, 2020).

Lack of diversity. Brought by law firm Bottini & Bottini, the complaint alleges that Qualcomm has failed to create diversity at the top of the company, as reflected by a complete lack of African American board members or executive officers. In addition, African Americans represent only 1.5 percent and Hispanic workers only 4.6 percent of the company’s workforce, the complaint states.

The complaint also alleges a problem of discrimination on the basis of gender, noting that Qualcomm paid $19.5 million in 2016 to settle a class action lawsuit that alleged that Qualcomm systematically discriminated against approximately 3,300 women by paying them less than men holding the same or equivalent positions. Despite being required by the settlement to institute comprehensive changes to reform gender inequities, Qualcomm still received an "F" grade in gender pay equity in a 2020 scorecard, the complaint stated.

To deflect public backlash, Qualcomm’s directors have created a "veneer" of commitment to diversity by paying lip service to the importance the goal of increasing diversity, the complaint alleges.

For example, Qualcomm’s Chief Diversity Officer, Vicki Mealer-Burke, stated in a media interview in March 2020, "Diversity shouldn’t be encouraged, it should be demanded as a critical business imperative." Mealer-Burke, who is white, also provided statistics illustrating the benefits of racial and gender diversity and concluded, "Increasing diversity isn’t just the right thing to do, it is also a financial advantage."

Misrepresentations. Beyond platitudes, the complaint contends that Qualcomm has repeatedly made public misrepresentations about its commitment to and progress toward greater diversity. These statements include the following:

  • A statement on the company’s website that "We’re measuring and tracking our progress to ensure that our programs and policies around inclusion and diversity are having a tangible effect."
  • A statement in the 2019 Proxy that "The Governance Committee’s goal is to assemble a board of directors that brings to us a diversity of perspectives and skills"
  • A statement in the 2020 Proxy that "As part of its efforts to create a diverse Board, including with respect to race, ethnicity and gender, the Governance Committee will include, and instruct any search firm it engages to include, women and racially/ethnically diverse candidates in the pool from which the Governance Committee selects director nominees."

The complaint argues that these statements were misleading because Qualcomm has consistently refused to appoint Black and minority individuals to the Board and management positions.

"The undisclosed truth therefore is that Qualcomm may have a policy of attempting to include racially and ethnically diverse candidates in its director nominee pool, but it either has no intention to actually nominate such persons to its Board or it engages in efforts to thwart the nomination of such persons and prefers non-diverse applicants in the pool," stated the complaint.

Damages and relief sought. The complaint asserts claims of breach of fiduciary duty, breach of duty of loyalty and good faith, and violation of Section 14(a) of the Exchange Act, among others. The complaint contends that demand would be futile because the Board knowingly or consciously presided over Qualcomm’s discrimination against Blacks and minorities.

Regarding damages, the complaint alleges that Qualcomm’s diversity failures have caused the company to spend money on "internal and external" investigations into lack of diversity, discrimination lawsuits, harassment claims, wrongful termination lawsuits, and lack of pay equity claims. Qualcomm has also allegedly incurred costs in having to hire new employees to replace employees who have quit in protest over discriminatory practices. The complaint further suggests that Qualcomm’s reputation, goodwill, and market capitalization have been harmed, opening it to the possibility of consumer boycott.

The lawsuit seeks monetary and equitable relief, including replacing three directors and its Chief Diversity Officer with African Americans and other minority individuals. The lawsuit also seeks the replacement of PWC as auditor and the creation of a $800 million fund to hire African Americans and minorities and promote them to management positions at the company.

This is case No. 3:20-cv-01355-LAB-MDD.

Attorneys: Francis A. Bottini (Bottini & Bottini Inc.) for Becky Kiger.

Companies: Qualcomm Incorporated

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