Rainbow-Washing

Abstract

This article examines how private shareholder litigation can be used as a tool of shareholder activism to combat the destructive practice of corporate “rainbow-washing.” Although pervasive, rainbow-washing in the context of Delaware public corporations occurs when corporate managers make public-facing statements of support for the LGBTQIA+ community for the purpose of bolstering, maintaining, or re-establishing a corporation’s public reputation, without intent to conduct themselves consistent with those statements or fulfill the promises implicit therein. Rainbow-washing is a serious social problem that adversely affects various stakeholders. In the worst instances, corporate managers may make promises of support and then act contrarily to them. For example, corporate managers may violate these implicit promises by either making political donations and lobbying in support of anti-LGBTQIA+ candidates and issues, maintaining discriminatory employment practices, or failing to adequately guard against harassment. In egregious circumstances, rainbow-washing exposes these managers to liability for breach of fiduciary duty and, depending on the context in which the communications are made, securities fraud. In recent years, demands by institutional investors; a rise in Environmental, Social, and Governance (“ESG”) investing; and anti-LGBTQIA+ legislation have heightened the potential legal stakes. This article contemplates actionable rainbow-washing and examines how rainbow-washing as a corporate practice can be combatted through shareholder litigation, among other forms of shareholder and consumer activism. The most burdensome procedural hurdle in any shareholder litigation is the motion to dismiss for failure to state a claim upon which relief can be granted. If a claim can survive such a motion, however, resolution via settlement becomes more likely and has the potential to accomplish desirable change in corporate governance behavior.

Keywords: ESG, Corporate Social Responsibility, LGBTQIA+ Issues, Shareholder Litigation, Fiduciary Duty, Securities Fraud