Gap Triumphs in Shareholder Lawsuit Concerning Racial Diversity Commitment

Gap Inc.

Gap Triumphs In Shareholder Lawsuit Concerning Racial Diversity Commitment

Gap Inc., a leading global retail company, has recently emerged victorious in a shareholder lawsuit that challenged the organization’s commitment to racial diversity within its leadership ranks. The lawsuit claimed that the company’s directors had breached their duties by making misleading statements in securities filings about the retailer’s dedication to promoting racial diversity among its top executives.

The San Francisco-based company faced allegations in a 2020 lawsuit filed in the San Francisco federal court by shareholder Noelle Lee. Lee argued that despite making statements to the contrary in securities filings, Gap had failed to make significant progress in diversifying its senior leadership. In response, Gap maintained that the allegations were “offensive, racially charged, and demonstrably false.”

On June 1, 2023, the 9th U.S. Circuit Court of Appeals ruled in favor of Gap, allowing the company to enforce a corporate bylaw requiring shareholder derivative litigation to be filed in Delaware Chancery Court. This decision effectively dismissed the claims made by Lee, who argued that enforcing the forum selection clause would enable the company to evade any litigation and waive its obligations under federal securities law.

The ruling highlights a split among federal appeals courts on how forum selection provisions apply to derivative suits alleging violations of the federal Securities and Exchange Act. In contrast to the 9th Circuit’s decision, the 7th Circuit ruled last year that Boeing Co could not enforce a forum selection provision mandating that derivative claims be filed in Delaware Chancery Court.

Despite the legal victory, Gap remains committed to promoting diversity and inclusion within its workforce. The company has long emphasized the importance of inclusivity in its design process, insisting on color palettes that cater to a wide range of skin tones and size positivity that celebrates diverse human dimensions.

A diverse and inclusive workplace is essential for employee satisfaction and retention. Studies have shown that companies with diverse management teams have higher innovation revenues and outperform their competitors in profitability. Furthermore, organizations that embed diversity and inclusion into their culture are more likely to attract and retain top talent.

To ensure continued progress in promoting diversity and inclusion, Gap can take several measures, such as broadening its recruiting sources, regularly analyzing gender pay gaps, and monitoring the length of employment and promotion rates of employees from different racial, gender, and other protected classes. By doing so, Gap can cultivate an inclusive work environment that fosters creativity, innovation, and a better customer experience.


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