Pinterest's $50 mln deal to improve culture lacks teeth, judge says

3 minute read

A Pinterest logo is seen on a smartphone placed over U.S. dollar banknotes in this illustration taken October 20, 2021. REUTERS/Dado Ruvic/Illustration

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  • The digital pinboard company agreed to spend $50 million on diversity and inclusion efforts after shareholders sued
  • Judge wants to see a meaningful outcome, not just a windfall for plaintiffs' lawyers
  • The first-of-its-kind settlement requires DEI audits and DEI goals for Pinterest's business, according to filings

(Reuters) - A federal judge in San Francisco questioned a tentative deal between Pinterest and some of its shareholders to improve how the social media company handles issues of gender and race on Thursday, comparing it to handing the "chicken coop over to the wolves."

U.S. District Judge William Alsup said at a hearing that he would tentatively approve the deal, which would see the company commit $50 million over 10 years to diversity, equity and inclusion (DEI) initiatives. But Alsup said he wants other shareholders to have a chance to weigh in on whether it needs an enforcement mechanism.

"I would like some real good to come out of one of these derivative suits," he said, referring to lawsuits aimed at holding boards accountable for corporate wrongs.

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Filed in 2020 after former employees went public about alleged mistreatment, the lawsuit accused Pinterest executives and directors of participating in and tacitly endorsing a culture of race and sex discrimination.

The parties struck a tentative settlement in November, which was the first of its kind to require DEI audits and include DEI goals for Pinterest's business, in addition to its workplace, according to court filings. The executives and directors denied wrongdoing.

Alsup, who has been on the bench since 1999, said during a hearing on the deal that he has seen too many shareholder lawsuits against boards end in "cosmetic" improvements followed by plaintiffs' lawyers collecting millions of dollars in fees and riding off "into the sunset."

The judge said that requiring directors, some of whom were the ones sued, to oversee reforms was like handing the "chicken coop over to the wolves."

Julie Goldsmith Reiser of Cohen Milstein Sellers & Toll, who represents the retirement fund leading the case, said that part of what the lawsuit alleged was that the board was not paying attention, and the settlement requires it to take responsibility. The company has since added new board members and executives focused on DEI, she added.

Alsup floated the possibility of keeping the case open and having the plaintiffs' lawyers receive their full fees only after periodically reporting back to him on the company's progress.

He also expressed disappointment the settlement provided no notice to former employees, who had alleged gender or race discrimination at the company, that Pinterest would not enforce any non-disclosure agreements they had signed.

"It upsets me a little bit," he said. "It wouldn't cost that much to send a letter."

The case is In re Pinterest Derivative Litigation, U.S. District Court, Northern District of California, No. 3:20-CV-08331.

For the investors: Julie Goldsmith Reiser of Cohen Milstein Sellers & Toll, Louise Renne of Renne Public Law Group

For Pinterest and its board: Boris Feldman of Freshfields Bruckhaus Deringer US

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com