Cisco Asks Court to Toss Board Diversity Suit, Citing New Hires

May 3, 2021, 6:32 PM

Cisco Systems Inc. asked a court to dismiss a shareholder derivative suit alleging the networking giant misrepresented its commitment to diversity by failing to include a Black board member.

The September 2020 suit by the general employees pension fund for the City of Pontiac, Mich., was premature since Cisco’s board was already investigating its past diversity statements and practices in response to the plaintiff’s pre-suit demand, the company said in an April 30 motion in the U.S. District Court for the Northern District of California.

By filing a pre-suit demand, the plaintiffs admitted the board had the authority to evaluate and potentially remedy the allegations, Cisco said in its motion.

“Under applicable law, plaintiff thus conceded that Cisco’s Board was the proper body to evaluate the allegations and claims and, in the exercise of business judgment, determine what is in Cisco’s best interests,” the company said.

Cisco cited court dismissals of similar derivative shareholder suits under the business judgment rule, which generally precludes courts from making business decisions on behalf of a company. Those suits involved board diversity complaints filed against Facebook Inc. and Monster Beverage Corp.

Attorneys for the Pontiac pension fund didn’t immediately return a request for comment.

Cisco said it hired a Black board director in January, as well as another female director, a process that the company said was underway prior to the pre-suit demand. Five of the board’s 11 members are diverse in gender, ethnicity, or race, according to the motion.

The plaintiff’s complaint failed to mentioned the board’s investigation, saying instead that Cisco had been unresponsive to the plaintiff’s pre-trial demand letter, the San Jose, Calif.-based company said.

Cisco said it has already surpassed new state-mandated obligations for the companies headquartered in the state to include at least three female and at least one minority board member by the end of 2021.

“While today’s Cisco is more diverse than ever before, as it publicly acknowledged in the very disclosures plaintiff cites, it recognizes that ‘we still have more work to do.’ This lawsuit is the wrong means for dealing with these important issues,” Cisco said.

The case is City of Pontiac General Employees Retirement Syst. v. Bush, N.D. Cal., No. 5:20-cv-06651, Motion to dismiss 4/30/21 .

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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