Shareholder Hits Target's Bullseye

Last year I wrote about a shareholder lawsuit against Target premised on its alleged failure to disclose the risks around the marketing of its 2023 Pride collection. The shareholder claimed in the lawsuit that Target and its board violated Federal securities laws by allegedly failing to properly disclose the risks to investors about the potential backlash associated with its 2023 Pride campaign, which was an LBGTQ+ marketing effort celebrating Pride month. Last week, a Florida Federal District Court denied Target's motion to dismiss the lawsuit, finding that the shareholder-plaintiff had pled sufficient facts to bring civil securities law claims against Target and its board.

The upshot of this lawsuit was the claim that Target (and its board) failed to disclose the adverse risk of customer reaction to its 2023 Pride campaign. Target moved to dismiss the lawsuit on the basis that it had adequately and amply disclosed these risks by generally warning shareholders that Target (like many consumer brands) was subject to the risks of reputational incidents and the negative publicity that accompanies them. In the court's view, however, Target failed to account for the specific risk its 2023 Pride campaign posed and that the general reputational risks it disclosed were insufficient. The court concluded, in denying the motion to dismiss, that Target was obligated to craft a “tailored disclosure” aimed specifically at the financial and business risks its Pride campaign posed.

The court's conclusion that Target's risk disclosure – that it might fail to meet its stakeholders' evolving ESG expectations – was legally insufficient because that disclosure failed to account for the risks associated with implementing those objectives. This will be of particular note to boards struggling with finding the right balance of ESG/DEI risk assessment (and disclosure). Notably, the plaintiff in the case amended the complaint to include a specific factual allegation suggesting that the purpose of the 2023 Pride campaign was to “make sales tank” in the alleged furtherance of goals to advance DEI.  Supercharging this factual allegation was the admission by Target's CEO that its prior Pride merchandising activities had indeed created a backlash, which he described as causing “self-inflicted” harm to the business.

It was clear from the court's decision that these factual allegations (among others) supported a narrative that the board only monitored risk from “one side of the political spectrum” without accounting for the other. The court concluded that these allegations were sufficient to support a claim that Target's board created a false impression that it exercised careful oversight. By acting aggressively to push a new campaign, knowing that prior campaigns had led to a backlash, the court found that the complaint pleaded sufficiently that Target had concealed a “new truth” - one that investors may not have appreciated.

A “bullseye” is, of course, the center of a target, which also represents Target's eponymous brand. This decision – and the political and social shifts facing businesses in 2025 – reminds us that despite a true aim, boards will face myriad challenges to hit the bullseye. Appreciating (and disclosing) the concentric risks facing businesses are becoming increasingly critical to demonstrate the right process for strategic direction and guidance to companies on these very important social and legal issues.