Groundbreaking Settlement Reached in Pinterest Shareholder Derivative Litigation

Shareholder Advocate, Winter 2022

January 27, 2022

Pinterest, Inc. has agreed to spend $50 million on workplace reforms to settle a lawsuit in which the lead plaintiff Employees’ Retirement System of Rhode Island (“ERSRI”), represented by Cohen Milstein, alleged the company’s leadership fostered a culture of racial and gender bias that caused financial and reputational harm to Pinterest. Cohen Milstein has filed with the court a motion for preliminary approval of the settlement on behalf of ERSI and other Pinterest shareholders.

Originally filed by Cohen Milstein on November 30, 2020, In re Pinterest Derivative Litigation, Lead Case No. 3:20-cv-08331- WHA, alleged that officers and directors, including Pinterest Chairman and Chief Executive Officer Ben Silbermann, CoFounder and Board of Directors (“Board”) member Evan Sharp, and Chief Financial Officer Todd Morgenfeld, breached their fiduciary duties by waste of corporate assets, abuse of control, and violation of Section 14(a) of the Securities Exchange Act of 1934.

Pinterest is an online visual discovery engine people use to find lifestyle inspiration, including ideas for recipes, home decor, style, travel destinations, and more. Pinterest launched in 2010 and has hundreds of millions of primarily female monthly active users around the world.

The case stems from an allegedly systematic culture, policy, and practice of illegal discrimination on the basis of race and sex at Pinterest that goes back to at least February 2018. Top Pinterest executives and members of its Board of Directors personally engaged in, facilitated, or knowingly ignored the discrimination and retaliation against people who spoke up and challenged the company’s white, male leadership clique. As a result of defendants’ illegal misconduct, the company’s financial position and its goodwill and reputation among its user base (which Pinterest’s success depends upon) were harmed and continued to be harmed.

Prior to filing the complaint, plaintiffs began to build their case by obtaining documents pursuant to a Section 220 books and records demand. After briefing an opposition to defendants’ motion to dismiss, the parties agreed to explore mediation and ultimately agreed to a settlement. The settlement is the first of its kind to embrace diversity goals around a company’s product. It also requires Pinterest to commit $50 million to a holistic set of workplace and board-level reforms designed to protect employees from discriminatory treatment and to promote diversity, equity, and inclusion (DEI) throughout its workplace and product. Key requirements of the settlement include:

Release of former employees from non-disclosure agreements (“NDAs”) who want to discuss the facts of their mistreatment.

The Audit Committee of Pinterest’s Board will be responsible for the implementation and oversight over certain reforms designed to create equal opportunities for employees.

A Board member will act as a co-sponsor with the CEO for diversity, equity, and inclusion initiatives, which will help ensure accountability exists for Pinterest’s top executives.

The company will conduct external bi-annual pay equity audits that review performance ratings, promotions, and compensation across gender and racial categories.

Diversity reports to shareholders will describe progress made in implementing pay equity and DEI goals

The settlement also requires enhancements to Pinterest’s recruiting, hiring, and training. Combined, these reforms will substantially increase the value of the company for its investors and help ensure its continued future growth, as well as improve the workplace experience for Pinterest’s employees.

“We pushed for these sweeping reforms to support Pinterest’s employees with a fair and safe workplace, and to strengthen the company’s brand and performance by ensuring that the values of inclusiveness are made central to Pinterest’s identity,” said Rhode Island General Treasurer Seth Magaziner on behalf of ERSRI. “This holistic approach will fundamentally support and positively impact Pinterest’s workplace culture in the years to come.”

A preliminary approval hearing is scheduled for January 27, 2022.