Business & NDAs - ESG Has Moved into That Legality

 “ … software company Salesforce Inc., which employs 73,000 workers, announced Friday that its entire U.S. workforce will not be liable for violating an NDA [Nondisclosure Agreement] if they are discussing unlawful activity such as harassment or discrimination.” – Bloomberg, April 29, 2022

Salesforce is now off the hook for submitting a report on how that part of its NDA could be preventing disclosure of such matters. It had been encountering a proxy vote at its upcoming annual meeting to prepare such a report. The proposal has been dropped. At Apple, there is a similar shareholder proposal. In a regulatory filing, Alphabet indicated it has discontinued such a requirement.

Across businesses, a major driver for gutting the concealment clauses has come from shareholders and organizations representing them. That involves the governance part of ESG (Environmental Social Governance).

Of course, eliminating those provisions is considered, according to how current values have evolved, as the right thing to do.

But that whole ball of wax also involves risk to the value of the stock. That is a key issue in this era of the growing dominance of Sustainable Investments. According to Bloomberg, global ESG Investments could total $41 trillion this year. By 2025 that could balloon to $50 trillion. As played out at Activision Blizzard, allegations of wrongdoing in sexual matters can sink the stock – and do lots of other kinds of damage.

Last January, in Corporate Counsel, Wall Street law firm Paul Weiss Chairperson Brad Karp and Chief Sustainability-ESG Officer David Curran warn in-house legal departments of this. Their focus is how ESG has disrupted how lawyers must think about and practice law. Yes, it’s a game-changer. Explicitly, Karp and Curran state:

“[In ESG matters] When it comes to reputational risk, clues are often buried in places that lawyers don’t traditionally look. All it takes is one weak link – in a supply chain agreement or a board member’s past behavior – to break the chain and put a company’s reputation at risk.”

In Spring of 2022, Paul Weiss anticipated this kind of escalating threat to business. That’s when it established the first-ever in the legal sector a specialized Sustainability & ESG practice. Since then, as Law360 reports, other law firms have adopted that model.

In addition to the governance play-out in liberating employees from concealment clauses, state government has also stepped in. At least, those progressive states such as California and Washington. For example, in 2021 CA created the Silenced No More Act. However, its reach is limited to only workers in that particular state. Many businesses operate in multiple locations.

Modifying provisions which relate to disclosure of alleged wrongdoing could represent only the beginning of an urgent movement to rethink the NDA. In itself that could catch fire as a seminal ESG issue. After all, transparency by business is increasingly expected.

Law and More has special expertise in ESG trends and their implications. Editor-in-Chief Jane Genova now and then does freelance assignments for professional services firms such as Paul Weiss. Connect with her at janegenova374@gmail.com.

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