A new lawsuit waged against McDonald’s could be the latest warning sign for companies in the business of making environmental, social and governance (“ESG”) centric claims. In a complaint filed with a California state court on May 4, Allen Media Group-owned Entertainment Studios and Weather Group allege that in May 2021, the fast-food giant pledged as part of a “four-year plan” to increase its advertising spend with Black-owned media from 2 percent to 5 percent by 2024. The issue, according to the plaintiffs, is that McDonald’s claims were little more than a “self-serving ploy” and that the company is “not coming anywhere close to meeting [its] commitment” to increasing its marketing with Black-owned media brands.
Characterizing McDonald’s “four-year plan” to increase ad spend as an attempt to “cast itself as racially sensitive and sympathetic,” Entertainment Studios and Weather Group assert that the chain has “intentionally mislead the public, [as it] had no intent to fulfill its commitment.” As for how they know that McDonald’s is not making good on its pledge, the plaintiffs allege that their parent Allen Media Group is “by far the largest African American-owned media company in the country, and [that they] represent over 90% of that category.” As such, in order “to fulfill its commitment, any allocation would require McDonald’s to spend in excess of $50 million annually to advertise on [their] properties,” they claim.
Against that background, Entertainment Studios and Weather Group set out a single claim of fraud under California Civil Code section 1711, arguing that McDonald’s “made a material misrepresentation when it stated that it would increase its spend with Black-owned media from 2 percent in 2021 to 5 percent in 2024” and “intended to defraud the general public, its shareholders and investors, the government, and Black owned media” in connection with that alleged misrepresentation. The plaintiffs allege that they “actually and justifiably relied to their detriment on McDonald’s false promise,” namely, by spending “considerable time and effort” creating proposals for “how McDonald’s could pursue this opportunity year after year,” only to have the chain refuse to increase its ad spend with them.
The plaintiffs assert that they have been damaged to the tune of over $100 million.
McDonald’s said in response to the complaint that Allen Media Group’s “Byron Allen files baseless lawsuits as part of a public smear campaign against our company to try to line his pockets. We will not be coerced by these ‘in terrorem’ tactics and will defend ourselves vigorously.”
THE BIGGER PICTURE: Putting the merits of the plaintiffs’ allegations against McDonald’s aside, the case is the latest indication that companies do not merely stand to be targeted over the environmental/climate elements of their ESG claims, but the social aspect continues to pose a threat for companies – from those in fast food to fashion – from the litigation point of view, as well.
The “S” in ESG – which includes “a company’s strengths and weaknesses in dealing with social trends, labor, and politics,” per S&P Global – has been something of a tricky element for brands to navigate. As a Harvard Law School Forum on Corporate Governance previously characterized it, the social element of ESG issues can be the most difficult for companies to address (and investors to assess), as “unlike environmental and governance issues, which are more easily defined, have an established track record of market data, and are often accompanied by robust regulation, social issues are less tangible, with less mature data to show how they can impact a company’s performance.”
Despite such enduring challenges for brands looking to incorporate the ‘S’ into ESG analysis, the issues that fall under this umbrella are gaining prominence and garnering attention from legislators and regulators – some which have pushed for reporting on things like diversity data, for instance – and plaintiffs. “It is unlikely that ESG programs will diminish is size or scale in the coming years in light of increased focus by Fortune 100s and 500s and increased regulation at the federal and state levels,” as well as demands from consumers and investors, alike, Duane Morris’ Gerald Maatman, Jr. stated in a recent note. With that in mind, companies can aim to limit their exposure to the increased risks of litigation (particularly class action complaints) that stem from ESG-centric claims/programs by prioritizing “sound planning, comprehensive legal compliance, and systematic auditing” along the way.
In fashion and retail more broadly, companies that have aligned themselves with various initiatives – such as the Fifteen Percent pledge, an effort by which retailers pledge at least 15 percent of their shelf-space to Black-owned businesses, for example – or have otherwise made claims quantifying their willingness to increase (or maintain) marketing spend or buying spend in a certain manner, should consider the risk of litigation should they fail to make good on such claims.
The case is Weather Group LLC et al v. McDonald’s USA, 23STCV10045 (Cal. Sup.)
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