I’ve written in the past on the #MeToo Movement and its impact on Corporate America. In the latest news, Google’s parent company, Alphabet Inc., was hit with a breach of fiduciary duty derivative suits filed in January 2019. It also suffered a global walkout in 2018 when 20,000 Google employees walked off the job in solidarity with employees who had faced harassment and discrimination.
Let’s look at the momentum the MeToo Movement has had in the past couple years, and then take a closer look at Alphabet’s latest suit.
MeToo, Class Actions, and Derivative Suits
As a brief refresher, here are some of the high-profile cases we’ve seen against directors and officers since the MeToo Movement began:
The Weinstein Company
Multiple suits included federal class action suits by accusers for violation of the RICO Act (2017 and 2018), and individual state court suits by two accusers for negligence, battery, and assault (2017).
Claims centered on sexual assault and misconduct, and civil assault by co-founder Harvey Weinstein over a decades-long period in which the company was aware of his pattern of abuse and repeatedly failed to take meaningful steps to protect company employees or curb Weinstein’s misconduct.
21st Century Fox
This derivative suit from 2017 settled for $90 million. The underlying claims included allegations of a culture of sexual and racial harassment that permeated the company, led by its former COB and CEO Roger Ailes, resulting in financial and reputational harm to the company.
Signet Jewelers was hit with a federal securities class action (2017) and a derivative suit with claims of sexual assault and misconduct by company executives, failure to disclose the severity and scope of sexual harassment, and assault claims (private class action arbitration in 2013 in which approximately 250 women and men disclosed the extent of these claims).
In a federal securities class action (2018) and seven derivative (consolidated into two separate actions in federal and state courts), plaintiffs asserted:
- Sexual assault and misconduct by chairman and CEO of Wynn Resorts, Steve Wynn, over a 20-year period
- Misrepresentation of its business, operational, and compliance policies.
- Breach of fiduciary duties
Papa John’s Pizza
Papa John’s was hit with a federal securities class action in 2018 for engaging in a pattern of sexual harassment and other inappropriate workplace conduct, spearheaded by its former COB, CEO and founder, John Schnatter, and has resulted in two confidential settlements.
A federal securities class action in 2018 asserted:
- Sexual assault and misconduct by the Chairman and CEO of CBS, Les Moonves, as well as other executives dating back to the mid-1980s
- Misrepresentation of its compliance with internal anti-harassment policies
In a derivative suit in 2018, claims asserted breach of fiduciary duties by facilitating, engaging in, or knowingly ignoring the systemic “boys club” culture, which resulted in bullying, sexual harassment, and gender discrimination of its female employees.
Alphabet Inc. and Google
The latest high-profile derivative suit involving sexual misconduct claims is against Alphabet.
Two derivative suits (the Northern California Pipe Trades Pension Plan complaint and Martin complaint) filed in January 2019 allege a breach of fiduciary duty by the board of directors and senior management by allowing a hostile workplace for women to fester and for covering up sexual misconduct by executives, including awarding harassers large payouts.
It’s reported that a $90 million severance package was awarded to former Googler Andy Rubin, known as the “Father of the Android,” as a goodbye present upon his resignation. (The reason for the resignation was never publicly disclosed, but is reportedly related to the misconduct allegations.)
Another executive, Amit Singhal, was allowed to quietly resign and receive a $15 million severance, despite sexual misconduct allegations. (Reports say that payout would have been $45 million if he hadn’t gone to work for a competitor.)
No doubt the board originally believed that these payments would resolve the situations quietly and without distracting the business.
That did not work out.
Of course, Alphabet’s market cap exceeds $825 billion at the time of this writing, so any loss in value that might have been related to the Rubin revelations were clearly temporary.
However, the board’s problems weren’t limited to the loss in shareholder value and subsequent lawsuits.
The global walkout led by Google employees, dubbed “The Walkout for Real Change,” included 20,000 workers from 50 Google locations (nearly 75% of its offices) around the globe.
There was sustained press coverage of the walkout as well, not exactly the coverage Google’s PR department would have preferred.
What Can Companies Do?
Paying management to go away when accused of harassment is not the best idea given the high risk that the situation will be revealed and amplified by social media.
In light of the recent suits and employee action we’ve seen in the past couple years, boards will want to take extra care.
A good place to start is a review of severance policies.
In some cases, this may involve negotiating with current executives to revise policies so that boards can include provisions to cut off severance if an employee engages in prohibited activities like sexual harassment or other activities that would tend to bring the company into disrepute.
No doubt executive employment lawyers will push back on this approach, and with good reason. Broad language that favors a company will put their client, the negotiating executive, at greater risk for losing severance.
But consider the cautionary tale provided by the board of CBS and former CEO Les Moonves: The allegations against Moonves have been well documented, and yet he is pursuing a $120 million severance payment in arbitration, ensuring that the CBS situation will remain in the press for some time to come.
These are certainly very difficult conversations to have, but they are worth having. Clear agreements before allegations start flying enable a board to avoid being backed into rewarding an abuser with excessively large amounts of compensation.
Clear agreements can also help a board avoid the potential consequences of lawsuits, business disruption, and the excruciating bad press that Alphabet and Google have experienced.