In the now more than a year since the #MeToo phenomenon first arose, there have been a number of D&O lawsuits filed against companies and their boards in which the plaintiffs allege that company officials either allowed the alleged sexual misconduct to take place or turned a blind eye. In the latest D&O lawsuits to follow in the wake of allegations of sexual misconduct, two Alphabet shareholders have filed separate derivative lawsuits in California state court against the company’s board based on underlying allegations of alleged sexual misconduct at the company’s Google unit.
The complaint in Northern California Pipe Trades Pension Plan v. Hennessey, et al. (the “Northern California Pipe Trades action”), filed in San Mateo County Superior Court on January 9, 2019, can be found here. The complaint in Martin v. Page, et al, (the “Martin action”), filed in San Mateo county on January 10, 2019, can be found here.
Both of the lawsuits assert claims against to Board of Alphabet for Breach of Fiduciary Duty, Unjust Enrichment, and Corporate Waste, among other things. The complaints allege that the company maintained a “culture of concealment” that led the defendants “in pursuit of their own interests, to participate or acquiesce in the cover-ups of a long-standing pattern of sexual harassment and discrimination by high-powered male executives.” The company’s alleged “pattern of concealment” allegedly was “intended to protect the Company’s top earning executives and the Board” at the expense of the company’s shareholders and employees.
Both complaints refer extensively to the revelations about alleged sexual misconduct at the company involving the former Google executive, Andy Rubin, known as the father of Android, and two other male Google executives, in an October 25, 2018 New York Times article (here). The Times article claimed that while senior Google executives were aware of the misconduct allegations and had determined that the allegations were credible, the company did not fire the executives for cause, but rather gave the men what one of the complaints alleges were “significant and wasteful exit packages” and hid the “true reasons for their departures” – in Rubin’s case, the 2014 exit package reportedly was worth $90 million. (Some of the allegations against Rubin are quite disturbing and include among other things, allegations that he engaged in human trafficking.)
The media reports of sexual harassment and other misconduct led to a mass walkout of Google employees around the globe on November 1, 2018, as discussed in a Wall Street Journal article at the time (here). Among other things, the employees protested the company’s allegedly inadequate approach to sexual harassment and discrimination in the workforce.
The Northern California Pipe Trades Pension Plan complaint alleges that Alphabet is a “male-dominated company” with a “male-dominated culture” and that the company’s management fostered a “brogrammer culture” in which women were harassed and valued less than their male counterparts.
The Martin complaint alleges that the company maintained a “dual and contradictory standard,” under which, if you were a high level male executive producing significant revenue, the company would “let you engage in sexual misconduct” and if caught allow you to resign with millions in severance; while, if you were a lower level employee and engaged in the same misconduct, you were fired, which allegedly allowed the company to “maintain optics and superficial compliance” while at the same time “concealing the blatant and widespread sexual harassment by senior Google executives.”
The company’s Board, the Martin complaint alleges, allowed the “illegal conduct to proliferate and continue” and that the Board members were “knowing and direct enablers of the sexual harassment and discrimination.” The Martin complaint emphasizes that “this is not a ‘failure to supervise’ case”; rather, the Complaint alleges, the Board was “directly involved in and approved” the severance payments, and “made a conscious and intentional (and bad-faith) decision to conceal the sexual harassment at Google, thereby also breaching its duties of candor and good faith.”
In addition to the sexual misconduct and harassment allegations, the Northern California Pipe Trades Pension Plan complaint also alleges gender disparity for compensation and advancement within Google. The complaint alleges that the company’s culture “limits the opportunities for women” and that the company has been accused in a separate pending class action lawsuit of “persistently discriminating against women” by, among other things, “assigning them jobs in lower compensation ‘band’s than similarly situated men, promoting women more slowly and at lower rates than similarly situated men, and simply paying women less.”
In addition to allegations based on alleged sexual harassment and sexual discrimination, the Northern California Pipe Trades Pension Plan complaint also refers to the data privacy breach that exposed over the personal data of 500,000 Google+ users. The complaint alleges that the company and the board “hid the breach from the public and from Alphabet shareholders.” The Google+ data breach and alleged concealment already is the subject of a securities class action lawsuit, as discussed here.
The complaints allege that the Board’s conduct in allowing this corporate culture has damaged the company in terms of the exit packages the company has paid, which cost the company millions of dollars, exposed the company to litigation, and created a “toxic work environment” that can impact the company’s “ability to hire and retain top talent.” The California Pipe Trades Pension Plan complaint also alleges that the Google+ data breach and concealment has cost the company business and resulted in the loss of goodwill as well as damage to its reputation.
Both complaints allege that the making of a litigation demand on the company’s board is excused as futile because of the board’s likely liability; because of the absence of sufficiently independent board members; and because the board members are “beholden” to the company’s most senior executives, Sergey Brin, Larry Page, and Eric Schmidt.
The complaints seek recovery of damages, as well as the institution of internal control and corporate governance changes to comply with applicable laws and to avoid a repeat of the alleged damaging events, as well as a disgorgement from the defendants of alleged benefits they received.
Though there previously have been a number of #MeToo related D&O lawsuits filed, a number of people recently have said to me that they think this phenomenon of D&O lawsuits based on sexual misconduct allegations would prove to be short-lived and that it has in fact already started to dwindle out. I am not so sure. Among other things, misconduct allegations continue to surface.
In addition, there is an aspect to at least one of these lawsuits that I think we could well see more of. The Northern California Pipe Trades Complaint not only refers to sexual misconduct involving Google executives, but also refers to the sexual discrimination in the male-dominated company culture that the complaint alleges has resulted in gender based pay and advancement disparity. The shareholder derivative lawsuit filed last summer against Nike (discussed here) raised similar gender disparity allegations. The issue of gender-based pay disparity is an arguably related but different issue than the kinds of over sexual misconduct and harassment issues on which many of the #MeToo-related D&O lawsuits are based.
If the focus of the #MeToo social media movement were to move more generally from the sexual misconduct-type allegations and more toward gender based pay and advancement disparity, the wave of revelations could sweep much more broadly and the scope of the follow-on litigation could expand significantly as well.
There is another aspect of the new lawsuit against Alphabet that is also worth noting. Both of the complaints refer to a toxic male-dominated culture at Google, but both complaints also note that “brogrammer culture” at the company is not found just at Google; the complaints allege that in this respect, Google is “like the tech industry at large.” To be sure, Google has been the subject of adverse publicity and its huge payouts to departing company executives make the company a target. But the implication is that the toxic conditions at Google can be found at other tech companies – which in turn suggests that other tech companies also could find themselves the target of this kind of litigation.
All of which makes me thing that while these new complaints against the Alphabet Board may be the latest example of this kind of #MeToo-related D&O lawsuit, it surely will not be the last example of its type.