Alphabet Settlement Sets New Standard for #MeToo Derivative Suits

Shareholder Advocate Fall 2020

October 15, 2020

By Molly J. Bowen

On September 25, 2020, Cohen Milstein announced an historic agreement with Alphabet, Google’s parent company, to settle shareholder derivative litigation over allegations that the company’s leadership enabled and concealed egregious sexual misconduct by top executives. The most significant and sweeping resolution of a #MeToo derivative lawsuit to date, the settlement shows that shareholders can protect their long-term investment in a company by seeking meaningful corporate governance reform through litigation.

The case was filed after an October 25, 2018 article in The New York Times revealed that Google had protected, praised, and rewarded Android platform founder Andy Rubin despite an internal investigation finding that he had been credibly accused of sexual harassment. The article prompted a global walkout of 20,000 Alphabet employees dissatisfied with the company’s handling of sexual harassment; unsurprisingly, the walkout generated immense public scrutiny. Over the next year, new reports revealed that more Alphabet executives had engaged in sexual misconduct and that, rather than taking any corrective action, the company had offered them large severance packages or permitted them to modify their 10b5-1 stock trading plans so they could leave the company with tens of millions of dollars and unblemished records.

Like many tech companies, Google believes its workforce is its most important asset. The company invests tremendous resources to recruit, pay, and develop top talent. But the double standard that had taken hold at Google, where top male executives deemed too important to be disciplined were allowed to engage in sexual misconduct, harmed not only the individual victims but also Google’s broader ability to recruit and retain the best people. By allowing this harmful workplace culture to fester, Google’s actions threatened the investment Alphabet’s shareholders had made in the company.

Seeking to end and remedy these harms to the company, Alphabet shareholders Northern California Pipe Trades Pension Plan and Teamsters Local 272 Labor Management Pension Fund filed a derivative lawsuit in California state court in January 2019, represented by Cohen Milstein. Our clients were appointed to act as co-lead plaintiffs on behalf of all Alphabet stockholders, along with an individual investor. A working group of four attorneys, including Julie Goldsmith Reiser of Cohen Milstein, led the settlement negotiations.

After a vigorous back and forth, the parties reached a comprehensive settlement that addressed every aspect of the employment experience and required significant governance reforms. Alphabet agreed to devote $310 million to diversity, equity, and inclusion (“DEI”) initiatives—the largest public commitment to such efforts by any tech company. The company also agreed to sweeping reforms to employment policies, including ending mandatory arbitration in harassment, discrimination, and retaliation-related disputes between any Alphabet company and an employee or extended workforce member; limiting Google’s use of non-disclosure agreements, so that employees can discuss the underlying facts and circumstances of an incident and the reporting process; and calibrating corrective action recommendations across business units to ensure that employees receive consistent consequences for the same misconduct. In addition, Alphabet agreed to establish a DEI Advisory Council, guided by outside experts, including retired federal judge Nancy Gertner, and internal leaders, including CEO Sundar Pichai.

Alphabet also agreed to institute governance measures to ensure that its Board of Directors is informed of and accountable for overseeing risks arising from sexual harassment by executives and, more broadly, fostering a diverse, equitable, and inclusive culture. Key features of the settlement with respect to governance include expanding the Audit Committee’s charter to Audit and Compliance, with quarterly reports to the full board on legal and regulatory compliance, and preventing employees with 10b5-1 stock purchase plans from amending their trading plans while subject to investigations or a lawsuit for sexual misconduct. Additionally, the settlement creates greater transparency for shareholders by requiring an accounting of DEI expenditures in the annual Diversity Report.

The settlement and Cohen Milstein’s leadership in the case have received significant attention, including coverage by major media outlets such as The New York Times, The Wall Street Journal, Pensions & Investments, and CNBC.

This settlement sets a new standard for the tech industry. It strengthens Alphabet’s ability and obligation to respond effectively and lawfully to sexual harassment, retaliation, and discrimination. And importantly, the settlement is well-positioned to succeed. Many of the individuals involved in the alleged wrongdoing have since left or reduced their roles in the company. In addition, by sitting on the DEI Advisory Council for its first year, new CEO Sundar Pichar is demonstrating the importance of robust cultural change to the company. As Pichai advised the employees after the settlement was announced, he “hope[s] these commitments will serve as a strong signal to all of you that we are not going back in time.”

The Alphabet derivative litigation demonstrates shareholders’ ability to effect significant change to protect the public companies in which they invest. When a company’s best asset is its workforce, investors and employees have a shared interest in ensuring that corporate boards enact fair, lawful, and equitable policies that allow employees to thrive. We look forward to continued representation of investors in significant and transformative derivative litigation.