January 14, 2019

Alphabet has been hit with a pair of shareholder derivative suits claiming that board members hurt shareholder value by covering up a lengthy pattern of gender discrimination and sexual harassment perpetrated by Google executives.


Recent shareholder lawsuits against Google parent company Alphabet Inc. mark the latest of a new approach in tackling sexual harassment allegations in the #MeToo era.

The lawsuits, both filed in San Mateo Superior Court in California, accuse Alphabet board members of breaching their fiduciary duty by covering up a lengthy pattern of gender discrimination and sexual harassment perpetrated by Google executives. Such activity, the derivative suits allege, had adverse impact on company profits and ability to hire and retain top talent and also exposed it to lawsuits and regulatory action.

“The board knowingly participated in or acquiesced to conduct by the Company’s senior executives that caused the company to violate various laws,” said one of the suits, filed by attorneys at Berman Tabacco and Cohen Milstein Sellers & Toll. “Defendants’ conduct has already cost the company hundreds of millions of dollars in generous exit packages to wrongdoers and exposed it to further litigation and a loss of federal contracts over its hostile and discriminatory workplace.”

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An Evolving Approach to Harassment Claims

Among the companies that have faced derivative suits due to sexual harassment allegations are the Weinstein Co. over allegations against founder Harvey Weinstein; CBS over allegations against former CEO Les Moonves; and Wynn Resorts, Ltd., whose CEO, Steve Wynn was accused of a pattern of sexually harassing and abusing employees. The Wynn case was brought by Cohen Milstein, who also brought one of the suits against Google.

Julie Reiser, a Cohen Milstein attorney involved in her firm’s Alphabet suit, said a derivative suit is “an effective tool” in making sure companies follow employment laws, though noted that holding company’s boards of directors accountable for sexual harassment allegations has traditionally been a struggle.

“For sexual harassment lawsuits, the history was very bleak in terms of trying to hold a company’s board of directors accountable,” she said. ‘‘One of the things that is frequently missing in the conversation is the fact that sexual harassment is a violation of employment discrimination laws.”

Reiser says derivative suits are more traditionally used to go after foreign corrupt practices, such as the suit targeting Walmart with allegations that directors bribed Mexican officials to expedite store construction in Mexico.

As for derivative suits related to sexual harassment allegations preceding #MeToo, she pointed to a case involving INC Pharmaceuticals and leadership that began in 1998.

The “court there basically said, ‘Yeah, eight women have come and sued [the company] for sexual harassment and claimed damages, who knows if their accounts are credible? I’m not going to make that assessment.’ And the Delaware Supreme Court [said] even if their accounts aren’t credible or are, that’s a business judgment: Of course the board should feel free to handle this as they see fit.”

Added Reiser: “I just think we’ve evolved past that now.”

The complete article can be accessed here.