The Securities and Exchange Commission’s investigation of
The company is already facing multiple regulatory probes, including from California’s Department of Fair Employment and Housing and the federal Equal Employment Opportunity Commission, as well as lawsuits from investors and shareholders who are seeking changes to the company’s corporate culture and compensation for the drop in its stock price over claims of sex bias.
But the latest probe from the country’s securities regulator raises the stakes for the company’s leadership, with the SEC subpoenaing current employees, including executives, to put them on the record about what they knew about Activision’s workplace culture, and opening the door to more lawsuits from investors and alleged victims about the company’s internal response.
“The SEC getting involved is extraordinary,” said Ann Olivarius, a senior partner at McAllister Olivarius. “This is a very serious thing for Activision. It’s a hugely expensive situation for the company.”
Activision Blizzard in a statement Sept. 21 said the agency had subpoenaed current and former employees. Among those subpoenaed is CEO Bobby Kotick, according to the Wall Street Journal.
Robert Bartlett, a professor at the University of California, Berkeley, School of Law, said the agency was targeting the executives to get to the bottom of what Activision Blizzard’s leadership knew internally about allegations of sexual harassment and gender discrimination.
“If it turns out the executives knew of the underlying problems and said nothing, then disclosures made during that time wouldn’t be accurate,” said Bartlett. “And there’s the possibility that executives personally made statements that were misleading.”
Jason Schloetzer, an associate professor of business administration at Georgetown University, said the SEC’s interest was likely sparked by the company’s handling of the July lawsuit from California’s DFEH, which alleged a “frat boy” workplace culture.
The company’s immediate response was to claim the suit “includes distorted, and in many cases false, descriptions of Blizzard’s past.” But that statement sparked an employee revolt, leading Kotick to apologize and the company to hire WilmerHale to investigate its corporate culture. Blizzard’s president also stepped down in August.
“I think what we’re seeing now is an escalation of the fact that the company didn’t seem to be taking visible steps in the immediate aftermath of the filing,” Schloetzer said of the SEC’s focus. “My sense is that’s what’s of primary interest, what management has done since the lawsuit was initially filed.”
Stakes for Leadership
Schloetzer said the agency will also more broadly look into questions about the internal process for whistleblower complaints at Activision Blizzard.
“They’ll want to know who was involved when complaints were made, who knew what when, and most importantly, what the company was saying externally compared to what it knew internally as the California situation started to unfold,” he explained.
Schloetzer said the SEC’s involvement and those questions would raise the stakes for the company’s leadership.
“Now that it has been escalated to this level, there would have to be some changes in the management team and perhaps at the board level, as a visible response that the company is taking this entire situation as seriously as it needs to be taken,” Schloetzer said.
Activision Blizzard and the SEC both didn’t respond to requests to comment for this story.
“While we continue to work in good faith with regulators to address and resolve past workplace issues, we also continue to move ahead with our own initiatives to ensure that we are the very best place to work,” Kotick said in Activision’s statement on Sept. 21 acknowledging the SEC investigation.
The SEC’s involvement opened a new set of questions for the company, according to Olivarius.
California regulators have already detailed allegations of troublesome workplace culture, Olivarius said. “The SEC will be looking for the evidence of toxicity at Activision Blizzard and the health and safety dangers, and asking, ‘is that consistent with what it represented to shareholders?’”
Olivarius called it unusual for the SEC to open an investigation based on allegations like those levied against Activision, “that the work environment inside a company is so toxic that employees can’t work there safely.”
“I’m not aware that these types of facts have ever prompted the SEC to get involved,” she said.
Bartlett said a key question would be whether the company properly disclosed the threat of a regulatory investigation into harassment and the possibility of subsequent litigation. Disclosures are measured for accuracy at the time they were made, which means the timing of California’s investigation and subsequent lawsuit are important, he said.
“At some point, the company can no longer rest on generalized statements of risk, and the SEC may be looking into when executives knew the state investigation posed a real threat,” he added.
Olivarius said another angle of interest to the SEC is the financial fallout from the allegations.
“I would think one of the issues of note would be that management is spending so much time cleaning up its act,” she said. “That’s going to mean millions of dollars of time and legal expenses to actually address these investigations, and that’s before any penalties have been laid. Is that in itself a misuse of investor funds?”
Schloetzer said the SEC investigation would bring more focus onto Activision’s workplace woes and cause “raised eyebrows” from a risk management standpoint at the board of directors and general counsel level.
“The resolution of this will be important for the company, but the SEC’s involvement has told people more generally at a senior executive level that the agency is paying attention to how companies are treating employees, and how they’re responding when there are instances of suspected wrongdoing by management,” he said.
Olivarius said the move signaled what she sees as greater federal involvement on issues of workplace harassment and bias.
“The SEC stepping in is a very positive sign that women are going to have a protector in the federal government,” she said.
“The Biden administration is behind safe work environments and women’s rights, and this could be a sign that now the administration is really interested in making practical improvements in these areas.”