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Embattled Activision CEO Kotick Inflames Company’s Legal Crisis

Nov. 18, 2021, 4:02 PM

The firestorm around Activision Blizzard Inc. CEO Bobby Kotick threatens to complicate the video game giant’s legal challenges as it deals with lawsuits and probes over allegations the company is a toxic workplace for women.

Activision employees called for Kotick to resign and staged a walkout on the company’s Santa Monica campus on Tuesday after a Wall Street Journal article alleged the CEO was aware of allegations of sexual harassment and assault against female employees, including rape, but failed to report them to the board of directors.

Attorneys said the allegations against Kotick hold serious implications for the company’s legal situation. How the board handles the matter could invite further litigation and drag out the company’s dealings with federal and California labor regulators and investors who have already filed lawsuits, as well as the Securities and Exchange Commission, which began investigating the company in September.

“This is really a very serious situation for Activision,” said Ann Olivarius, senior partner at McAllister Olivarius. “Civilly, it does implicate the board of directors in ways that are not positive, and exposes the whole company to additional criticisms, fines, and analysis.”

The board on Tuesday backed Kotick, saying they had confidence in his leadership and his handling of harassment complaints, but those statements failed to quell critics, including employee activists. The board’s next steps, how it investigates the allegations against Kotick, and manages the employee outcry, are “pivotal” for the various legal actions the company faces, Olivarius said

Kotick in Spotlight

Kotick, who has led Activision for over 30 years, is a high-profile figure in the gaming industry. The accusations leveled against him this week now place him front-and-center in the industry-wide reckoning over discrimination, and at the forefront of regulators, lawyers said.

The SEC, which opened a probe into workplace issues in September will want to determine if the allegations in the article are accurate, including the claim that Kotick didn’t inform the board that an Activision employee said she was raped twice by a male supervisor or of the eventual settlement, Olivarius said.

“If the allegations are true, I think this will give the SEC much more ammunition to go after Activision, and the board, if it keeps him in place,” she said.

The SEC declined to comment. The Equal Employment Opportunity Commission and the California Department of Fair Employment and Housing didn’t immediately respond to Bloomberg Law’s request for comment.

In a statement issued Tuesday, Activision said the Wall Street Journal’s report presented a “misleading view” of Kotick and the company.

“Instances of sexual misconduct that were brought to his attention were acted upon,” the statement said. “The constant desire to be better has always set this company apart. Which is why, at Mr. Kotick’s direction, we have made significant improvements, including a zero-tolerance policy for inappropriate conduct.”

Jordan Barry, a law professor at the University of Southern California, said that if Kotick is the public face of Activision’s work culture, how the board handles calls for him to step down could go far in determining the resolution of their regulatory challenges.

“If there’s a particular person associated with a cultural problem, getting rid of that person becomes a tangible thing a company can do to send a signal that the culture has changed,” said Barry.

But, he added, that under pressure, Kotick now has more reason to negotiate and work with regulators to implement changes.

“If you’re tagged as part of the problem, that gives you extra reason to be part of the solution,” Barry said.

“It might make Kotick more willing to agree to changes with agencies or other plaintiffs because he wants to show he’s fixing this problem.”

Board Liability

Separate from Kotick, the board is also in a difficult situation, Olivarius said, with pressure to investigate the allegations against Kotick or take other actions.

Such steps could win the confidence of regulators, but also provide more fuel for those suing the company. And any missteps could invite second-guessing and further lawsuits from investors.

Olivarius pointed to the decision to offer a statement backing Kotick. “One has to wonder why they’re doing that,” she said. Olivarius said another option for the board would be placing Kotick on paid leave pending an investigation into the allegations.

In a Tuesday statement, Activision’s board defended Kotick’s ability to lead the company through a critical culture change.

“The goals we have set for ourselves are both critical and ambitious. The Board remains confident in Bobby Kotick’s leadership, commitment and ability to achieve these goals,” it said.

Rick Hoeg, a Michigan business lawyer, said the board faced a complex legal determination in deciding how to respond to the allegations. They could either support Kotick or open their own investigation into the article’s claims, each with its own legal pitfalls.

“Both positions are at least a bit risky for them,” he said. “A board that is not properly inquiring of reports from its CEO could have its own fiduciary obligations called into question.”

The new allegations may also open up individual board members to personal liability, said Olivarius. They could potentially be added as defendants to one or more of the existing lawsuits, “which would be very, very severe.”

Barry, at USC, said it can often be hard for outside directors to get certain types of information about a company.

“To know what the culture is like, and how people at the company are experiencing their life on a day-to-day basis, is a tough thing to do if you’re not actively looking for that information,” he said.

To contact the reporter on this story: Maeve Allsup in San Francisco at mallsup@bloomberglaw.com

To contact the editor responsible for this story: Meghashyam Mali at mmali@bloombergindustry.com

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