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Activision Hit With Derivative Suit Over Sexual Harassment (1)

Aug. 6, 2021, 11:18 PMUpdated: Aug. 7, 2021, 12:21 AM

An Activision Blizzard Inc. investor hit company executives with a derivative shareholder lawsuit Friday in California state court, alleging the company’s reputation was irreparably damaged by allegations of workplace sexual harassment, and seeking corporate governance changes.

The lawsuit, filed in Los Angeles Superior Court, comes after a July announcement by the California Department of Fair Employment and Housing that an investigation into the company concluded it fosters a “frat boy” culture in which female employees are sexually harassed, discriminated and retaliated against.

The complaint names Blizzard founder and CEO Robert Kotick, chairman of the board Brian Kelly, and company director Reveta Bowers, among other executives. The lawsuit was brought by York County on behalf of the County of York Retirement Fund.

Activision Blizzard now has a reputation as a hostile work environment for women, faces serious financial consequences and restrictions on its operations, the lawsuit says. The company also paid out hundreds of millions of dollars to compensate officers who were breaching their fiduciary duties by allowing the practices described by the state agency to occur, the complaint adds.

The lawsuit seeks to force the company to take actions to reform corporate governance and internal procedures, including greater stockholder input into board policies and guidelines, strengthening oversight of disclosure procedures, and permitting stockholders to nominate at least three candidates for election to the board.

Harassment Claims

Activision has been in the spotlight after the DFEH filed a lawsuit on July 20. The agency said a two-year investigation had found that the company discriminated against female employees in terms and conditions of employment, including compensation, assignment, promotion, and termination. Company leadership consistently failed to take steps to prevent discrimination, harassment, and retaliation, the agency said.

Following the agency’s announcement, Activision workers staged a walkout and over 2,000 current and former employees signed a petition supporting the agency suit.

On Aug 3, investors sued the company in California federal court, alleging it kept shareholders in the dark about the DFEH investigation into its workplace culture and artificially inflated company stock prices. After the DFEH suit was revealed, there was a “precipitous decline in the market value” of the company’s stock, that suit alleged.

That stock-drop suit came the same day that Activision held its latest earnings call. Analysts questioned the company over the suits and the impact they would have on the company’s productivity, product pipeline, and worker morale.

Earlier this week, Activision Blizzard said it had hired law firm Wilmer Cutler Pickering Hale and Dorr to investigate its culture. Kotick told employees in a July 28 statement that the review would “ensure that we have and maintain best practices to promote a respectful and inclusive workplace.”

Activision Blizzard didn’t immediately respond to a request for comment on Friday’s shareholder suit.

Causes of Action: Breach of fiduciary duty; Unjust enrichment.

Relief: Damages; declaratory relief; order to reform corporate governance; injunction restricting trading activity proceeds; restitution; costs; fees.

Attorneys: Glancy, Prongay & Murray LLP represents the shareholders.

The case is York County v. Kotick, Cal. Super. Ct., No. 21STCV28949, 8/6/21.

(Updates throughout with additional context.)

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

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Meghashyam Mali at mmali@bloombergindustry.com

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