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Shareholders slap Google over sexual harassment issues

January 10 · Issue #271 · View online
The Interface
Programming note: Barring big news tomorrow, today will be the final edition of The Interface this week. In order to bring you more original reporting and sharper analysis, I intend to use Fridays in 2019 to accomplish tasks I simply don’t have time for the rest of the week. One happy byproduct of writing this newsletter is that you all suggest many fascinating new threads for me to pull on — and now it’s time for me to follow up on them. I’ll make an exception whenever the news calls for it — the Cambridge Analytica data privacy scandal broke on a Friday, for example, and I wouldn’t have waited three days to cover it here. But my hope is that by taking one day a week to focus completely on original projects, I can improve the overall quality of my work. I also hope that some readers who unsubscribe out of sheer exhaustion — of which I have seen a not-small number — may welcome a Friday respite. Feedback either way? I’m all ears:
In October, the New York Times published a story that several other outlets had been chasing, in some cases for years: the story of how Andy Rubin, the founder of Android, had received a $90 million payout upon leaving the company despite having a credible complaint of sexual misconduct against him from another Google employee.
The story, which included several other examples of male Google executives receiving multimillion-dollar payouts after being accused of sexual harassment, sparked a furor inside the company that led to 20,000 employees walking off the job. Google parent Alphabet made a handful of concessions in response, including a move to end the practice of forcing employees to settle sexual harassment complaints through arbitration rather than lawsuits.
But the size of the payouts, coupled with the fact that multiple members of the Alphabet board had formerly dated their subordinates, all but guaranteed that the company would face a shareholder lawsuit. This week, those lawsuits were filed. I wrote about one of the suits today at The Verge:
The suit was filed this morning in San Mateo Superior Court by Alphabet shareholder James Martin. The suit seeks three new independent directors for the Alphabet board, and an end to the dual-class voting structure of the stock — moves that would greatly diminish the power held by co-founders Larry Page and Sergey Brin. It also calls for executives who received payouts to return them to the company. It also seeks unspecified financial damages. Google did not immediately respond to a request for comment. […]
“We are saying to the board of directors that it’s time they stand up and do what Google says — ‘do the right thing,” said Louise Renne, one of the lawyers who filed the suit, in a press conference today. (“Do the right thing” became Alphabet’s motto after it retired “don’t be evil.”) “There has been substantial evidence of sexual harassment at Google. And yet there hasn’t been the appropriate follow-through. In fact, quite to the contrary. The perpetrators of the sexual harassment have been rewarded handsomely — in one case, by a $90M payout. And that’s just wrong.”
The suit seeks three new independent directors for the Alphabet board, and an end to the dual-class voting structure of its stock — moves that would greatly diminish the power held by co-founders Larry Page and Sergey Brin. The suit also calls for executives who received payouts to return them to the company. It further seeks unspecified financial damages. 
Google didn’t respond to a request for comment. Rubin has previously denied any wrongdoing.
Meanwhile, two pension funds have also filed suit against Alphabet. Melia Robinson talked to one of them:
“We think Google, or Alphabet, can really do a better job of looking out for shareholders and its employees,” Julie Goldsmith Reiser, an attorney representing pension funds in the litigation. 
Do shareholders have a case? Daisuke Wakabayashi, one of the Times reporters who broke the Rubin story, said in a Twitter thread that Alphabet insiders argued that the company “had a fiduciary duty to prevent top execs from leaving to work for [or] create a rival.” By forcing them to sign non-compete agreements in exchange as part of their exit deals, the thinking went, Alphabet was acting in its fiduciary duty to shareholders. Moreover, Wakabayashi wrote, some of the executives may have explicitly threatened to build rival products “if they felt that the exit packages were not rich enough.”
On the other hand, as the great Matt Levine often says in his excellent newsletter, Money Stuff, everything is securities fraud. “In a crude sense,” Levine writes, “the test of securities fraud is just: When you finally come clean, does the stock drop?” If it does drop, shareholders can argue that you withheld a material fact from them, and sue. Any time a bad thing happens, in other words, shareholders can make a case for securities fraud. In that sense, you can see the incentives a board has to cover up a scandal — if no one ever finds out, shareholders can never accuse you of withholding a material fact! (This is not legal advice.)
In any case, organizers of the Google walkout said in a Medium post on Thursday that they support the lawsuits:
We have all the evidence we need that Google’s leadership does not have our best interests at heart. We need to change the way the system works, above and beyond addressing the wrongs of those who work within the system. It is time for oversight, accountability, and for workers to truly have a say in decisions that affect their lives and the world around them.
I won’t predict whether the lawsuits will be successful. But with revolt still simmering at Google over a number of issues — and the prospect of embarrassing discovery in these lawsuits still to come — at the very least they will keep Alphabet executives on the defensive.

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