A lawsuit Thursday alleging that certain directors and officers of Alphabet Inc., including Google co-founders Larry Page and Sergey Brin, covered up sexual harassment and discrimination has some lurid details on sex and lies, but more importantly, it seeks to shake up a smug board of directors and end the company’s founder-led control.
Earlier Thursday, two law firms, including one run by the former city attorney of San Francisco, Louise Renne, filed a lawsuit in San Mateo County — selected as the home county of several Alphabet GOOG, -0.40% board members — as a derivative action. The plaintiff, a non-employee shareholder named James Martin, sued certain Alphabet board members and directors on behalf of investors and the company for breaching their fiduciary duty in an alleged multi-year scheme to cover up sexual harassment and discrimination at Alphabet.
The suit alleges that the directors covered up a $90 million severance payout to Andy Rubin, known as the father of the Android operating system, and did not disclose the payout to investors, even after an internal investigation found credible evidence of sexual-misconduct allegations against him. The payout was disclosed in an October report by the New York Times, which led to an unprecedented worldwide walkout by Google employees to protest the company’s handling of sexual harassment.
In addition, the suit contends that while at Google, Rubin allegedly engaged in human sex trafficking — “paying hundreds of thousands of dollars to women to be, in Rubin’s own words, ‘owned’ by him” — at the same time the company had hired lobbyists to oppose legislation in Washington to combat human sex trafficking.
Another Google senior executive, Amit Singhal, was allowed to quietly resign at Google in 2016 in the wake of credible allegations of sexual harassment, and was paid millions in severance, according to the Times report.
Both Rubin and Singhal were named as defendants in the suit. Google officials did not immediately respond to a request for comment.
“This lawsuit, like much of the recent media coverage, mischaracterizes Andy’s departure from Google and sensationalizes claims made about Andy by his ex-wife,” said Ellen Winick Stross, an attorney representing Rubin, in a statement. “Andy left Google voluntarily. Andy denies any misconduct, and we look forward to telling his story in court.’’
At the time of the walkout, Google CEO Sundar Pichai sent a memo to employees apologizing and highlighting the company’s responses to the demands. But ignored was a request by the group for an employee presence on the board. He also did not address the $90 million severance payment to Rubin, nor the company’s lack of disclosure on his departure.
“This is not a ‘failure to supervise’ case,” the lawsuit states. “The Board, as demonstrated, herein, was directly involved in and approved the $90 million severance payment to Rubin, was directly involved in and approved the severance payment to Defendant Singhal, who also engaged in sexual harassment and discrimination, and made a conscious and intentional (and bad‐faith) decision to conceal the sexual harassment at Google, thereby also breaching its duties of candor and good faith.”
The 199-page document contains a few more lurid details, including how Google’s co-founders and former chairman Eric Schmidt set the tone at the company by dating employees and having extra-marital affairs. A section with details from some company documents is redacted.
“Defendants Page, Brin, Schmidt, and the other Director Defendants abused their power and positions of fiduciary responsibility at Google to perpetuate a culture of harassment and to lead Google in a strategic direction that allowed subsequent cover ups and payouts for the misdeeds of male executives,” the suit states.
But the suit notes, as most investors know, that Alphabet is a founder-controlled company, and says it is not seeking a board-led investigation, noting that such a demand would be futile because the board’s conduct is not subject to protection under the so-called business judgment rule, and a majority of the board “is unable to conduct an independent and disinterested investigation of the alleged wrongdoing.” The complaint also notes many of the close relationships between Alphabet’s board members and co-founders Brin, Page and the company.
As a remedy, the suit, which asks for a jury trial, seeks undetermined monetary damages paid to the company from the defendants — essentially repayments of their severance. But more importantly, the suit also is looking to reform and improve Alphabet’s corporate governance. Some proposals include amending the company’s by-laws to strengthen oversight of its internal controls for sexual harassment, eliminating mandatory arbitration for employee disputes and requiring one vote for each share held — eliminating the current use of a dual-class structure, whereby the co-founders have all voting control.
Given the past behavior of Alphabet’s board and its co-founders, it’s highly unlikely this suit will make it to a trial. Investors should hope, though, that the suit makes an impact and leads to some changes to Alphabet’s smug and insider-ey board.
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