Google Agrees to Spend $310M on Diversity and Equality Initiatives to End Sexual Harassment Shareholder Derivative Suit

Last week, plaintiffs in a California state court stockholder derivative action put forward a settlement to resolve mismanagement claims against Alphabet Inc., Google’s parent company, and several current and former officers. According to the unopposed motion for preliminary settlement approval, the agreement is “an excellent result for Alphabet and its current shareholders, avoids further lengthy and costly litigation, and mitigates the risk and expense of proceeding in multiple fora.”

The shareholders’ consolidated complaint, filed in August 2019, charged Alphabet with creating a “toxic work environment,” where women employees were sexually harassed and undervalued compared to their male counterparts. Further, the tech giant allegedly created a “‘culture of concealment’ that led Defendants, in pursuit of their own interests, to participate or acquiesce in the cover-ups of a long-standing pattern of sexual harassment and discrimination by high-powered male executives as well as a serious data breach, both of which were in violation of state and federal law.”

The motion for preliminary approval points to the existence of a class action brought by female Google employees alleging various forms of employment discrimination including wage disparity and slower promotion rates. In addition, the filing highlights several sexual harassment incidents and the subsequent cover-ups.

Notably, the creator of Android mobile software, defendant Andrew Rubin reportedly received a severance of $90 million, and defendant Amit Singhal, another senior executive, received $15 million after credible sexual harassment claims caused their departure from the company. The shareholder plaintiffs sought damages, disgorgement, injunctive relief, including corporate governance reforms on behalf of Alphabet, the nominal defendant, and against the individual corporate defendants.

The motion states that the proposed settlement is “unquestionably fair, reasonable, and adequate, and warrants preliminary approval.” The agreement includes a number of “holistic workplace reforms,” like modification of Alphabet’s policies and procedures governing sexual harassment and misconduct, discrimination, and retaliation. Significantly, victims will no longer be forced to pursue such claims through arbitration.

The proposed settlement will also create a “Diversity, Equity, and Inclusion Advisory Council,” supposedly, one of the agreement’s “most important features.” According to the plaintiffs, the council will oversee efforts to promote an inclusive and discrimination-free workplace, report to the board of directors’ “Leadership, Development, and Compensation Committee,” and include not only Alphabet’s CEO in its inaugural year, but also three external advisory members recognized for their expertise in the workplace equality field.

The proposed settlement states that Alphabet has agreed to fund diversity and anti-harassment efforts with a “historic” $310 million commitment over ten years with board-level accountability and public reporting transparency.

The plaintiffs argue that the settlement is fair under the factors considered by California courts, including that the parties reached agreement after “extensive arm’s-length bargaining,” it was negotiated by experienced counsel who thoroughly investigated the matter, and that settlement is in the best interests of Alphabet and its shareholders. Another two factor were the likelihood of success on the merits coupled with the possible risk, expense, and duration of further litigation. To this end, the motion makes clear that the settlement will resolve two “substantially similar” derivative suits underway in the Northern District of California and Delaware Court of Chancery.

The plaintiffs also moved for approval of their proposed shareholder notice. Their requested attorneys’ fees and expense award are redacted in the publicly available version.

The plaintiffs are represented by Bottini & Bottini, Inc., Cohen Milstein Seller & Toll, PLLC, Renne Public Law Group, Berman Tabacco, Weiss Law LLP, and Kessler Topaz Meltzer & Check, LLP.

Alphabet’s special litigation committee is represented by Cravath Swaine & Moore LLP. Alphabet and select individual defendants are represented by Freshfields Bruckhaus Deringer LLP and Wilson Sonsini Goodrich & Rosati PC.

Individual defendant Andy Rubin is represented by Latham & Watkins LLP, and Amit Singhal by Futterman Dupree Dodd Croley Maier LLP and Glasser Weil Fink Howard Avchen & Shapiro LLP.