Liability for failure to provide oversight on sexual harassment expands

The failure of corporations to provide oversight on sexual harassment and other misconduct by senior management is now becoming the focus of corporate governance entities such as the Securities and Exchange Commission (SEC) and shareholder derivative lawsuits, increasing the potential liability for corporations and their officers and directors.

Activision agrees to pay SEC $35M over sexual harassment allegations
On February 3, 2023, the SEC announced that Activision Blizzard, now owned by Microsoft, agreed to pay $35 million to settle claims it failed to maintain adequate “disclosure controls” to collect and assess information concerning employee complaints about workplace misconduct such as sexual harassment. The SEC cited Rule 13a-15(a) promulgated in the wake of Sarbanes-Oxley to claim the company didn’t have a system to collect and analyze complaints about workplace misconduct across its separate business units, so its officers and directors didn’t have information about employee complaints or incidents involving harassment.

In addition, the SEC cited the fact that Activision had used separation agreements with former employees that required them to notify the company if they were contacted by a government agency in connection with a report or complaint, which the SEC said violated its whistleblowing rule.