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AP7 in settlement with Alphabet regarding alleged mishandling of sexual misconduct

In January 2019, AP7 sued Google’s parent company Alphabet based on information about sexual harassment within the company. AP7 has now reached a settlement with Alphabet. The company will take a number of measures and over the next ten years invest 310 million dollars, corresponding to 2.8 billion kronor, to improve diversity and inclusion within the group.

”This settlement feels great both for the sake of the employees at Google and for the sake of the shareholders. Sexual harassment affects many more than those directly affected. In order for us as owners to be able to drive change through legal proceedings, special conditions are required. This case shows that it can be a very effective way under the right circumstances”, says Richard Gröttheim, CEO AP7.

Legal processes is one of AP7’s four different engagement methods for sustainable and responsible asset management. Together with other institutional investors, at the end of 2019 AP7 had 14 ongoing legal processes.  The aim of the legal processes is both to criticise and discourage companies from fraudulent conduct and to win back money if companies have treated shareholders in an incorrect manner. In most of these legal cases, the process ends with a settlement.

Behind the case with Alphabet AP7 worked with its lawyers to investigate the reports of sexual misconduct at Alphabet and the board’s mishandling of that misconduct.  As a result of its investigation, AP7 demanded that Alphabet’s board take further action to investigate and remedy the misconduct.  AP7 sued Alphabet and certain of its directors and officers when the board failed to timely respond to AP7’s demand. AP7 believes the settlement is in the best interests of Alphabet and its stockholders. The settlement involves extensive corporate governance reforms and a substantial funding commitment that are designed to address and prevent sexual misconduct, harassment and retaliation at Google, prevent wrongdoers from being rewarded for their misconduct, and enhance the board’s oversight function.

Settlement highlights include:

  • Preventing Misconduct: Alphabet will adopt and maintain for at least 5 years a robust program designed to prevent and address sexual harassment, misconduct and retaliation.  The program will enhance Alphabet’s anti- sexual harassment and retaliation policies, trainings, reporting channels, investigations and procedures for disciplinary action and remediation.
  • Preventing Wrongful Compensation: Employees, including senior executives, who are being investigated for engaging in sexual harassment, misconduct or retaliation, or whose employment has been terminated upon a finding of substantiated misconduct, will be prohibited from receiving severance or the accelerated vesting of unvested equity awards and from modifying any 10b5-1 trading plan.
  • Advisory Council: Alphabet will establish and maintain for at least 5 years a Diversity, Equity and Inclusion Advisory Council to oversee Alphabet’s efforts to promote a workplace free from discrimination, harassment and retaliation.  The council’s members will include Alphabet’s CEO Sundar Pichai for the first year, as well as 3 outside experts in diversity, inclusion, equity and anti-sexual harassment.
  • Board Oversight of Company Culture: The Board’s Leadership Development and Compensation Committee will oversee management’s efforts to promote a respectful workplace.  The committee will receive reports and recommendations from the Advisory Council, as well as data on claims of sexual harassment, discrimination and retaliation at Google and the results of Google’s employee survey that will include questions related to culture, respect, diversity, equity, inclusion and leadership.
  • Board Oversight of Company Compliance: The board’s Audit Committee will oversee compliance issues with respect to sexual misconduct.  The committee will receive updates on, among other things, cases brought to a newly-created “rapid response” team that will investigate certain serious allegations of misconduct, including against senior executives.
  • Funding Commitment: Alphabet will commit $310 million over 10 years to workplace initiatives and programs focused on diversity, equity and inclusion.