News: The scandals dogging the Microsoft-Blizzard deal

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The scandals dogging the Microsoft-Blizzard deal

Activision could have sold for twice the amount. But a string of explosive sexual harassment scandals dragged the company’s image - and its share price - through the mud, and Microsoft got a good deal.
The scandals dogging the Microsoft-Blizzard deal

In what is turning out to be the biggest gaming deal in history, Microsoft announced on Tuesday that it plans to buy prominent game developer Activision Blizzard for US$68.7 billion in cash. The deal was finalised at a time when Activision is reeling from a sexual misconduct scandal that started in July of last year when a lawsuit was filed against the company by the state of California. Following the lawsuit, several incidents occurred which further damaged Activision’s reputation, subsequently leading to a drastic plunge in the company’s share price. Let’s take a look at the timeline of events leading up to the deal.

July 2021

In an explosive lawsuit filed by the state of California with the Department of Fair Employment and Housing as Plaintiff, Activision Blizzard was accused of harboring a “frat boy” workplace culture that is a breeding ground for harassment and discrimination agaisnt women.

Many instances were cited in the lawsuit like “cube crawls” in which male employees consume copious amounts of alcohol as they “crawl” their way through various cubicles in the office and often engage in inappropriate behaviour towards female employees. The suit also alleged that with men occupying 80% of the workforce, women rarely ever reach top roles at the company and that even when they do, they earn less salary, incentive pay and total compensation than their male peers. As a final blow, the suit alleged that the toxic workplace culture drove one female employee to suicide during a business trip where a picture of her private parts were being circulated among male co-workers.

November 2021

A Wall Street Journal Investigation revealed that Activision CEO Bobby Kotick had known for years about the sexual misconduct allegations. This was in direct defiance of Kotick telling his directors and other executives that he was not aware of the many allegations against his employees. The investigation listed memos, emails and regulatory requests, and interviews with former employees and others familiar with the company to prove that the CEO was not telling the truth. The investigation reported that since the lawsuit in July, Activision has received more than 500 reports from current and former employees alleging harassment, sexual assault, bullying, pay disparities and other issues.

It also listed an investigation conducted by the Equal Employment Opportunity Commission(EEOC) since 2018 on Activision. The EOCC made the investigation public in September and stated that employees endured “sexual harassment that was severe or pervasive to alter the conditions of employment.” Activision was reportedly said to have paid $18 million to settle the EEOC’s case.

The Journal’s investigation listed many instances where Kotick was aware of the complaints made by the female employees in his company yet decided to support the accused. In 2019, Kotick allegedly intervened to stop the HR Department from firing Dan Bunting, Co-head of Activision’s Treyarch studio who was accused by a female employee of sexually harassing her in 2017.

Following the WSJ report, as many as 100 employees staged a walkout with almost 1,900 employees – roughly 19% of the company – signing an online petition calling for Kotick to step down from his position. The report also prompted major criticism towards Kotick’s leadership and he was reported to have told his senior managers that he would consider leaving the company if he can’t quickly fix the culture problems at the firm.

January 2022

In an effort to address the sexual misconduct allegations, Activision Blizzard fired more than three dozen employees and disciplined about 40 others since July. Helaine Klasky, spokeswoman for Activision, confirmed that 37 people have “exited” and 44 have been disciplined as part of the company’s investigation. Since July, Activision’s share price is down nearly 30% with investors expressing concern.

Acquisition by Microsoft

While Kotick was facing the brunt of the November report by WSJ, senior executives at Microsoft asked Xbox head Phil Spencer to offer support to its key partner. This support evolved into an offer for a takeover if Kotick and his board would be willing. Kotick was reportedly not keen on selling the company to Microsoft hoping to find other interested parties. Among others, these included Facebook parent Meta Platforms Inc. However, thanks to the scandal clinging to the company, none of the favoured parties showed any serious interest - leaving only Microsoft’s offer.

Interestingly, less than a week before the acquisition, Microsoft announced that it will review the effectiveness of its sexual harassment and gender discrimination policies and practices. Whether or not this will reflect in the Activision deal, or how the outcome of the review will affect the people and culture aspect of the acquisition, is still in question.

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Topics: Culture, Leadership, Life @ Work, #MergersAndAcquisitions

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