Moneybox

The Investors Trying to Fix the Most Toxic Company in Video Games

Activision Blizzard, accused of fostering an intensely sexist workplace, can’t ignore a critic that represents 3 million of its shares.

The Activision Blizzard logo, against a blue and black background.
The backlash has reached the investor auditorium. Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect

In July, the California Department of Fair Employment and Housing sued video-game giant Activision Blizzard, alleging, more or less, that the company has a workplace environment from hell. Regulators said a two-year investigation into the company revealed an alcohol-drenched “frat boy” culture that included inappropriate conduct by executives, men openly joking about rape, and a general “breeding ground for harassment and discrimination against women.” The company called the lawsuit “truly meritless and irresponsible” (though it seemed to have some trouble figuring out how to respond), and more than 2,000 current and former employees responded by putting their names on an open letter that said, “We no longer trust that our leaders will place employee safety above their own interests.” In early August, employees shared their salaries en masse, Bloomberg reported, to pressure the company into confronting pay inequities. One executive, Blizzard head J. Allen Brack, resigned. California has since expanded its suit against the gamemaker, alleging the company shredded documents “related to investigations and complaints.” Activision Blizzard denied these allegations, and the fate of the legal and organizing efforts is uncertain.

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A third source of pressure on Activision Blizzard to make changes, beyond workers and the state of California, is a shareholder group. The Strategic Organizing Center Investment Group is an umbrella organization that represents pension funds sponsored by the members of four national unions (the Teamsters, Service Employees International Union, Communications Workers of America, and United Farmworkers of America). The SOC doesn’t manage union members’ money. Instead, it communicates with companies on behalf of the funds holding its union members’ investments, with an eye toward growing those investments. The group says it represents 3 million shares in Activision Blizzard through its members’ index holdings, which translates to around 0.4 percent of the company’s total outstanding shares—not a massive stake, but one big enough to make some noise. (No holder has more than about 8 percent of the company.)

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The SOC isn’t just putting the screws to Activision Blizzard over the harassment case.  In June, weeks before the California lawsuit put Activision Blizzard in the news for its workplace problems, the SOC—which recently changed its name from Change to Win—mounted an aggressive (and ultimately unsuccessful) push to get shareholders to vote against a $150 million pay package for CEO Bobby Kotick. The company pushed the vote back a week from its annual meeting earlier in June, apparently fearing an embarrassing, though nonbinding, loss. It also felt compelled to rebut the SOC in a letter to shareholders filed with the Securities and Exchange Commission on June 11, three days before the June 14 meeting. After Activision Blizzard’s workplace problems came to public light, the SOC stepped up its pressure campaign. It has urged the company to add women and employees to its board, claw back bonuses from abusive executives, stall all executive bonuses in 2021, and submit to a company-wide equity review. It also criticized Activision Blizzard for hiring noted union-busting law firm WilmerHale to investigate it in the wake of the lawsuit, saying the firm has “has no track record of uncovering wrongdoing.”

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The SOC effort has generated a fair bit of media coverage—including this post, to be meta about it—and generally been a thorn in Activision Blizzard’s side, though it has so far failed to achieve its objectives. So I talked with the group’s research director, Richard Clayton, about whether shareholders can really play a role in improving working conditions, what happens when shareholder and worker interests collide, and what one group of investors can really do in the case of Activision Blizzard. This interview has been edited for clarity and length.

Alex Kirshner: What is SOC’s objective in the ongoing fight at Activision Blizzard?

Richard Clayton: Our focus was initially on excessive executive pay, on unreasonably rewarding executives for levels of performance that we didn’t think warranted the kind of repeat awards that were given out, or awards of that size. But that said, we’d always been cognizant of the fact that there were real issues in the workplaces of the video gaming industry. We’ve heard for many years about sexual harassment, racial harassment. We’ve heard about “crunch” and the intense difficulty that presents to workers in terms of trying to have any kind of a work-life balance. But up until pretty recently, we knew about the culture of crunch in a vague, general way within the gaming industry. What we really learned from the state of California lawsuit was both that those problems were genuinely acute and severe at Activision Blizzard, that senior management at the very least had been repeatedly informed and made aware of those serious abusive practices throughout the organization, and that it had allowed those practices to go unaddressed for many, many years.

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Once the litigation was filed by the state, it became clear that a large number of Activision Blizzard employees were willing to take action to try to address those problems. So we felt as a shareholder, it was important for us to communicate to the board that we did not believe that the company’s responses to that lawsuit or to activity by workers was sufficient and that they needed to do additional things, and if they weren’t going to do additional things, that we would continue and really escalate the shareholder activity that we’d already been undertaking in the vote-nos against executive pay. What we’re implicitly suggesting is that we’re going to be campaigning harder against the re-election of incumbent directors if the board doesn’t make significant changes between now and next year’s annual meeting.

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That’s the framework within which we approach it. Our view is that our funds generally don’t have the ability to escape a bad company. They’ve got to try to fix a bad company. So our engagements are focused on the people who have the most authority in the company, the board of directors, and demanding that they be accountable for their own decision-making or their failure to appropriately hold accountable senior management when it’s engaged in irresponsible practices.

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In the case of Activision Blizzard, you urged shareholders to express in a vote, basically, that the CEO was paid too much. You also wanted to oust the director who oversees executive compensation. How do you draw a line to that helping workers there, given that the company was not going to turn around and say, “Well, we cut the CEO’s pay package by a few million dollars and we’re going to give it to our coders now”?

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I think the first thing is that you’re not going to address all the problems at once, right? So excessive executive pay is a problem in and of itself. And I think it tends to encourage an arrogance in the C-suites, and to some extent on the board of directors, where the success of the company is attributed solely to one individual. And that individual gets viewed as being entirely indispensable—that if we had to move on without Bobby Kotick or whoever, it would be disastrous. So I think that at least at the level of the management say-on-pay vote, there are reasons to address that, which get to the interest of the pension funds. It doesn’t necessarily, as you suggest, have any impact at all. I mean, it doesn’t necessarily have an impact on how much the executives actually get paid, let alone how much anybody else gets paid, but it’s a tool that’s there that calls attention to a potentially inappropriate practice.

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Is there an inherent conflict in your work? As in, you press Activision Blizzard very publicly and contribute to a growing wave of bad headlines for this company, many of which it’s done a good job getting on its own. But you represent shareholders in the company, and bad publicity can mean bad things for their investment. In this case, the stock has gone down considerably in July and August.

We’re not focused on the short run, nor do we think that ultimately the value of a company or the returns investors of the company enjoy are a function really of PR, first and foremost. They’re a function of what’s really going on at the company and what they’re really capable of doing. So in our view, the fact that at Activision Blizzard, whatever its returns over the last decade may have been, there was all of this abuse going on is in and of itself a big problem. And it’s a big problem for the company potentially going forward, and that needs to be addressed. And the failure to have addressed it already is, to the extent that shareholders are experiencing any losses, we would argue that’s a function of the board and management not maintaining a safe workplace and ignoring innumerable reports of abusive practices.

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It’s not a function of anybody publicizing those facts, right? So, we would argue that it’s really incumbent on us as investors for the long term to be taking action now, to push the company, to change its practices so that ourselves and other investors are going to be enjoying a more valuable, growing company going forward. We don’t think you can pull that off in a way which is consistent with maintaining an unsafe workplace with unchecked abusive practices. We think you’ve got to have a better set of practices in order to be a successful company in the long run.

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A more straightforward way for employees in the video game industry to address workplace culture problems would be to form unions. In theory, a union also takes more of the financial pie for a company’s workers, and in theory, that leaves less for shareholders like your members. What would be your response if Activision Blizzard employees addressed these problems by unionizing?

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First of all, we would absolutely welcome these workers, or any workers in any industry, joining unions. We’re union ourselves. But beyond that, it’s just completely false that improving the quality of working life comes at the expense of investors. If anything, I think the evidence is pretty clear that the opposite is the case. It’s companies that have really poor employment practices that are routinely running into legal and regulatory issues, that are frequently subjects of litigation, that have difficulty raising productivity growth, which is the ultimate source of value for the company and value for investors. They have very high rates of turnover and relatively high managerial costs to deal with the fact of high turnover, to deal with having to hire and onboard new employees on a frequent basis.

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So in our view, worker representation in the form of unions is completely consistent with the kind of high-quality human capital management practices that the most successful companies employ. That doesn’t necessarily mean that the only change that happens is that workers join a union and start bargaining collectively. Usually there’s much more of a process that alters how the company operates in a detailed way, so that workers are able to be more productive, work better, in a way which then justifies and enables the company to pay them at higher rates. That’s really how we would view the situation, when it comes to workers joining unions in companies that we invest in. We view that as a positive going forward.

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I’m a union member. I agree with your view of their value and don’t think they’re harmful for a company. I have a feeling a lot of institutional investors or venture capitalists, the kinds of people you need to convince to join you in a pressure campaign like this one, do not see organized labor the same way. How do you confront that?

It’s pretty commonplace—to some extent in journalism, academic finance literature, and economics—to talk about investors or shareholders as if they were all sort of necessarily of one mind about things or that they always agree or that they should be expected to agree or that we could clearly and easily represent their interests in a sort of univocal way. It’s just generally not true at all. There’s lots of lots and lots of disagreement about it among investors, not just in terms of how to go about the process of investing. It’s differences in what the goals are for which they’re investing. And there’s just significant differences in what they think leads to a successful enterprise, what they’re looking for when they invest.

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So while you’re right that there are plenty of people in the investment world who would look askance at workers at companies they invest in joining unions, there’s lots of other people who don’t have a problem with that, who are working in environmental, social, and governance departments or at newer firms that have a specific focus on ESG-related concerns. There’s just been an enormous growth in that part of the investment world as compared to the more traditional or more narrow-minded one. And that’s been going on for more than a decade.

You mentioned venture capital. The venture capital industry, while it does draw a lot of money from rich people, it also draws a lot of money from public employee pension funds, and those are overwhelmingly representing unionized workers. So I think that the venture capital industry is in this somewhat peculiar position where, just as you say, a lot of the people involved are not necessarily thrilled if they find out that workers at a company they’re investing in are looking to organize. But at the same time, they’re actually getting their investment capital from unionized workers. So I think part of our engagement with those kinds of investment managers is making it clear to them that they are already enjoying a benefit of past successful union organizing. And that’s already an indicator that investors stand to benefit in the long run from the fair treatment of workers, and unions are a big part of that.

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You apparently put a scare into Activision Blizzard with the say-on-pay vote, but didn’t win that vote or the one to oust the compensation committee chair. What is the plan going forward?

Because the funds themselves are overwhelmingly indexed [as in, they’re not individual Activision Blizzard stocks that can be offloaded by themselves], getting out of a company isn’t really an option, right? So we’ve got to figure out something else. The “something else” is typically putting demands to the board of directors that they have to make changes, or we’re going to vote against them going forward. So what I would envision us doing is keep talking to other shareholders. And first of all, we’ll look for some response from the company. We haven’t received one yet, and if we don’t receive a response we would probably take some further action, like sending them another letter or telling them that they didn’t respond to the last one. We might be joining together with like-minded shareholders to send further communication to the company, showing that there are more investors than just us who support these demands.

But ultimately what we would look to do is to campaign against the re-election of the directors of the company at next year’s annual meeting, whether that’s the full board or whether that’s committee chairs. It would be beyond what we did at the last meeting with respect to the compensation chair, but that’s the ultimate power that shareholders have. They govern the company, they’ve got the votes, and if the board of directors doesn’t win their support, the board’s out and they can be replaced. That can happen.

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