Bloomberg reports:
Google’s top brass face claims they shirked their duties to shareholders by fostering a “culture of misconduct” that exposed the company to a wave of scandals and lawsuits.
The “uninformed and uninvolved” directors of Google parent Alphabet Inc. deferred to its star-studded leadership team, giving the company’s co-founders and their lieutenants leeway to run their divisions with little board oversight, according to a complaint unsealed May 20 in Delaware Chancery Court.
“This culture that fostered autonomy, however, also led to systematic sex and age discrimination, sexual misconduct perpetrated by high-ranking executives, and a disregard for protecting user privacy,” the partly redacted suit says.
The “dark underside of Google’s culture” is responsible for multiple class actions over its privacy practices, unequal pay for women, age discrimination, and sexual harassment, according to the 70-page complaint, which was filed under seal May 14.
Here's the complaint.
At it's core, it's a Caremark claim. For an overview of Caremark, see this post.
In Stone v. Ritter, the Delaware supreme court confirmed that “Caremark articulates the necessary conditions for assessing director oversight liability.” In doing so, however, the court described Caremark as a case in which the operative standards are good faith and loyalty rather than care, stating that:
[T]he Caremark standard for so-called “oversight” liability draws heavily upon the concept of director failure to act in good faith. That is consistent with the definition(s) of bad faith recently approved by this Court in its recent Disney decision, where we held that a failure to act in good faith requires conduct that is qualitatively different from, and more culpable than, the conduct giving rise to a violation of the fiduciary duty of care (i.e., gross negligence). In Disney, we identified the following examples of conduct that would establish a failure to act in good faith: . . . where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.
Stone further held that “In the absence of red flags, good faith in the context of oversight must be measured by the directors’ actions to assure a reasonable information and reporting system exists and not by second-guessing after the occurrence of employee conduct that results in an unintended adverse outcome.” Liability will arise only where there are alleged “red flags” that are “either waved in one’s face or displayed so that they are visible to the careful observer.” Rattner v. Bidzos, 2003 WL 22284323 at 13 (Del. Ch. 2003), quoting In re Citigroup Inc. S’holders Litig., 2003 WL 21384599, at *2 (Del. Ch. 2003). Stringing together a bunch of negative news reports does not amount to the necessary red flags.
Caremark claims are notoriously the most difficult corporate law claim fora plaintiff to establish (see here). So good luck.
