The California-based gaming giant, Activision Blizzard, has been under fire by the SEC since late 2021 when the Securities Exchange Commision (SEC) opened an investigation into the company’s alleged sexual misconduct, harassment, and workplace discrimination following a walkout and protest by employees.
While this action may not initially seem consistent with SEC’s role in enforcing securities laws, it illustrates the broader environmental, social, governance (ESG) stance the Commission is taking.
Violating Exchange Act Rule 13a-15(a) requires that controls and procedures be in place, and maintained, to ensure that adequate disclosures are in place. This was based on allegations that, although the company had identified the ability to “attract, retain, and motivate skilled employees” as a material risk, it had not established appropriate controls or procedures to mitigate those risks.
Violating Section 21F-17 of the Dodd-Frank Act which protects whistleblowers who report possible securities law violations. The SEC alleged that Activision had required employees to sign separation agreements requiring them to notify the company before speaking with administrative agencies related to reports or complaints against the company. The SEC prohibits any steps to keep former employees from raising issues related to potential securities law violations.
Activision has addressed these issues, according to the SEC’s settlement order, through processes and policies, indicating it would ensure better compliance with disclosure requirements and remove the notification clause from separation agreements.
Still, the penalties both in terms of monetary fines and reputation are steep and the company has a long road ahead.
As these fines and settlements illustrate, some companies struggle to find the right balance to ensure their business practices are in line with existing, and emerging, regulations related to ESG. And, while as these examples demonstrate, fines can be significant, companies also are at risk for losing ground in the court of public opinion.
Both consumers and employees are increasingly interested in companies’ ESG-related performance and make purchase and employment decisions based on how well–or poorly–companies are doing.
The message from the SEC and other regulatory agencies is clear: fail to follow ESG requirements and be prepared to pay.
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