Activision Blizzard (NASDAQ: ATVI) has rebuffed calls for its CEO to step aside and taken a hit to its share price. Staff have staged walkouts after reports indicated that senior members of staff have done little to combat a toxic work culture despite years of warning signs.
The company is one of the biggest names in gaming, with its popular franchises including famous names such as Call of Duty, World of Warcraft, StarCraft and Diablo.
What happened at Activision Blizzard?
A report from The Wall Street Journal has alleged that Activision Blizzard CEO Bobby Kotick has been aware of sexual harassment problems at the company for years. Kotick was reportedly aware of misconduct problems in 2018 without acting, while he is also accused of having intervened in an investigation regarding harassment by a senior member of staff.
For his part, Kotick has dubbed the report "inaccurate and misleading".
ABetterABK, a group which represents the concerns of the company’s employees, encouraged staff to walk out. Eurogamer reported that 150 employees downed tools at the company’s Irvine, California offices, while other smaller staff walkouts occurred elsewhere. These employees are demanding that Kotick step down in light of new developments.
https://twitter.com/ABetterABK/status/1460709188070518786
However, this is a long-running scandal within the company. While issues may have been around for years the story exploded into the public eye in July, when the State of California sought to sue the company over alleged ingrained discrimination and sexual harassment.
The legal action follows a two-year investigation from California's Department of Fair Employment and Housing. Staff walked out in late July in protest at the harassment issue. Meanwhile, the months that followed have seen several key staff members quit the company.
Activision Blizzard’s response
A statement released by the company’s board of directors said: “The Activision Blizzard board remains committed to the goal of making Activision Blizzard the most welcoming and inclusive company in the industry.
“Under Bobby Kotick's leadership the Company is already implementing industry leading changes including a zero tolerance harassment policy, a dedication to achieving significant increases to the percentages of women and non-binary people in our workforce and significant internal and external investments to accelerate opportunities for diverse talent.
“The board remains confident that Bobby Kotick appropriately addressed workplace issues brought to his attention.
“The goals we have set for ourselves are both critical and ambitious. The board remains confident in Bobby Kotick's leadership, commitment and ability to achieve these goals.”
So, the company is standing by their man. But who exactly is Bobby Kotick?
Who is Bobby Kotick?
The man who now heads Activision Blizzard got his start programming software in his University of Michigan dorm room. Kotick and his friend Howard Marks persuaded American real estate developer Steve Wynn to invest $300,000 in the fledgling business, before dropping out of college and getting involved in the business of videogames.
Kotick first became involved in what was to become Activision Blizzard in 1990 when he bought a 25% stake in Mediagenic. He became CEO of the business the next year, rebranding it as Activision and letting go of the vast majority of its employees.
He led the business to focus on videogames and snapped up a number of development studios throughout the 90s. Following a merger with Vivendi’s gaming division, Kotick was confirmed as CEO of the combined company in July 2008. This was the formation of Activision Blizzard.
As well as heading Activision Blizzard, Kotick has held positions at Yahoo! and The Coca Cola Company (NYSE: KO). He has also been involved in philanthropic efforts. These include the Call of Duty Endowment, which Kotick co-founded in 2009. The organisation seeks to help armed forces veterans adapt to civilian life.
History of problems at Activision Blizzard
Unfortunately, this is not the first time Activision Blizzard has faced this kind of scandal. Questions have been raised about the company’s working culture and Kotick’s leadership before.
These include allegations of racist bullying, which came out in early 2019. Former esports employee Julian Murillo-Cuellar said his complaints about racist language and harassment were ignored by the company’s management and human resources department.
At the time, Activision Blizzard did not comment specifically on the case, but said it was committed to an "inclusive and respectful work environment”.
Meanwhile, in August 2020 some staff were left furious after Kotick took home $40m. At the time, some employees claimed they were having to skip meals in order to afford paying rent with their own salaries.
The Wall Street Journal says Kotick went on to make $154.61m in 2020, making him the second-highest paid CEO in the US. Kotick since requested to reduce his salary to just over $60,000.
What does the story mean for investors?
This scandal has clearly created a turbulent atmosphere at Activision Blizzard. Investors like certainty and stability, which is also particularly important in the videogames industry. A company like Activision Blizzard is expected to churn out regular instalments to its world famous franchises.
Yearly releases in its Call of Duty series and continued update support for titles such as Overwatch and Diablo are expected by fans. If new content is not created, fans will drift elsewhere.
As such, turbulence could be detrimental to the company’s share price. Investors want to be confident that the business can reliably release titles gamers will enjoy. If staff are upset and out protesting against their CEO and management, deadlines will come under threat and targets will be missed.
There is also the issue of ESG. The social aspect of ESG gets forgotten all too easily sometimes. However, some investors will be asking themselves how comfortable they feel investing in a company which has riled its own employees so much and which might be trying to cover up a toxic workplace culture.