Can Microsoft move Activision ‘beyond the scandal’ with both companies buffeted by sexual harassment claims?

Just days after unveiling plans for a reckoning on sexual harassment and gender discrimination in its ranks, Microsoft said it will acquire a gaming company with its own problematic history.

Microsoft announced Tuesday it intends to buy Activision Blizzard, the gaming enterprise behind titles like Candy Crush and Call of Duty, in a nearly $70 billion acquisition that could take more than a year to finalize. If regulators approve the acquisition, it will be the biggest in Microsoft history.

The deal will bring together two tech companies battling reports of sexual harassment and gender discrimination, including allegations against board members and top executives. Both companies also face pressure from workers and shareholders to act quickly.

Microsoft recently took steps to relieve that pressure, announcing earlier this month it had hired a law firm to assess its policies and practices around harassment and discrimination. A public report of the analysis will also include the results of investigations into allegations against company leaders, including those against co-founder Bill Gates.

At Activision, officials responded to reports of misconduct by working on software tools and training programs to improve workplace policies and donating funds to charities focused on supporting women in the video game industry. But shareholders have called for more action as some employees are starting a union drive and demanding that CEO Bobby Kotick, who is expected to stay on, be fired.

A group of workers pushing for change at the company and in the gaming industry tweeted Tuesday that the news “is surprising but does not change the goals of the ABK Worker’s Alliance.” The alliance is a collective of employees working at Activision Blizzard and King, an entertainment company Activision acquired in 2016.

But activist shareholders at both companies are hopeful the acquisition could result in long-awaited actions.

“We’re looking at this, I think, hopefully, as an opportunity for Activision to accelerate its effort to get beyond the scandal,” said Dieter Waizenegger, the executive director for SOC Investment Group, one of the Activision shareholders behind a call to action in November.

“I hope that Microsoft will use its current influence that they have to nudge Activision along,” he said.

At Arjuna Capital, the investment firm and Microsoft shareholder that launched the investor push that resulted in Microsoft’s current review, co-founder and managing partner Natasha Lamb said her initial reaction to the acquisition announcement was shock.

With a “track record” of sexual harassment allegations against employees and executives at Activision, and Microsoft’s recent pledge to change its own culture following a string of allegations of misconduct and discrimination, Lamb was surprised Microsoft took the steps it did.

But, she said, “my hope would be that, given the work that we’ve just done as investors with Microsoft to be more transparent and accountable regarding sexual harassment allegations at Microsoft, that that work will carry over to the acquisition of Activision.”

“It would be a huge misstep if they were to ignore what’s happened at Activision,” Lamb said. “And I don’t expect that’s their plan.”

Microsoft did not return requests for comment but CEO Satya Nadella said on a call with investors Tuesday that “the culture of our organization is my No. 1 priority.”

“It’s critical,” he continued, “for Activision Blizzard to drive forward on its” commitments to improve its workplace culture.

Microsoft has for years faced alleged gender discrimination and a culture of perceived sexism, as well as a 2018 report accusing the company of retaliation for taking legal action in a gender-discrimination complaint.

That year, a group of female employees also pursued a class-action lawsuit against the company alleging widespread gender discrimination. In 2019, several allegations of sexual harassment at the company also surfaced in an email thread among employees.

Microsoft said it received a complaint in 2019, while Gates was on the board, that he attempted to start a romantic relationship with an employee in 2000. The board investigated but said last year the process wasn’t concluded because Gates stepped down as a director.

Activision disclosed last year it was being investigated by the Securities and Exchange Commission over complaints of workplace discrimination. California’s civil rights agency also sued the Santa Monica, California-based company in July, describing a “frat boy” culture that had become a “breeding ground for harassment and discrimination against women.”

Allegations included that Kotick, Activision’s longtime CEO, was aware of the misconduct.

In September, the company reached a separate agreement with the U.S. Equal Employment Opportunity Commission, committing to strengthening its policies to prevent workplace harassment and creating an $18 million fund to compensate eligible claimants.

Shareholders from both companies and workers at Activision expressed concern that Kotick was still on board following the acquisition announcement.

“We still believe that the CEO should resign or be terminated by the board of Activision, though he’s still in charge at this point,” Waizenegger, from shareholder SOC Investment Group, said Tuesday. “It’s not tenable that someone like that, who’s known about this bad culture, should still be at the helm of this company.”

SOC Investment Group and other shareholders called for Kotick’s resignation in November, as well as the retirement of Chairman Brian Kelly and lead independent director Robert J. Morgado by the end of December.

Microsoft said Kotick would retain his role, but it’s not clear what could change when the deal is finalized. That gray area likely shows Microsoft has the upper hand, Lamb said.

“The fact that he’s coming along for the ride is not necessarily surprising, but disturbing,” she said. “I would hope there would be a plan to phase out his involvement.”

Before moving forward, the deal must survive scrutiny from U.S. and European regulators. If finalized, it would be one of the biggest tech acquisitions in history.

As the Department of Justice and Federal Trade Commission consider the deal, the agencies should also think about the impact the proposed acquisition would have on workers, especially those “who have been trying to improve working conditions and raising up troubling issues,” said Christopher Shelton, president of the Communications Workers of America, the union supporting activist employees at Activision.

CWA is also the parent organization behind the first union to be recognized by management at a gaming company in North America, Vodeo Workers United.

Activision workers staged a walkout last summer to draw attention to working conditions in the gaming industry. In September, CWA filed unfair labor practice charges against the company, alleging worker intimidation and union busting.

The ABK Workers Alliance said the company still has not met many of its demands, including Kotick’s removal.

On Tuesday, the group said on Twitter “we remain committed to fighting for workplace improvements and the rights of our employees regardless of who is financially in control of the company.”

“We will continue to work alongside our allies across the gaming industry to push for measurable change in an industry that desperately needs it,” the Twitter thread continued. “Whatever the leadership structure of the company, we will continue our push to #EndAbuseInGaming.”