The allegations amount to serious legal risk for the company (in particular, California is mounting a significant legal case, but federal cases are also underway). However, the SEC is concerned about when these risks were understood by the company and whether they were properly disclosed to investors. This raises the question of whether workplace culture risks, including workplace harassment and gender pay equity, will be SEC enforcement priorities moving forward. If the Activision investigation results in a legal finding that the company misled investors, this could have ongoing implications for other companies:
- Workplace culture and diversity, equity, and inclusion (DEI) could be considered material risks.
- Even in the absence of current litigation, companies might be expected to disclose potential risks arising from pay equity concerns, hiring and advancement for women and ethnic minorities, and problematic behavior.
Even prior to seeing proposed rules on enhanced HCM disclosures and climate change, this investigation underscores the SEC’s expanding definition of material risks to include human capital management. It is possible similar investigations could follow into environmental and climate risk.
