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Analysis-Microsoft faces challenge cleaning up Activision Blizzard’s culture

Stock MarketsJan 20, 2022 03:50PM ET
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2/2 © Reuters. FILE PHOTO: The Activision booth is shown at the E3 2017 Electronic Entertainment Expo in Los Angeles, California, U.S. June 13, 2017. REUTERS/ Mike Blake/File Photo 2/2

By Sheila Dang, Julia Love and Dawn Chmielewski

(Reuters) - The success of Microsoft’s biggest deal ever rides on rehabilitating Activision Blizzard’s culture, Microsoft (NASDAQ:MSFT) CEO Satya Nadella declared after announcing the $69 billion transaction.

Accomplishing that will require Microsoft to deviate from its usual hands-off approach on acquisitions to tackle what amounts to a “clean up” job of fixing the famed maker of the “Call of Duty” games franchise, which faces multiple accusations of sexual harassment and misconduct, analysts and management experts say.

Microsoft has traditionally allowed the companies it acquires to run autonomously, RBC Capital Markets analyst Rishi Jaluria said. In recent years, Microsoft purchased LinkedIn, GitHub, Skype and Mojang, the Stockholm-based creator of the video game series Minecraft, all of which have not seen major changes since their acquisitions.

The Activision deal announced on Tuesday will require a heavier hand. Since July, Activision has faced a lawsuit from California regulators alleging the company "fostered a sexist culture." It also has been the subject of investigative stories detailing allegations of sexual harassment internally, and its employees have staged walkouts to protest Activision’s response to the issues. Activision said it received requests from the U.S. Securities and Exchange Commission for information "regarding employment matters and related issues," and is cooperating with the agency.

Activision CEO Bobby Kotick, whose handling of the alleged misconduct has attracted media scrutiny, is expected to leave the company after the transaction closes, according to one source. However, “cultural issues are never one person,” Jaluria said. “There is going to be a lot more work for Microsoft.”

The company has begun making changes.

Activision recently pushed out about three dozen employees following its own investigation and said it made high-level personnel changes and increased its investment in anti-harassment and anti-discrimination training as of last October.

Its board of directors formed a Workplace Responsibility Committee to oversee the company's progress in improving culture.

Activision said it has investigated -- and will continue to investigate -- complaints of harassment, discrimination and retaliation and will provide regular updates. In October, Activision announced a zero-tolerance harassment policy.

"We recognized that we needed to make improvements in our culture and ensure an environment where people feel safe, comfortable and respected," Kotick told Reuters.

A Microsoft spokesperson said the company is committed to inclusion and respect in gaming and is "looking forward to extending our culture of proactive inclusion to the great teams across Activision Blizzard (NASDAQ:ATVI)."

Before the deal is expected to close by fiscal 2023, Microsoft is limited by what it can do, said Kathryn Harrigan, a professor at Columbia Business School who specializes in corporate growth and turnarounds. Beyond declaring that it is a priority, Microsoft can ask questions and collect data, she said, adding that one good place to start is to gather information such as salary data to identify wage disparity. Activision agreed to pay $18 million in September to settle a complaint filed by the U.S. Equal Employment Opportunity Commission over sexual harassment and discrimination issues.

After the deal closes, Microsoft can take a more active role by hiring advisers, bringing in law firms or mandating sensitivity training, said Brian Uzzi, a professor at Northwestern’s Kellogg (NYSE:K) School of Management.

Microsoft could also launch its own investigation of the culture at Activision, he added.

Ultimately, Microsoft could decide to revamp Activision’s management team, Jaluria said.

LIGHT AT END OF TUNNEL

That would be good news for some Activision employees, who have demanded Kotick’s removal by staging a walkout and circulating a petition.

Jessica Gonzalez, a former Activision employee who has helped lead worker activism, said she is cautiously optimistic that conditions will improve following the acquisition. But workers still need better representation at the company to achieve lasting change, she said.

Microsoft will need to overcome its own culture issues. The company's board of directors in January said it hired a law firm to conduct a review of its sexual harassment and gender discrimination policies after shareholders supported a proposal in November calling on Microsoft to review the effectiveness of its policies.

That vote followed a Wall Street Journal report that Microsoft founder Bill Gates left the company’s board in 2020 amid a probe of the billionaire's past intimate relationship with a female employee.

Nadella issued a statement on Jan. 13 announcing plans for the review, saying the board appreciates the importance of a safe and inclusive workforce. He called culture “our No. 1 priority.” He used similar language in his remarks Tuesday about Activision.

Analysis-Microsoft faces challenge cleaning up Activision Blizzard’s culture
 

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Chris Johnson
Chris Johnson Jan 20, 2022 4:42PM ET
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That deal might end up a nightmare
 
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