Before #MeToo, Bernstein Litowitz’s Shareholder Lawsuit Against Fox’s Board Created a New Oversight Structure to Combat Harassment. Max Berger (left), Rebecca Boon and Mark Lebovitch led the effort.
The adage that hindsight is 20/20 makes no mention of its peculiar tendency to distort.
That applies with particular force to seismic cultural shifts, such as the growing public awareness of sexual harassment and assaults fueled by the #MeToo movement. The ubiquity of this misconduct seems so obvious now, as does the importance of ending corporate complicity in covering it up or denying the problem.
But in this tale of before and after, there was a time such allegations were shocking and the proper response unknown.
In mid-2016, Bernstein Litowitz Berger & Grossmann began exploring claims for the City of Monroe Employees’ Retirement System, a 21st Century Fox shareholder, alleging that the company’s board had failed in its duty to protect the company and its investors from what was being revealed as widespread workplace harassment and discrimination at Fox News.
Assault allegations against movie producer Harvey Weinstein wouldn’t be made public until October 2017, and television personalities Charlie Rose and Bill O’Reilly reigned as stars at CBS and Fox News.
At the time the top-flight plaintiff securities litigation firm started investigating Fox, corporate boards avoided any involvement with sexual harassment cases (except, perhaps, if their approval was necessary for a large payout – and even that was routinely covered by a non-disclosure agreement). Boards simply did not view it as part of their job to ensure a moral and legal corporate culture. The firm examined what was going on at Fox before former news anchor Gretchen Carlson made public her sexual harassment claim against then-Fox News CEO Roger Ailes and, subsequently, myriad other harassment and discrimination claims promptly came to light.
In the summer of 2016, Bernstein Litowitz sent Fox News a “books and records demand” – a common predecessor to a derivative lawsuit in Delaware Chancery Court against Fox and its Board. The demand and subsequent complaint led to a landmark settlement in which the broadcasting giant recouped $90 million – one of the largest financial recoveries ever obtained in a dispute purely about corporate governance.
But to the Bernstein Litowitz team, the monetary relief was, in many ways, of secondary importance. Led by founding partner Max Berger, the firm was only too aware of the limitations of recouping for the company coffers. The challenge they saw was to ensure this type of top-down, systemic cultural misconduct would not happen again. For Monroe and Bernstein Litowitz, this case was about fixing a toxic culture.
The parties engaged in fierce and unprecedented negotiations over the course of a year to create a mechanism that would show the public that the company was committed to changing a workplace environment that had allowed for such serious and scandalous abuses. In the end, they created what was entitled the “Fox News Workplace Professionalism and Inclusion Council.” This majority-independent oversight body, working independent of and in coordination with the company’s Board, was tasked with establishing appropriate standards to prevent, investigate and remediate sexual harassment and all forms of discrimination at Fox News.
The Council is composed of the chief HR officer and General Counsel of Fox News, and four independent diversity and workplace experts: former federal judge Barbara Jones, who chaired the Congressional committee investigating and proposing policies to correct sexual harassment in the military; and three of the corporate world’s most notable leaders in crafting policies to fight corporate discrimination and harassment: Sylvia Hewlett, Brande Stellings, and Virgil Smith.
As a result of Monroe’s and Bernstein Litowitz’s litigation efforts, the Council was given broad power to oversee and recommend policies and procedures, hire outside consultants, and conduct independent investigations as needed. The Council is also structured to provide complete transparency and public disclosure of its commitment to “zero tolerance” of workplace harassment and discrimination. The settlement required that any minority dissenting reports among Council members are made public, guaranteeing full public access to any unresolved issues of workplace misconduct at the Company. The body was given a mandatory five-year term. And, if Fox chooses not to extend it, the company must publicly explain why.
The Fox settlement and Council structure could have a lasting impact on the fight against sexual harassment throughout corporate America by serving as a blueprint for other public companies facing the same issues. Columbia Law Professor Suzanne Goldberg, an expert in harassment and discrimination policy, submitted a Declaration in support of the Fox settlement stating: “The multifaceted non-monetary relief set forth in the Agreement may also prove to be a model for other employers that have not developed adequate or effective systems and implementation practices to address sexual harassment and other forms of discrimination in their workplaces.”
In a roundtable discussion with members of the Bernstein Litowitz team – Berger, Partner Mark Lebovitch and Senior Counsel Rebecca Boon – Berger reflected on how the firm has leveraged litigation to obtain important corporate governance reforms that have had positive impacts for society. “I am extraordinarily proud of what the team has accomplished in this case, and what we have achieved in over 36 years in practice. I am proud to say we have had a meaningful and materially positive impact on corporate misconduct and behavior and how it's treated at high-visibility public companies,” Berger said.
Lawdragon: What impact have you seen from the Fox case on other kinds of derivative suits and other actions?
Max Berger: I think about this every time I see coverage of former CBS chief Les Moonves or some other high-profile executive or celebrity being caught up in #MeToo. What we are seeing in the corporate reaction to senior executive misconduct is reflective of, and responsive to, what we did at Fox News.
Historically, I think official reactions to these types of scandals had been pretty cynical. Perhaps a quick termination, often sadly accompanied by a significant payout, and then a board might hire a team of outside lawyers who ultimately just do the board’s bidding and maybe issue a cosmetic report assuring stakeholders “all is now well.” But, since our Fox case, this seems to be taking on a different complexion, where the responses seem to be serious and not a whitewash, or downplaying, of events that have occurred.
The general public may not make this connection because our settlement came just as the Harvey Weinstein allegations had been reported and as the #MeToo movement became headline news, but the business world took notice. Other companies are going to put similar remedies in place.
Mark Lebovitch: We can’t yet fully judge the impact that the Fox settlement has had because in many industries we are still dealing with initial reactions to the crisis, if you will. How corporations are going to deal with the issue in the long term proactively is still taking shape.
Firing a senior executive who acts inappropriately, like Les Moonves, and denying him his entire severance package, should be a no-brainer. But that’s just boards being reactive. I am proud of the proactive structure we put in place at Fox. It is very difficult for a company to do this. It’s a credit not just to our litigation but to Fox’s former general counsel and outside counsel. To be proactive and say, “OK, we're going to put in place structures that should prevent this from ever happening again” invites an entirely new environment of accountability and scrutiny. You have to hold people accountable for wrongdoing. But this Council is about creating a better workplace going forward, and I think the companies who are going through these crises all have the opportunity to create such meaningful fixes.
Rebecca Boon: Historically, these types of cases – shareholder litigation alleging this sort of misconduct – were not successful. So, the fact that we are seeing more and more of these cases being brought in the securities, and particularly the derivative context, is itself directly related to the fact that we were successful and accomplished something meaningful. I think people are recognizing that and starting to bring cases in the aftermath of what we did.
LD: As the Fox case was unfolding, there was such a shock factor to the picture of bad behavior that appears to have been rampant. What role did that play in the litigation and your negotiations?
ML: When the Roger Ailes allegations came out in 2016, I didn't fully appreciate that this kind of misconduct was as prevalent as we now know it to be. In discussions with our experts, that became the main reason why I feel so strongly that corporations should follow some form of what we did in the Fox settlement. Companies should be proactive even if they haven't been hit yet. It sends such a positive message to their employees in so many necessary ways.
MB: Mark’s right. Finding the right remedy for misconduct (and putting sunlight on it) is so positive. With one report from the Fox Council, I literally got goosebumps. It’s so exciting to see Barbara Jones and Sylvia Hewlett working with the Council, and the seriousness with which they take their jobs, and the reports that they're coming up with. Fox News has to pay them for their service. And it's a five-year life. We're not talking about people on this Council who can be pushed around.
LD: Not at all. Can you talk a bit about the process of putting this Council together?
ML: We had a funny chicken-and-egg problem in trying to build a mechanism with teeth. We were negotiating the structure and powers of the Council and working with the company to get their buy in – and I would be remiss if I didn’t say how much credit was due to Greg Varallo, who was then 21st Century Fox’s outside lawyer. [And who recently joined Bernstein Litowitz as a partner.] We were engaged in adversarial litigation while trying to work cooperatively to bring Fox from a form of “worst to first” in the area of anti-harassment corporate structures. Once we started vetting candidates, I was soon pleasantly surprised by the quality of the people that both sides were bringing to the Council, such as Judge Barbara Jones. That helped give comfort to the company, helped us get better powers for the Council.
RB: What makes it work now is these are people who want to get it right. They are not going to be intimidated even if the company tried. The company's commitment to the Council and the respect it has for the members is itself a signal of, “Hey we're going to give you the support.” Governance structures like this are not needed if people just do the right thing. Anyone in a public company, controllers like the Murdochs or people like Roger Ailes or Harvey Weinstein, can abuse their powers and, ultimately, governance can just be a mere hurdle to bad actors. But if you give governance powers to the right people, then you can be much more effective at impeding bad actors.
MB: A lot of credit is due to the company and their counsel. We said, “this could and should be a win-win for the company and its shareholders.” Ultimately, they bought into it. But, even then, it remained a bruising negotiation. Because giving up control is so significant and so rare – it really is amazing that it happened. We would sit there and sometimes spend 45 minutes on a word in this multi-page governing document.
Rebecca really shined in this process. She kept us very focused on what we had to do and did much of the heavy lifting drafting-wise and outlining what was acceptable. She was on the frontlines saying, “OK, I think we can live with this; we can't live with that.” And what we got was not 100 percent of what we wanted, but it was pretty darn close.
LD: We interviewed Anita Hill recently and discussed how after she testified during the Sept. 1991 confirmation hearings for Supreme Court Justice Clarence Thomas, structures began to be set up to help people who felt their harassment claims hadn’t been heard to come forward. And how that has morphed into non-disclosure agreements and, ultimately, protecting corporations. And over the years, we’ve talked about how Bernstein Litowitz has brought to the table shareholders with an interest in stopping misconduct and threatening to withhold their investment in companies that are going to engage in this kind of behavior. That’s powerful. Because what employment lawyers can typically do is advise a company not to do something and then create a non-disclosure agreement, a carrot if you will. But what you do is bring a stick by working on the money side and saying, “If you want investors to be invested in your company, then you have to take a different approach.” Bringing that leverage – as well as an awareness and a fluency in something that hasn't normally been a shareholder issue – is just what the times needed. And nobody else did it. So that’s kind of incredible.
MB: Thank you. We agree!
ML: Max gets a nod there because legally it was a tough claim. We just didn’t know how it would go. As we said, it was before Harvey Weinstein, before #MeToo went mainstream.
MB: We just all said, “Somebody has to do it, no matter what the risk.”
ML: We didn’t know if there was a viable claim under Delaware law, much less whether we would actually recover any money.
MB: Whether we were successful or not in the litigation, 100 percent we felt we would have a positive impact. The litigation would have been public. Everybody would have known what it was that we were claiming. And if we ended up with a fight on our hands, it would have been public and bloody and shareholders would have been on our side.
RB: Nobody is supportive of this type of behavior and you'd have to be out of your mind to want to defend it - this can’t be good for any company. And while there were substantial legal impediments to our case, a judge would have had to basically say, “You can't go forward, you can't bring this case.” I don't know the judge who's going to be willing to do that.
LD: Good calculation.
ML: Our approach with the court, respectfully, was, “We don't know if you're going to uphold this, but if you don't, shame on you. This is a case where there's something wrong with the system and, if you feel you need to dismiss it, you will need to explain why.”
Fortunately, the way things played out, I think Chancellor Andre Bouchard in Delaware appreciated that the conduct we were challenging was not only egregious and gross, in terms of Ailes’ and Bill O'Reilly's conduct, but also serious in terms of the Chancellor truly having his finger on the pulse of the times and recognizing that widespread misconduct like this really should be treated as a board-level issue. It should be a board issue. As it turned out, the case settled and he didn't have to write a difficult opinion. But I think he was supportive of making this a corporate governance issue, where in the past there was no legal avenue to do so.
LD: Where you made a fork in the road with Fox – from more traditional employment and securities fraud claims – was in building a Council with significant corporate governance authority. Had that been done before?
MB: This is not the first time that we, as a firm, have accomplished something like this. There have been several extraordinary prior cases where we used the leverage of our securities claims to negotiate settlement terms that required similar proactive efforts by the companies’ boards – and which had not been done before. For example, we used a similar playbook for our Texaco employment discrimination case (which remains the seminal race discrimination class action settlement in history). Also, to a lesser extent, in our Pfizer shareholder derivative case. The common theme was in saying to our Defendants, “There was really bad behavior at your company, it was embedded in the company's culture. It's systemic. And you could either fight our firm for years and there's going to be wave after wave of negative publicity. We're not going to agree to any kind of confidentiality of deposition transcripts and things like that. And you're just going to have to live with – and literally defend – this bad behavior for years.” Or you could be a part of the solution. You could act responsibly, and really stand out and feel good about what you did. Like we feel good about what we do every day. And if you do that, we're not looking to destroy your company. What we're looking to do is just improve behavior in a way which really is meaningful and long lasting.
ML: We were literally targeting the board, putting pressure directly on the board. Rebecca took the depositions of some of the board members. In Pfizer, they didn’t do the right thing voluntarily; they only settled when we were on the eve of a summary judgment ruling.
RB: Fox was really interesting. They wanted to be seen favorably, but there was also a tension because the natural reaction, understandably, is, “We're not going to let anybody else tell us what to do and how to do it and also give up 100 percent control and have public disclosure and public filings.”
MB: We made it very clear that it's meaningless – it’s absolutely meaningless – unless Fox was held accountable in a public arena. And that they would not need to worry if they’re going to do the right thing. For at least the five-year life of this Council, no one could say you're not doing your job.
ML: Getting the company’s support and buy-in will pay long term dividends. When one company that's pretty hard-nosed comes to the table to do the right thing, other companies feel, “Well, it's OK to do it, we're not going to be singled out.”
RB: After our Fox settlement, companies became a lot more proactive in calling out the abusers in their ranks.
LD: It’s great to see how, as plaintiff's lawyers, you sometimes have the ability to change the conversations at the board level.
MB: We take our job very seriously. Of course, we’re in business and we need to pay the rent, and keep the lights on, and do all of those things, but there's nobody at this firm who doesn't get an equal measure of satisfaction in making a positive social impact.
RB: It’s particularly striking because, when Mark and Max started evaluating this case, the #MeToo movement had not yet gone mainstream. And then unveiling our landmark settlement in November 2017, we were really in the midst of the movement. Now we can look back and see that, but it was pretty heady stuff at the time. Breaking new ground.
LD: It’s fascinating to watch what's happening now as more companies struggle with the need to ingrain actual accountability. Do your investor clients have different expectations now?
ML: They are certainly more focused on it since Fox. There's a deep understanding now of the difference between accountability and merely managing a crisis. Some companies are putting out fires when there is an accusation. At one end of the spectrum you have the Harvey Weinsteins and the Matt Lauers. Instances where, for years, people had tried to shine a light on the misconduct by leadership. But proper governance mechanisms require a proactive approach.
RB: If you're running a company, you want to have a protocol in place for dealing with this. And the longer that you have a protocol in place – a Council, some system – the better you are going to be able to protect everyone. Research shows that false accusations are very rare. But if you've got the protocol, you can investigate quickly and clear someone's name the same way that you can send the message of accountability when a person is guilty.
LD: Many people are honestly struggling with the post #MeToo world. And the Council addresses that struggle while we're all adjusting to our knowledge of what has gone on in workplaces. Now at Fox, there can't be claims that aren't known. It’s all on the table there.
MB: Things are changing. And I’m sure at all these companies it’s very uncomfortable. The pendulum is in mid-swing. And like in most human endeavors, there are going to be abuses and excesses in the reactions as well. But, by and large, what is happening is incredibly positive.
LD: The five-year first life of the Council will allow the pendulum to swing. And maybe it will swing too far one way, but that's what pendulums do. But as it settles back, we will all now see harassment as a corporate issue. It’s not just an individual issue anymore, it’s becoming a corporate issue, and one that investors can act on.
MB: One of the things we anticipated in creating this Council and reaching our agreement was that we wanted to put a protocol and procedures in place that would help prevent unilateral decision-making of any kind. It's important to have a formal process in place that people can turn to.
RB: Our agreement also provides for public reporting, which is critical, including a vehicle for dissenting voices. So, if decisions are made and even a minority membership of the Council doesn’t like it, there’s a vehicle within that structure for investors to know about that dissent and evaluate it.
MB: And minority reports of the Council must be disclosed – that was one of the lynchpins from our perspective in Fox.
LD: Oh, to have been a fly on the wall as you guys hammered that out ....
ML: It really was interesting and memorable. Our hope is that the Fox litigation and settlement, with the benefit of hindsight, is going to get more publicity than it got in the context of the initial 15-minute attention span. What we did was important and we’re very proud, but frankly, Gretchen Carlson filing litigation publicly against Roger Ailes and forgoing a potentially lucrative but mandatory and confidential arbitration against the company itself is the true origin of the story.
RB: She was potentially giving up a very deep pocket by not bringing a private lawsuit and arbitration against the company. I'm sure it was strategic, but it was also a way to make her complaints and the complaints of other Fox employees public. It's possible that in some ways, the mainstreaming of the #MeToo movement hinged on Gretchen’s decision to go public against Roger.
LD: You must get satisfaction from what you do every day and the changes that you help make.
ML: What's special about Fox was that we really didn't know if it would work. We were taking a risk of a loss, a significant economic loss for us as a firm. And it makes it more gratifying that we put ourselves at risk. We took a chance for a cause that we believed in and fortunately it turned out.
MB: No one can say that plaintiff securities litigation has not had a positive impact on maintaining, to some extent, the integrity of our capital markets. No one can say that. All you have to do is compare the recoveries that the government gets versus the recoveries that we get. The government got $85 million in Wells Fargo, we got $480 million.
The amount of fraud and greed we see, it’s staggering. People already on top of the mountain, people who know better, still do the wrong thing because it puts money in their pockets. That’s why it's so important that the private bar as well as the government remains vigilant in situations like this because we really can have an impact.
LD: Well you can't change human nature. But you can make it more expensive.
MB: We can make it a lot more expensive.
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