Escolar Documentos
Profissional Documentos
Cultura Documentos
18CV38553
6
SHIVA Y. STEIN, ALISON SHERMAN,
7 and LISA UDINE, derivatively on behalf of Case No.
NIKE, INC.
8
9 Plaintiffs, COMPLAINT
21 Nominal Defendant.
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MCGAUGHEY ╫ ERICKSON
65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
Page 1 – COMPLAINT TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
1 NATURE OF THE ACTION ......................................................................................................... 4
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MCGAUGHEY ╫ ERICKSON
65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
Page 3 – COMPLAINT
1 Plaintiffs Shiva Y. Stein (“Plaintiff Stein”), Alison Sherman (“Plaintiff Sherman”), and
2 Lisa Udine (“Plaintiff Udine, together with Plaintiff Stein and Plaintiff Sherman, “Plaintiffs”),
3 derivatively on behalf of NIKE, Inc. (“NIKE” or the “Company”), bring the following Shareholder
4 Derivative Complaint (the “Complaint”) pursuant to ORS 60.261 against the Company’s board of
5 directors (the “Board”), and former NIKE Brand President Trevor Edwards (“Edwards”), for
6 breaches of fiduciary duty, corporate waste, as well as for unjust enrichment against Edwards.
7 Except for allegations specifically pertaining to Plaintiffs and Plaintiffs’ own acts, the allegations
8 in the Complaint are based upon information and belief, which include but are not limited to: (i)
9 documents and other information obtained from the Company pursuant to ORS 60.774 (the “Books
10 and Records Production”); (ii) the Company’s public filings with the United States Securities and
11 Exchange Commission (the “SEC”); (iii) the initial complaint filed in the class action lawsuit,
12 titled Cahill et al. v. Nike, Inc., No. 3:18-cv-01477-PK (D. Or.) on August 9, 2018 (the “Wage
13 Class Action”); (iv) media reports; and (v) other public sources.
15 1.
16 This case arises from NIKE’s systematic “boys’ club” culture, which resulted in the
17 bullying, sexual harassment, and gender discrimination of the Company’s female employees.
18 NIKE’s Board and numerous Company officers engaged in, facilitated, and knowingly ignored the
19 hostile work environment that has now harmed, and threatens to further tarnish and impair the
20 Company’s financial position, as well as its reputation and goodwill, which NIKE’s success is
21 built upon.
22 2.
23 NIKE’s troubles first came to light on April 28, 2018, when The New York Times published
24 an explosive article detailing a systematic and widespread culture of sexual harassment, gender
25 discrimination, and bias against women at NIKE that implicated a number of senior executives.
26 The article, based on interviews with over 50 current and former employees, recounted serious
2 New York Times article, however, was just the first leak in the dam. Recent complaints that have
3 surfaced about the Company explain that for years, NIKE has fostered a “boys club” culture where
4 women were excluded from promotions and leadership opportunities. One of the club’s
5 ringleaders was Edwards, a powerful NIKE executive, who was in charge of the NIKE Brand and
6 has been unjustly enriched by tens of millions of dollars; instead of being fired for cause and held
8 3.
9 In addition, the Company’s Human Resources department (the “HR Department”) only
10 reinforced and exacerbated this hostile work environment. As detailed further herein, complaints
11 to the HR Department of harassment and discrimination were often completely ignored, especially
12 since the head of the HR Department was also subject to similar complaints about his behavior
13 towards women. Regardless of the evidence, the HR Department regularly found such complaints
15 otherwise failed to act to end the hostility towards women at NIKE. For years dissatisfaction
16 among women festered and left them feeling ignored, harassed, and stymied in their careers.
17 4.
18 The Individual Defendants (as defined herein) repeatedly turned a blind eye to the long-
19 standing culture of harassment and discrimination at NIKE. Even when armed with knowledge of
20 widespread sexual harassment and discrimination by NIKE’s senior management, the Individual
21 Defendants did nothing to address this toxic environment. The Individual Defendants failed to: (i)
22 investigate allegations of sexual harassment and discrimination; (ii) act to prevent members of
23 management from harassing and discriminating against female employees; or (iii) act to improve
24 its policies and procedures to ensure employee complaints are heard. Furthermore, the Individual
25 Defendants failed to implement adequate internal control and reporting programs to prevent the
26 creation and maintenance of this hostile work environment. Neither the Company's executives nor
2 appeared, and put in place protocols that would have ensured greater visibility into the hostile work
3 environment at the Company. Their breaches helped ensure that the toxic culture continued to
4 fester at NIKE.
5 5.
6 As a result of their membership on one or more of the Board’s Committees, the Director
7 Defendants (defined below) were subject to additional responsibilities which they also abdicated.
8 For example, although required by its charter, the Board’s Audit & Finance Committee (the “Audit
9 Committee”) failed to make reasonable inquiries into the Company’s compliance with legal and
10 regulatory requirements. Rather, the Audit Committee allowed rampant sexual harassment and
11 gender discrimination to go on within the Company; conduct that may have been occurring for as
12 many as 20 years. The Board’s Compensation Committee likewise failed to discharge its duties
13 as set forth in its charter by failing to address the known pervasive sexual harassment and gender
16 executives, including those who were directly and actively involved in the creation of a hostile
17 work environment at NIKE. The members of the Board’s Corporate Responsibility, Sustainability
18 & Governance Committee (the “Corporate Governance Committee”) likewise abdicated their
19 responsibilities when it failed to develop any strategies, activities, and policies to advance NIKE’s
20 sustainability, as mandated by its charter. Instead, the Corporate Governance Committee blindly
21 deferred to management’s reckless governance of the Company, acquiescing to the rampant sexual
23 6.
25 damages to NIKE’s reputation, goodwill, and standing in the business community. Furthermore,
26 these improprieties have subjected the Company to at least one federal class action lawsuit filed in
2 Class Action asserts claims against NIKE in connection with the Company’s culture of sexual
3 harassment and gender bias, including causes of action under section 206(d) of the Federal Equal
4 Pay Act and 659A.030 of the Oregon Equality Act. The plaintiffs in the Wage Class Action alleged
5 that NIKE systematically pays women less than their male counterparts, holds them back from
7 executives.
8 7.
9 Through this derivative action, Plaintiffs seek to hold the Individual Defendants
10 accountable for permitting the hostile work environment detailed herein, for failing to properly
11 oversee a system designed to ferret out such improper behavior despite the Company’s history and
12 recent acknowledgment of similar incidents, and for consciously allowing defendant Edwards to
13 remain at NIKE and continue to receive compensation and consideration notwithstanding his
16 8.
17 This court has jurisdiction over each defendant named herein because each Defendant is
19 individual who has sufficient minimum contacts with Oregon so as to render the exercise of
20 jurisdiction by the Oregon courts permissible under traditional notions of fair play and substantial
21 justice.
22 9.
23 Venue is proper in this court because NIKE conducts regular, sustained business activity
25
26
2 A. Plaintiffs
3 10.
4 Plaintiff Stein is and was, at all times relevant hereto, a holder of NIKE common stock.
5 Plaintiff Stein is committed to retaining NIKE shares throughout the pendency of this action to
6 preserve her standing. Plaintiff Stein will adequately and fairly represent the interests of NIKE.
7 On March 26, 2018, Plaintiff Stein, by her attorneys, made a written demand to NIKE pursuant to
8 ORS § 60.774 and the common law rights of inspection to inspect and make copies of certain
9 books and records of NIKE. After the company refused to provide any documents, on April 27,
10 2018, Plaintiff Stein filed a complaint pursuant to ORS. § 60.781 to compel inspection of books
11 and records (the “Books and Records Complaint”). In response, the Company voluntarily provided
12 Plaintiff Stein with certain books and records, and Plaintiff withdrew her Books and Records
14 11.
15 Plaintiff Sherman is and was, at all times relevant hereto, a holder of NIKE common stock.
16 Plaintiff Sherman is committed to retaining NIKE shares throughout the pendency of this action
17 to preserve her standing. Plaintiff Sherman will adequately and fairly represent the interests of
18 NIKE. In May 2018, Plaintiff Sherman made a books and records demand pursuant to ORS 60.774
19 on NIKE, and subsequently received access to the Books and Records Production.
20 12.
21 Plaintiff Udine is and was, at all times relevant hereto, a holder of NIKE common stock.
22 Plaintiff Udine is committed to retaining NIKE shares throughout the pendency of this action to
23 preserve her standing. Plaintiff Udine will adequately and fairly represent the interests of NIKE.
24 On April 26, 2018, Plaintiff Udine made a books and records demand pursuant to ORS 60.774 on
25 NIKE, and subsequently received access to the Books and Records Production.
26
2 13.
3 Nominal Defendant NIKE is an Oregon corporation with its principal executive offices
4 located at One Bowerman Drive, Beaverton, Oregon 97005. The Company’s stock is traded on
5 the New York Stock Exchange under the ticker symbol “NKE.” It had more than 1.6 million
6 shares outstanding as of July 20, 2018.1 NIKE is a global corporation engaged in the design,
7 development, marketing, and selling of athletic footwear, apparel, and equipment. NIKE’s
9 C. Individual Defendants
10 14.
11 Defendant Philip H. Knight (“Philip Knight”), 80, a director since 1968, is Chairman
12 Emeritus of the Board of Directors of NIKE. Philip Knight attends meetings of the Board as a
13 non-voting observer. Philip Knight is a co-founder of the Company and, except for the period
14 from June 1983 through September 1984, served as its President from 1968 to 1990, and from June
15 2000 to December 2004. Defendant Philip Knight was present at each meeting of the Board of
16 Directors, as identified in the Books and Records, during which the Board discussed: (i) the nature
17 and volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-
18 reporting of violations to the NIKE Human Resources Department (the “HR Department”); and
19 (iii) the level of diversity within the organization. Defendant Philip Knight knowingly, recklessly,
20 or with gross negligence made, caused, condoned, or allowed the Company to engage in unlawful
21 practices as described herein, and has failed to implement adequate internal controls to ensure that
22 NIKE’s activities complied with all applicable federal and state laws and regulations. Defendant
23 Philip Knight is the largest, and controlling, shareholder of NIKE. As of June 30, 2018, Swoosh,
24
25 1
See Nike, Inc. Annual Report on SEC Form 10-K, filed on July 25, 2018, available at
26 https://www.sec.gov/Archives/edgar/data/320187/000032018718000142/0000320187-18-000142-index.htm.
2
See id., at 18.
2 Stock, and which is controlled by Philip Knight’s son, Travis Knight — beneficially owned more
4 15.
5 Defendant John G. Connors (“Connors”), 59, has served as director and a member of the
6 Board’s Audit Committee since April 2005. Connors was present at each meeting of the Board of
7 Directors, and attended every meeting of the Audit Committee, as identified in the Books and
8 Records, during which the Board discussed: (i) the nature and volume of employee complaints
9 alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE
10 HR Department; and (iii) the level of diversity within the organization. Connors knowingly,
11 recklessly, or with gross negligence made, caused, condoned, or allowed the Company to engage
12 in unlawful practices as described herein, and has failed to implement adequate internal controls
13 to ensure that NIKE’s activities complied with all applicable federal and state laws and regulations.
14 Connors, whose total compensation for the years 2015 to 2018, inclusive, exceeded $1.1 million,
16 16.
18 member of the Compensation Committee. With the exception of one meeting, Comstock was
19 present at each meeting of the Board of Directors, as identified in the Books and Records, during
20 which the Board discussed: (i) the nature and volume of employee complaints alleging violation
21 of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE HR Department;
22 and (iii) the level of diversity within the organization. Comstock knowingly, recklessly, or with
23 gross negligence made, caused, condoned, or allowed the Company to engage in unlawful
24 practices as described herein, and has failed to implement adequate internal controls to ensure that
25
26 3
See NIKE, Inc. Annual Report on SEC Form 10-K, filed on July 25, 2018, available at
https://www.sec.gov/Archives/edgar/data/320187/000032018718000142/nke-5312018x10k.htm, at 13.
2 whose total compensation for the years 2015 to 2018, inclusive, exceeded $1 million, currently
4 17.
5 Defendant Timothy D. Cook (“Cook”), 57, a director since November 2005, is the Lead
6 Independent Director of the Board of Directors of NIKE and is Chair of the Compensation
7 Committee. Cook was present, with the exception of one, at each meeting of the Board of
8 Directors, and also attended every meeting of the Nominating and Corporate Governance
9 Committee, as identified in the Books and Records, during which the Board discussed: (i) the
10 nature and volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the
11 under-reporting of violations to the NIKE HR Department; and (iii) the level of diversity within
12 the organization. Cook knowingly, recklessly, or with gross negligence made, caused, condoned,
13 or allowed the Company to engage in unlawful practices as described herein, and has failed to
14 implement adequate internal controls to ensure that NIKE’s activities complied with all applicable
15 federal and state laws and regulations. Cook, whose total compensation for the years 2015 to 2018,
16 inclusive, exceeded $1.1 million, currently beneficially owns 108,763 shares of NIKE common
17 stock. Since 2015, Cook has sold 32,000 shares of NIKE common stock for proceeds over $3
18 million.
19 18.
20 Defendant John J. Donahoe II (“Donahoe II”), 58, a director since June 2014 is a member
21 of the Audit Committee. Donahoe II was present at each meeting of the Board of Directors and
22 also attended every meeting of the Audit Committee as well as the Nominating and Corporate
23 Governance Committee, as identified in the Books and Records, during which the Board discussed:
24 (i) the nature and volume of employee complaints alleging violation of the NIKE Code of Ethics;
25 (ii) the under-reporting of violations to the NIKE HR Department; and (iii) the level of diversity
26 within the organization. Donahoe II knowingly, recklessly, or with gross negligence made, caused,
2 failed to implement adequate internal controls to ensure that NIKE’s activities complied with all
3 applicable federal and state laws and regulations. Donahue, whose total compensation for the
4 years 2015 to 2018, inclusive, exceeded $1.2 million, currently beneficially owns 16,995 shares of
6 19.
7 Defendant Alan B. Graf, Jr. (“Graf, Jr.”), 64, a director since November 2002 is Chair of
8 the Audit Committee. Graf, Jr. was present at each meeting of the Board of Directors and also
9 attended every meeting of the Audit Committee as well as the Nominating and Corporate
10 Governance Committee, as identified in the Books and Records, during which the Board discussed:
11 (i) the nature and volume of employee complaints alleging violation of the NIKE Code of Ethics;
12 (ii) the under-reporting of violations to the NIKE HR Department; and (iii) the level of diversity
13 within the organization. Graf, Jr. knowingly, recklessly, or with gross negligence made, caused,
14 condoned, or allowed the Company to engage in unlawful practices as described herein, and has
15 failed to implement adequate internal controls to ensure that NIKE’s activities complied with all
16 applicable federal and state laws and regulations. Graf, Jr., whose total compensation for the years
17 2015 to 2018, inclusive, exceeded $1.1 million, currently beneficially owns 195,715 shares of
18 NIKE common stock. Graf, Jr. is the fourth largest shareholder of NIKE.
19 20.
20 Defendant Peter B. Henry, 48, a director since February 2018, is a member of the Corporate
21 Governance Committee. Defendant Henry attended each meeting since he joined the Board, as
22 identified in the Books and Records, during which the Board discussed: (i) the nature and volume
23 of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of
24 violations to the NIKE HR Department; and (iii) the level of diversity within the organization.
25 Henry knowingly, recklessly, or with gross negligence made, caused, condoned, or allowed the
26 Company to engage in unlawful practices as described herein, and has failed to implement
2 state laws and regulations. Defendant’s Henry compensation for 2018 was set to $191,263. He
4 21.
5 Defendant Dr. John C. Lechleiter (“Dr. Lechleiter”), 64, a director since June 2009, is the
6 Chairman of the Board’s Corporate Governance Committee. With the exception of one meeting,
7 Dr. Lechleiter was present at each meeting of the Board of Directors, as identified in the Books
8 and Records, during which the Board discussed: (i) the nature and volume of employee complaints
9 alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE
10 HR Department; and (iii) the level of diversity within the organization. Dr. Lechleiter knowingly,
11 recklessly, or with gross negligence made, caused, condoned, or allowed the Company to engage
12 in unlawful practices as described herein, and has failed to implement adequate internal controls
13 to ensure that NIKE’s activities complied with all applicable federal and state laws and regulations.
14 Dr. Lechleiter, whose total compensation for the years 2015 to 2018, inclusive, exceeded $1.1
16 22.
17 Defendant Mark G. Parker (“Parker”), 62, is the Chairman of the Board of Directors, and
18 has served as President and Chief Executive Officer and a director since 2006. Parker has been
19 employed by NIKE since 1979 with primary responsibility in product research, design, and
20 development, marketing and brand management. Parker was appointed divisional Vice President
21 in charge of product development in 1987, corporate Vice President in 1989, General Manager in
22 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001.
23 Parker was present at each meeting of the Board of Directors, as identified in the Books and
24 Records, during which the Board discussed: (i) the nature and volume of employee complaints
25 alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE
26 HR Department; and (iii) the level of diversity within the organization. Parker knowingly,
2 in unlawful practices as described herein, and has failed to implement adequate internal controls
3 to ensure that NIKE’s activities complied with all applicable federal and state laws and regulations.
4 Defendant Parker, whose total compensation for the years 2015 to 2018, inclusive, exceeded $87
5 million, currently beneficially owns 4,927,444 shares of NIKE common stock. Since 2016, Parker
6 has sold 1,445,000 shares of NIKE common stock for proceeds of over $113 million.
7 23.
8 Defendant Michelle A. Peluso (“Peluso”), 46, a director since April 2014, is a member of
9 the Corporate Governance Committee. Peluso served as a member of the Board’s Audit
10 Committee between the years 2014 and 2017. With the exception of one, Peluso was present at
11 each meeting of the Board of Directors, and also attended each meeting of the Audit Committee,
12 as identified in the Books and Records, during which the Board discussed: (i) the nature and
13 volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-
14 reporting of violations to the NIKE HR Department; and (iii) the level of diversity within the
15 organization. Peluso knowingly, recklessly, or with gross negligence made, caused, condoned, or
16 allowed the Company to engage in unlawful practices as described herein, and has failed to
17 implement adequate internal controls to ensure that NIKE’s activities complied with all applicable
18 federal and state laws and regulations. Defendant Peluso, whose total compensation for the years
19 2015 to 2018, inclusive, exceeded $1 million, currently beneficially owns 17,099 shares of NIKE
20 common stock.
21 24.
23 member of the Compensation Committee. Rodgers was present at each meeting of the Board of
24 Directors, as identified in the Books and Records, during which the Board discussed: (i) the nature
25 and volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-
26 reporting of violations to the NIKE HR Department; and (iii) the level of diversity within the
2 or allowed the Company to engage in unlawful practices as described herein, and has failed to
3 implement adequate internal controls to ensure that NIKE’s activities complied with all applicable
4 federal and state laws and regulations. Rodgers, whose total compensation for the years 2015 to
5 2018, inclusive, exceeded $1 million, currently beneficially owns 134,763 shares of NIKE
6 common stock.
7 25.
8 Defendant John R. Thompson (“Thompson”), Jr., 76, a director since 1991, served as a
9 member of the Corporate Governance Committee until 2017. Thompson attended four meetings
10 of the Board of Directors, as identified in the Books and Records, during which the Board
11 discussed: (i) the nature and volume of employee complaints alleging violation of the NIKE Code
12 of Ethics; (ii) the under-reporting of violations to the NIKE HR Department; and (iii) the level of
13 diversity within the organization. Thompson, whose total compensation for the years 2015 to
14 2018, inclusive, exceeded $1.1 million, currently beneficially owns 77,946 shares of NIKE
15 common stock. Since January 2015, Thompson sold 66,000 shares of NIKE common stock for
17 26.
18 Defendant Travis A. Knight (“Travis Knight”), 44, is a director since June 2015. He is the
19 son of NIKE’s co-founder, Philip Knight, who currently serves as Chairman Emeritus. With the
20 exception of one meeting, Travis Knight attended every meeting of the Board of Directors, as
21 identified in the Books and Records, during which the Board discussed: (i) the nature and volume
22 of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of
23 violations to the NIKE HR Department; and (iii) the level of diversity within the organization.
24 Travis Knight knowingly, recklessly, or with gross negligence made, caused, condoned, or allowed
25 the Company to engage in unlawful practices as described herein, and has failed to implement
26 adequate internal controls to ensure that NIKE’s activities complied with all applicable federal and
2 virtue of his control over Swoosh, LLC, an entity formed by Philip Knight to hold the majority of
3 his Class A Common Stock. Defendant Travis Knight, whose total compensation for the years
4 2016 to 2018, inclusive, reached nearly $1 million, currently beneficially owns 38,856,369 shares
5 of NIKE’ Class A Common Stock and 38,856,369 shares of NIKE’ Class B Common Stock.
6 27.
7 Defendant Trevor A. Edwards (“Edwards”) was President of the NIKE Brand until his
8 retirement in August 2018. Edwards was responsible for leading all category and geographic
9 business units, the Jordan Brand and Action Sports, which includes Hurley International LLC,
10 Digital Sport and brand management throughout the world as well as leading NIKE’s wholesale,
11 retail and e-commerce operations. Edwards was previously Global Brand & Category
12 Management Executive Vice President. Edwards joined the Company in 1992 as a Regional
13 Marketing Manager and has also held senior marketing positions in the Americas, the
14 Europe/Middle East/Africa region, the U.S. and Global Brand Management. With the exception
15 of one meeting, Edwards was present at each meeting of the Board of Directors, as identified in
16 the Books and Records, during which the Board discussed: (i) the nature and volume of employee
17 complaints alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to
18 the NIKE HR Department; and (iii) the level of diversity within the organization. Edwards
19 knowingly, recklessly, or with gross negligence made, caused, condoned, or allowed the Company
20 to engage in unlawful practices as described herein, and has failed to implement adequate internal
21 controls to ensure that NIKE’s activities complied with all applicable federal and state laws and
22 regulations. Edwards, whose total compensation for the years 2015 to 2018, inclusive, exceeded
23 $26 million, currently beneficially owns 1,796,180 shares of NIKE common stock.
24
25
26
2 Collectively, Philip Knight, Connors, Comstock, Cook, Donahoe II, Graf, Jr., Henry, Dr.
3 Lechleiter, Parker, Peluso, Rodgers, Thompson, and Travis Knight are referred to as the “Director
5 FACTUAL ALLEGATIONS
6 A. NIKE’s Ability to Maintain a Positive Brand Image and Reputation is Key to Its
Continued Success, Especially in Its Fast Growing Women’s Brand
7
29.
8
After Philip Knight co-founded NIKE, the Company grew rapidly and generated
9
approximately $270 million in yearly sales by the end of the 1970s. Then, in the 1980s and 1990s,
10
NIKE’s sales skyrocketed due to its successful marketing efforts. NIKE’s advertisements grabbed
11
consumers’ attention by featuring top-level athletes like basketball player, Michael Jordan, to
12
promote its products, along with its iconic “swoosh” logo. These ads sent empowering messages
13
to its customers. Indeed, NIKE’s sales were nearly $7 billion in 1996 when it won Marketer of
14
the Year. Nearly two decades later, NIKE continues to adhere to same marketing strategies of
15
empowerment to ensure its success. Those efforts continue to pay off as NIKE generated more
16
than $36 billion in annual revenue in 2017.
17
30.
18
As such for nearly forty years, NIKE’s ability to maintain a positive brand image and
19
reputation has been vital to its success. In fact, NIKE highlighted in its Annual Report on Form
20
10-K for the period ending May 31, 2017, which was filed with the SEC (“2017 10-K”), that
21
“[f]ailure to maintain our reputation and brand image could negatively impact our business.”4 The
22
Company further stated that its business:
23
could be adversely impacted…if the reputation or image of any of our brands is
24 tarnished or receives negative publicity. In addition, adverse publicity about
25
4
See NIKE, Inc. Annual Report on SEC Form 10-K, filed on May 31, 2018, available at
26 https://www.sec.gov/Archives/edgar/data/320187/000032018717000090/nke-5312017x10k.htm (last accessed on
Aug. 28, 2018).
4 31.
5 Likewise, NIKE’s 2017 10-K also acknowledged that the Company relies upon
6 professional athletes, sports teams and leagues, and celebrity endorsements to maintain its brand
7 and reputation, and any “[f]ailure to continue to obtain or maintain high-quality endorsers of our
9 32.
10 Recently, in its efforts to maintain its positive brand image and reputation, NIKE began to
11 develop and emphasize more inclusive products, such as an expanded Plus Size collection, a
12 performance Hijab, and products emphasizing “Equality.”5 These efforts to expand its brand to
13 be more inclusive of women and minorities are key to NIKE’s long-term success. Nike’s sexist
14 culture, however, is hindering its development of NIKE’s Women Brand, causing harm to the
15 Company. In this regard, around the world, the women’s category is the fastest growing segment
16 in the activewear market, and female consumers are driving the growth of the $45.9 billion
17 athleisure. Despite such a large a growing market for women’s business, NIKE’s women business
24 5
See, e.g., NIKE News, Nike Uses Power of Sport to Stand Up to EQUALITY (January 14, 2018),
available at https://news.nike.com/news/equality (last accessed on Aug. 28, 2018); Nike launches Pro Hijab to make
25 sports more inclusive for women, USA Today Sports (March 2017), available at
https://ftw.usatoday.com/2017/03/nike-pro-hijab-muslim-female-athletes-zahra-lari-performance-apparel (last
26 accessed on Aug. 28, 2018); https://news.nike.com/news/the-nike-plus-size-collection?cid= 4942550&cp=usns_
aff_nike.
2 described by NIKE’s co-founder Philip Knight in his memoir published in 2016, the Company’s
3 early management meetings “were defined by contempt, disdain, and heaps of abuse. . . . [while
4 participants in these meetings] called each other terrible names [and] rained down verbal
5 blows.”6 Tellingly, “the last thing [NIKE management] took into account was someone’s
6 feelings.”7
7 34.
8 Since then, not much has changed at NIKE. Over the decades, offensive behavior
10 over women have permeated through all corporate levels, including among the Company’s
12 bullying and intimidation and were frequently made uncomfortable by sexual remarks,
13 stereotypical comments, ridicule, crude jokes, and epithets. Their opportunities to professionally
14 advance within the Company were stifled by gender hostility as well. Indeed, NIKE’s female
15 employees’ career aspirations were largely ignored or stymied as preferential treatment was given
16 to their male counterparts. Those actions resulted in male employees more frequently receiving
17 promotions, especially since NIKE’s female employees were subject to a more rigorous vetting
18 process for obtaining promotions.8 In April 2018, NIKE acknowledged that only 29 percent of its
20 35.
21 The widespread culture defined by sexual harassment and gender discrimination was fueled
22 by some of the Company’s highest-ranking individuals. Trevor Edwards, NIKE’s former Brand
23
6
Phil Knight, Shoe Dog: A Memoir by the Creator of NIKE, published May 1, 2018 (Scribener).
24
7
Id.
25 8
See Julie Creswell, Kevin Draper, and Rachel Abrams, At Nike, Revolt Led by Women Leads to
Exodus of Male Executives, N.Y.Times, April 28, 2018, available at
26 https://www.nytimes.com/2018/04/28/business/nike-women.html (“New York Times Article”) (last accessed on Aug.
28, 2018).
2 Edwards — then NIKE’s Vice President of Global Brand and Category Management — was
3 promoted to NIKE’s Brand President. As such, Edwards enjoyed great power9 and also great
4 rewards. Between the years 2015 to 2018, inclusive, Edwards received more than $26 million in
5 total compensation. He was in charge of all product categories, geographies, and brand
6 management for NIKE and in control of a $3.34 billion budget that included advertising, marketing
7 and endorsement contracts. Accordingly, Edwards was the most favored contender to take over
9 36.
10 Around the same time that Edwards was promoted to Brand President, an exclusive inner
11 circle of mostly men emerged around him within NIKE’s corporate hierarchy. Men who were
12 members of this so-called “Friends of Trevor” club — as they referred to themselves — had one
13 thing in common: they all flocked around Edwards with the expectation of being accelerated
14 through the Company’s ranks.11 Indeed, being a close pal with Edwards was one way men
15 advanced their careers within the Company, including those who directly and repeatedly
16 contributed to the creation of the hostile working environment. Women, however, were not
18 37.
19 To make things worse, the Company left its female employees without any meaningful
20 recourse to remedy this desperately hostile work environment. NIKE’s HR Department was as ill-
21 equipped to ensure compliance with state and federal labor laws as it was unwilling to grapple
22
23 9
See Sara Germano, Nike Investigates Workplace Complaints, Says No. 2 Executive Resigns, March
15, 2018, available at https://www.wsj.com/articles/nike-investigates-workplace-complaints-says-no-2-executive-
24 resigns-1521153597 (“WSJ NIKE Investigation Article”) (last accessed on Aug. 28, 2018).
10
25 Id.
11
See Sara Germano & Joann S. Lublin, Inside Nike, a Boys-Club Culture and Flawed HR, March 31,
26 2018, available at https://www.wsj.com/articles/inside-nike-a-boys-club-culture-and-flawed-hr-1522509975 (“WSJ
Boys’ Club Article”).
2 2017, NIKE’S HR Department was headed by David Ayre (“Ayre”).12 Ayre reported directly to
3 the Company’s President and CEO, Mark Parker, who reported to the Board. During his tenure at
4 NIKE, Ayre was subject to two internal investigations involving his behavior that would
6 38.
8 about Ayre’s demeaning and condescending behavior.14 Following this investigation, Ayre agreed
9 to counseling and admitted to a large group of colleagues that “[his] behavior has to change.”15
10 Despite his pledge, Ayre’s behavior did not change. Rather, Ayre became the subject of a second
11 investigation last year, based on accusations of creating a hostile work environment.16 Although
12 Ayre was ultimately terminated from NIKE, his tenure at the Company was very lucrative. For
13 example, in January 2017, months prior to his departure from NIKE, Ayre sold more than $20
15 39.
16 Besides being headed by ineffective management, NIKE also employed systemic policies
17 and practices that adversely impacted women’s starting salaries, their performance ratings, salary
18 increases, and bonus awards. As alleged in the Wage Class Action pending before the United
19 States District Court for the District of Oregon, NIKE has an array of practices and policies in
20 place with the effect of creating a disparate pay structure, including: (i) paying women lesser
21 salaries based on their previous compensation (id. ¶¶ 84-5); (ii) utilizing a performance rating
22
12
See Press Release, Nike, Inc., David Ayre Named Head of Human Resources (July 11, 2007),
23 available at https://news.nike.com/news/david-ayre-named-head-of-human-resources (last accessed on Aug. 28,
2018).
24
13
See WSJ Boys’ Club Article.
25 14
Id.
15
26 Id.
16
Id.
25 17
See generally, New York Times Article.
18
26 Id.
19
Id.
2 incorrectly advising her that her decision not to confront her manager personally was a mistake on
3 her own part.20 Another former employee described having a similar experience with the HR
4 Department after seeking help for issues she was having with a manager, stating: “I was looking
5 for help and they just totally shut it down, like ‘You’re the problem.’”21
6 42.
8 women. A female employee recalled her supervisor throwing his car keys at her and calling her a
9 “stupid bitch.”22 Although she reported the incident to NIKE’s HR Department, the offender
11 43.
12 Even worse than ignoring victims of sexual harassment, NIKE’s HR Department retaliated
13 against them. At least one former employee revealed that she was terminated after she complained
14 about her manager routinely belittling her with sexist and dismissive comments.24
15 44.
17 the corporate ladder. For example, a number of employees reported that Daniel Tawiah
18 (“Tawiah”), then a senior director for NIKE’s digital brand in North America, frequently berated
19 and publically humiliated female employees, often to the point of tears.25 Tawiah’s conduct not
20 only went unpunished, but, even worse, following these complaints, Tawiah was promoted to
22
23 20
Id.
21
Id.
24
22
Id.
25 23
Id.
24
26 Id.
25
Id.; also see Wage Class Action, ¶¶ 67-69.
2 Many stories emerged describing inappropriate sexually hostile conduct that went well
3 beyond verbal offenses, yet the response of NIKE’s HR Department was equally inadequate.
4 According to the account of two former members of NIKE’s sports marketing team, in 2002,
5 during a business trip to Florida, a bus carrying a group of several dozen NIKE employees pulled
6 up to a strip club.26 Of the many individuals who were present, four people refused to enter the
7 strip club, including three women.27 These instances later provided the basis for the male
8 employees’ debates — in the presence of and in a complete disregard of their female colleagues
10 46.
11 NIKE’s management was well aware of the ongoing and pervasive sexual harassment as
12 well. Complaints of misconduct reached the Company from countless sources and via various
13 channels. For example, since 2013, 24 NIKE employees or former employees filed formal
14 complaints of unfair treatment with the Oregon Bureau of Labor and Industries (the “BOLI”)29
15 which NIKE would be notified of, pursuant to BOLI’s procedures.30 Without doubt, at least some
16 of the complaints have reached the highest-levels of NIKE’s management. In fact, Ayre, NIKE’s
17 former HR Department head, regularly discussed any active investigations of suspected employee
18 misconduct with the Company’s CEO, Mark Parker.31 At other times, complaints were
19
20 26
See WSJ Boys’ Club Article.
27
21 Id.
28
New York Times Article.
22 29
See Tammy Tierney, Harassment survey sparks change at Nike, bizwomen.com, April 2018,
available at https://www.bizjournals.com/bizwomen/news/latest-news/2018/04/harassment-survey-sparks-change-at-
23 nike.html?page=all (last accessed on Aug. 28, 2018).
24 30
Pursuant to BOLI’s policies and procedures, in each instance where a complaint is filed against a
company, BOLI sends Notification Letters to the company, giving it a limited period of time to respond to the
25 allegations. As a matter of course, BOLI sends the Notification Letters to either the company’s counsel, if one is
involved, or to the human resources department. See Administrative Rules for BOLI, Civil Rights Division: Complaint
26 Procedures, Chapter 839.
31
New York Times article.
2 Neuburger, NIKE’s Vice President of Global Brand Marketing for Running, who was a driving
3 force behind the Nike+ App, sent a letter to defendant Parker, setting forth the reasons for her
4 departure, including harassment and exclusion of women from the inner circle of decision makers.
24
25
26
32
Id.
2 Left with no hope for a working environment free of demeaning and belittling behavior,
3 many talented and high-ranked female employees left NIKE. For example, Paige Azavedo, a
4 former member of NIKE’s digital marketing department, resigned in 2015 after her — and a
5 number of other women’s — complaints about Daniel Tawiah’s berating them in front of their
6 peers went unaddressed.33 Others followed her course: In the spring of 2017, Patty Ross, a Vice
7 President of Workplace Design and Connectivity left NIKE after working for the Company since
8 she was 16 years old.34 She was followed by Kerri Hoyt-Pack, a 15-year veteran who participated
9 in launching NIKE’s Women Brand.35 The leadership turnover in 2017 left even fewer women at
10 the top of the organization. In fact, as the Company disclosed in April 2018, while NIKE’s global
11 workforce is evenly split among men and women, only 29 percent of the Company’s vice
21
22
23 33
Id.; see also Wage Class Action, ¶¶ 67-69.
34
Id.
24
35
Id.
25 36
See Sara Germano & Joann S. Lublin, Inside Nike, Women Staffers Circulated Survey About
Workplace Behavior, The Wall Street Journal, March 19, 2018, available at https://www.wsj.com/articles/inside-nike-
26 women-staffers-circulated-survey-about-workplace-behavior-1521451801 (“WSJ Survey Article”) (last accessed on
Aug. 28, 2018).
2 Following delivery of the packet, several male executives left the Company, but the
3 Board’s belated response to the survey is wholly inadequate. For example, Edwards was not
4 terminated for cause based on his role as the ringleader of NIKE executives who created a hostile
5 work environment at the Company. Instead, on March 15, 2018, NIKE announced Edwards’
6 “resignation” as the Company’s President would occur six months later in August 2018.37 In fact,
7 the Board allowed Edwards to walk away with a generous compensation package, including a
8 $525,000 payout and nearly $9 million in unvested stock awards at the end of his employment.38
9 Although the Board was authorized — pursuant to the Clawback Policy of NIKE’s Amended and
10 Restated Long-Term Incentive Plan — to request the repayment of awards granted to Edwards
11 during his tenure at NIKE, the Board has apparently failed to do so.
12 51.
13 Similarly, the Board and NIKE’s management appear to have handled other managers who
14 were high-level Edwards’ allies, i.e. Friends of Trevor, with kid gloves. In this regard, NIKE has
15 not announced any actions that it took to hold those executives accountable for their roles
16 contributing to the hostile work environment at NIKE. For example, on March 16, 2018, Jayme
17 Martin, Vice President and General Manager of Global Categories and Edwards’ top deputy,
18 announced he was leaving NIKE after working there for decades, but no further details were
19 provided.39 Based on reports by the Wall Street Journal, Martin’s departure was due to internal
20 complaints about inappropriate workplace behavior.40 The Wall Street Journal reported that
21
37
See Sara Germano & Joann S. Lublin, Second Nike Executive Leaves in Wake of Workplace
22 Complaints, The Wall Street Journal, March 16, 2018, available at https://www.wsj.com/articles/second-nike-
executive-leaves-in-wake-of-workplace-complaints-1521220142 (“WSJ Resignation Article”) (last accessed on Aug.
23 28, 2018).
38
Matthew Townsend & Andres Melin, Tarnished Nike Executive Is Slated to Receive $525,000
24 Payout, Bloomberg, March 19, 2018, available at https://www.bloomberg.com/news/articles/2018-03-19/tarnished-
nike-executive-is-slated-to-receive-525-000-payout (the “Executive Payout Article”) (last accessed on Aug. 27,
25 2018).
39
26 Id.
40
Id.
2 protected male subordinates who engaged in behavior that was demeaning to female colleagues.41
3 52.
4 A month later, between April 16 and 18, 2018, four additional executives left NIKE,
5 including: (i) NIKE’s Head of Diversity, Antoine Andrews; (ii) NIKE’s Director of Basketball,
6 Vikrant Singh; (iii) NIKE’s Vice President of Global Marketing Innovation, Daniel Tawiah; and
7 (iv) NIKE’s Vice President of Footwear, Greg Thompson.42 On May 8, 2018, an additional wave
8 of executives announced their departures, including: (i) Steve Lesnard, former head of Running
9 in North America; (ii) Simon Pestridge, head of Marketing for Performance; (iii) Tommy Kain,
10 Director of Sports Marketing; (iv) Ibrahem Hasan, a Senior Creative Director; and (v) Helen
12 53.
13 The sexual harassment scandal at NIKE quickly gained traction, earning the Company
14 much unwanted notoriety. NIKE’s brand — which was purportedly cultivated in a culture of
16 goodwill.
17 54.
18 Well aware of the accruing damage, defendant Parker addressed NIKE’s employees in a
19 Company-wide meeting only five days after the publication of the New York Times article, but
20
21
41
See Sara Germano & Joann S. Lublin, Inside Nike, Women Staffers Circulated Survey About
22
Workplace Behavior, The Wall Street Journal, March 19, 2018, available at https://www.wsj.com/articles/inside-nike-
women-staffers-circulated-survey-about-workplace-behavior-1521451801 (“WSJ Survey Article”) (last accessed on
23 Aug. 28, 2018).
24 42
See Sara Germano, More Senior Executives Exit Nike, The Wall Street Journal, April 17, 2018,
available at https://www.wsj.com/articles/more-senior-executives-to-exit-nike-1524002546 (last accessed on Aug. 28,
25 2018).
43
See Julie Creswell and Kevin Draper, 5 More Nike Executives Are Out Amid Inquiry Into
26 Harassment Allegations, New York Times, May 8, 2018, available at
https://www.nytimes.com/2018/05/08/business/nike-harassment.html (last accessed on Aug. 28, 2018).
2 the pressure of the overwhelming number of allegations, Parker acknowledged the accusations and
3 committed to initiate several programs, including training programs for leadership, mentoring
4 programs, and unconscious bias training for all employees.45 Parker — for the first time —
5 committed to implementing a new incentive compensation plan, which would be “awarded against
6 one set of objectives, will be one plan, with one reward system.”46
7 55.
8 As set forth in detail below, the Board has equally dragged its feet in addressing the issue
9 of sexual harassment and gender discrimination. See infra, Sec. E.1. Despite being regularly
10 apprised of the nature, number, and types of allegations submitted to the Company’s whistleblower
11 line, the Board did nothing to prevent the reoccurrence of workplace misconduct. See id. In fact,
12 the Board made no reasonable attempt to investigate the content of the accusations, not even after
13 it learned that the number of complaints sharply dropped, significantly deviating from the industry
14 trend characterized by a steep increase in whistleblower reports. See infra, Sec. E.2. Neither did
15 the fact that women were severely underrepresented in management-level positions motivate the
16 Board to make any inquiries whatsoever. See infra, Sec. E.3. This was so even though members
17 of the management team knowledgeable on the Company’s HR Department (including culture and
18 diversity) were present during many of the Board meetings and could have easily addressed any
19 of the Board’s inquiries. See, e.g., NIK-000001 (Feb. 11, 2015 meeting attended by Carol Coburn,
20 NIKE Vice President of Audit); NIK-000032 (Feb. 10, 2016 meeting attended by Carol Coburn);
21 NIK-0000039 (Feb. 11, 2016 Board of Directors meeting attended by David Ayre and Monique
22 Matheson, Chief Talent and Diversity Officer); NIK-0000059 (Apr. 21, 2015 meeting attended by
23
24 44
See Sara Germano, Nike CEO Apologizes for Corporate Culture That Excluded Some Staff, The
Wall Street Journal, May 3, 2018, available at https://www.wsj.com/articles/nike-ceo-apologizes-for-corporate-
25 culture-that-excluded-some-staff-1525399012 (last accessed on Aug. 28, 2018).
45
26 Id.
46
Id.
2 of Corporate Audit & Chief Risk Officer); NIK-0000073 (Feb. 16, 2017 Board of Directors
3 meeting attended by David Ayre and Monique Matheson); NIK-000105 (Feb. 14, 2018 meeting
4 attended by Michener Chandlee); NIK-000116 (Feb. 15, 2018 meeting attended by Monique
5 Matheson).
6 56.
7 Like the Company’s management, the members of the Board utterly abdicated their
8 responsibility of overseeing the orderly administration of the Company’s affairs. It was not until
9 Trillium Asset Management (“Trillium”) presented a shareholder proposal that the Board first
10 contemplated changes to the executive compensation structure. Pointing to the “dramatic financial
11 impact on investors,”47 Trillium demanded that the Board incorporate “improvement of culture
12 and diversity metrics into the performance measures of NIKE’s senior compensation incentive
13 plans.”48 See also NIK-000126. In response to Trillium’s request, the Board adopted cosmetic
14 changes that did little to mitigate the severity of the sexual harassment issue at NIKE. Specifically,
15 rather than implementing meaningful remedial measures to correct past wrongs and monitor
16 management’s performance in the area of culture and diversity, the Board merely committed to
17 “consider” and “discuss” the linkage between culture/diversity and executive compensation. See
18 NIK-000126. The Board never committed to investigate the allegations submitted via NIKE’s
19 whistleblower hotline or BOLI. Neither did the Board seek any explanation as to why complaints
20 submitted to the Company’s whistleblower line widely deviated from the industry trends. Instead,
21 the Board continues to stall to the detriment of the Company and its shareholders.
22
23
24
47
25 Trillium Asset Management, Nike, Inc. – Sexual Misconduct Risk Management (2018), available at
http://www.trilliuminvest.com/shareholder-proposal/nike-inc-sexual-misconduct-risk-management-2018/ (last
26 accessed on Aug. 28, 2018).
48
Id.
2 member of the Board — reflect that Carol Coburn, the Company’s Vice President of Audit,
3 provided the Board with a “detailed breakdown of AlertLine reports by geography, by month, and
4 by category of concern,” (NIK-000004) and also, with a further “breakdown of calls by category,
5 anonymity, and allegation,” thereby fully apprising the Board of the significant number of
6 complaints launched against NIKE employees alleging violations of NIKE’s Code of Ethics. Id.
7 Moreover, the number of calls received by NIKE’s AlertLine was benchmarked against other
8 companies. Id.
9 59.
10 Members of the Audit Committee as well as the full Board continued to be periodically
11 updated on the nature and content of complaints lodged with NIKE’s AlertLine through the years
12 2016-2018. See NIK-00032 (The Audit Committee’s Meeting Minutes dated February 10, 2016,
13 reflecting that the Board was provided with “detailed breakdowns of AlertLine reports”); NIK-
14 000042 (The Board’s Meeting Minutes dated February 11, 2016, reflecting that the members of
15 the Audit Committee “reviewed the annual AlertLine . . . statistics”); NIK-000065 (The Audit
16 Committee Meeting Minutes dated February 15, 2017, reflecting that Michener Chandlee, the
17 Company’s Corporate Audit & Chief Risk Officer, “summarized the FY16 Alertline findings” as
18 detailed in a report circulated to the Board prior to the meeting and “summarized certain other
19 details relating to the mix of calls”.); NIK-000076 (The Board’s Meeting Minutes, dated February
20 16, 2017, reflecting that the Board’s Audit Committee “reviewed the annual AlertLine
21 …statistics”); NIK-000102 (The Audit Committee Meeting Minutes dated February 14, 2018,
22 reflecting that the Committee received materials including summary of AlertLine calls); NIK-
23 000109 (The Board’s Meeting Minutes dated February 14-15, 2018, reflecting that the Audit
25
26
2 Accordingly, the Board was put on notice that a pervasive and systemic violation of state
4 2. The Board Turned a Blind Eye to Red Flags Indicating Employee Distrust
Toward NIKE’s HR Department
5
61.
6
At all relevant times, the Board was fully apprised of the “process of how reports and
7
concerns are investigated and addressed,” and knew that its own members — particularly those
8
who served on the Audit Committee — had the authority to independently investigate concerns
9
over widespread sexual harassment practices. In fact, the minutes from the Board meeting dated
10
February 11, 2015, reflect that Carol Coburn, VP of Corporate Audit, apprised the Board of the
11
Audit Committee’s authority to “investigate independently” concerns relating to accounting,
12
auditing, or internal controls. NIK-000004; also see NIK-000032.
13
62.
14
Notwithstanding this authority, the Board failed to investigate or make any reasonable
15
inquiry into the specific contents of the many complaints alleging violation of the NIKE Code of
16
Ethics. This was despite knowing that the “overwhelming majority of concerns [received by the
17
AlertLine] were human resources issues” (id.; NIK-000032; NIK-000042; NIK-000076; NIK-
18
000112) and that the number of calls received by the AlertLine started declining. More
19
specifically, in February 2015, Coburn reported to the Board that NIKE experienced a “14%
20
increase in calls over the prior year [while there has been] an 18% increase in the employee
21
population.” NIK-000004. In other words, the number of calls received by the AlertLine did not
22
increase commensurate with the growth of employee population. Id.
23
63.
24
The declining trend continued, with the most significant decline recorded in fiscal year
25
2016, where NIKE recorded a shocking 27 percent decline in the amount of calls received by the
26
AlertLine. The Audit Committee members were apprised of these figures during the February 15,
2 the Company’s executives, including Edwards. NIK-000065. Michener Chandlee, the Corporate
3 Audit & Chief Risk Officer, who was also in attendance, told the Audit Committee that “the
4 volume of calls declined almost 5%, despite an increase of 13% in employee headcount” which
5 translated to a 27 percent decline when discounting for robocall activity. NIK-000065. As the
6 meeting minutes reflect, the Audit Committee members “inquired as to what was driving the
7 decline in calls,” (NIK-000065) but were told that “there was no identifiable single driving
8 indicator that led to the decline.” NIK-000066. Yet the Audit Committee, much less the full
9 Board, took no action to investigate this issue further, nor did it make any further inquiries to
11 64.
12 The Board was apprised of this trend during its meeting the next day — attended by each
13 Board member except defendant Cook — in the context of reviewing AlertLine statistics, when
14 defendant Graf, Jr. apprised the Board that the “number of calls had declined year over year,
16 65.
17 Going into 2018, nothing had changed. As evidenced by the Audit Committee meeting
18 minutes dated February 14, 2018, for fiscal year 2017 NIKE’s AlertLine call volume remained
19 “well below” the industry average. NIK-000105; also see NIK-000112 (The Board’s Meeting
20 Minutes dated February 14-15, 2018, reflecting that “[calls to the AlertLine] remained low
22 66.
23 The declining figures were directly contrary to the trends in the industry, which
24 experienced a gradual 56 percent increase in reporting rate since 2010.49 Notwithstanding the
25
49
Navex Global, 2017 Ethics & Compliance Hotline & Incident Management Benchmark Report
26 (2017), available at https://documents.akerman.com/2017EthicsandComplianceHotlineandIncidentManagement
Report.PDF (last accessed on Aug. 28, 2018).
2 and its Committee members utterly failed to take any actions to identify the causes thereof and to
3 investigate the roots of such a significant deviation from the industry trend. Put differently, the
4 Board turned a blind eye to a red flag, clearly pointing to significant employee reluctance to report
5 violations of NIKE’s Code of Ethics to the NIKE HR Department. This, in turn, was a direct result
6 of employees’ deep distrust toward NIKE’s HR Department’s willingness and ability to redress
2 Edwards himself attended the majority of the Board’s meetings during which the Board
3 discussed diversity and culture. See, e.g., NIK-000035 (Feb. 11, 2016 Board meeting);
4 NIK000069 (February 16, 2017 Board meeting); NIK000109 (February 14, 2018 Board meeting).
5 In fact, in addition to being present during the Board’s meetings, Edwards also attended a number
6 of meetings of the Audit Committee and the Corporate Governance Committee. See, e.g.,
7 NIK000111 (February 14, 2018 meeting of the Audit Committee); NIK000056 (April 21, 2016
9 69.
10 Had the Board made any reasonable inquiries — whether with members of the management
11 knowledgeable on the issue of diversity and culture or with the Company’s third-party vendor
12 retained to operate NIKE’s AlertLine — the Board would have discovered a huge gender disparity
13 in the number of female employees within the executive ranks. In fact, the Company’s own
14 research confirms that while women occupy nearly half the company’s work force, they represent
15 only 38 percent of positions of director or higher, and 29 percent of the vice presidents. In a
16 complete abdication of their duties, the Board has done nothing to ascertain that gender pay and
18 70.
19 All told, through their lack of oversight and complete deference to management, the Board
20 allowed Edwards and others to create a culture at NIKE that was antithetical to the Company’s
21 stated core values. Parker’s decision to give Edwards significant control over the Company’s
22 affairs, and the Board’s complete failure to exercise independent oversight, permitted a culture of
23 rampant and obvious sexual harassment and exploitation to continue unabated. It was not until the
24 Board became aware that “several news outlets remained focused on [the Company’s culture]”
25 and that “reports and articles” were likely to be published in the media, that the Board took limited
26 steps to remedy the ongoing wrongs. See, e.g., NIK-000124 (April 18, 2018 Board meeting,
2 the goals to improve the Company’s culture). Indeed, it was not until the publication of the New
3 York Times article became imminent that the Board contemplated “enhance[ing] the Company’s
5 71.
6 For ease of reference and to avoid duplicative recitation of the list of attendees at the
7 meetings referenced supra in Sec. E., the following chart shows the Individual Defendants’
Dr. Lechleiter
Travis Knight
9
Philip Knight
Thompson
Comstock
Donahue
Edwards
Connors
Rodgers
Graf, Jr.
Peluso
Parker
Henry
Cook
10
11
BOD 4/16/2015 X X X X X X X X X X
12
BOD 2/11/2016 X X X X X X X X X X X X
13 BOD 4/21/2016 X X X X X X X X X X X X X
BOD 2/16/2017 X X X X X X X X X X X
14
BOD 4/20/2017 X X X X X X X X X X X
15 BOD 02/14-15/2018 X X X X X X X X X X X X X
BOD 04/18-19/2018 X X X X X X X X X X X X X
16
BOD50 X
2/12/2015 X X X X X X X X X X X
17 A&FC51 2/14/2018 X X X X
AC 2/10/2016 X X X X X
18 X X X X
AC 2/15/2017
19 AC 4/19/2017 X X X X X X
AC52 2/11/2015 X 53
X X X
20 X X X X X X
NCG 4/21/2016
21 NCG 4/20/2017 X X X X X
NCG54 4/16/2015 X X X X X
22
23
50
“BOD” refers to the meeting of the Board of Directors.
24
51
“A&FC” refers to the meeting of the Audit and Finance Committee.
25 52
“AC” refers to the meeting of the Audit Committee.
53
26 “X” indicates Individual Defendants’ attendance at the given meeting.
54
“NCG” refers to the meeting of the Nominating and Corporate Governance Committee.
3 72.
4 Each Director Defendant, by virtue of his or her position as a director and/or officer, owed
5 to the Company and to its stockholders the fiduciary duties of loyalty, good faith and the exercise
6 of due care and diligence in the management and administration of the affairs of the Company, as
7 well as in the use and preservation of its property and assets. The conduct of Director Defendants
8 complained of herein involves a knowing and culpable violation of their obligations as directors
9 and officers of NIKE, the absence of good faith on their part, and a reckless disregard for their
10 duties to the Company and its stockholders that Director Defendants were aware or should have
12 73.
14 NIKE, were able to and did, directly and/or indirectly, exercise control over the wrongful acts
15 complained of herein.
16 74.
17 At all times relevant hereto, each Director Defendant was the agent of each of the other
18 Director Defendants and of NIKE and was at all times acting within the course and scope of such
19 agency.
20 75.
21 To discharge their duties, each Director Defendant was required to exercise reasonable and
22 prudent supervision over the management, policies, practices, and controls of the Company. By
23 virtue of such duties, Director Defendants were required to, among other things:
24 (1) Exercise good faith to ensure that the affairs of NIKE were conducted in an
efficient, business-like manner so as to make it possible to provide the highest
25 quality performance of its business;
26
5 B. NIKE’s Corporate Governance Principles and Its Code of Business Conduct Impose
Additional Responsibilities on Certain Director Defendants
6
76.
7
To assist the Board in the exercise of its responsibilities, NIKE adopted the Corporate
8
Governance Guidelines (the “Guidelines”), which make the Board the “ultimate decision-making
9
body of the Company,” and accordingly, responsible for “ensur[ing] that . . . the management is
10
capably executing its duties.”55 To carry out these responsibilities, the Board was charged with
11
“oversee[ing] the senior management team” and “monitor[ing] its performance.”56 Importantly,
12
the NIKE Guidelines expressly make the Board responsible for “reviewing and establishing
13
procedures designed to ensure that the Company’s management and employees operate in a
14
legal and ethically responsible manner.”57 Furthermore, pursuant to the Guidelines, the role of
15
directors includes a regular review of the Company’s long-term strategic business plans and “other
16
significant issues affecting the business of the Company.”58 To ensure that the members of the
17
Board had the tools to discharge their duties as set forth in NIKE’s corporate documents, the Board
18
was expressly empowered to: (i) have free access to the Company’s senior management team and
19
other employees; (ii) obtain advice and assistance from outside legal, accounting, and other
20
advisors selected by the Board at the expense of the Company; and (iii) participate at relevant,
21
accredited external director education programs at the Company’s expense.59 Thus, the Board was
22
23 55
Nike, Inc., Corporate Governance Guidelines, available at https://investors.nike.com/investors/
corporate-governance/?toggle= topBanner (last accessed Aug. 28, 2018).
24
56
Id.
25 57
Id.
58
26 Id.
59
Id.
2 that those responsibilities were discharged consistent with NIKE’s corporate governance
3 principles.
4 77.
5 In addition to the duties described above, the Company vouched to conduct its business with
6 “integrity and a commitment to the highest ethical standards.”60 To that effect, the Company
7 maintained an internal “Code of Business Conduct & Ethics” (the “Code of Ethics”),61 which
8 applied to all NIKE employees worldwide, including the members of its Board. According to
9 NIKE, adherence to the Code of Ethics was “vitally important” and reflected the “rules [NIKE]
10 live[s] by and what [NIKE] stand[s] for.”62 As an initial matter, the Code of Ethics mandated that
11 all employees “comply with all applicable laws, rules, and regulations.”63 With respect to
12 unlawful harassment, the Code of Ethics made clear than harassment was strictly prohibited by the
14 NIKE knows that people perform best in a work environment free from unlawful
harassment and discrimination, and we want to be sure that harassment and
15 discrimination of all types does not occur at NIKE. To that end, NIKE’s policy
prohibits discrimination and harassment, seeks to prevent harassment and
16
provides employees with an effective complaint process. Employees must take
17 care to treat others the way they would expect to be treated, as professional adults,
respectful of the diverse workforce NIKE enjoys.
18
* * *
19
All employees are responsible for creating and maintaining a work environment
20
free from harassment or other inappropriate behavior.64
21
22 60
Nike, Inc. Investor Relations website, available at https://investors.nike.com/investors/corporate-
governance/?toggle=topBanner (last accessed on Aug. 28, 2018).
23
61
Nike, Inc. Code of Business Conduct & Ethics (2011), available at https://s1.q4cdn.com
24 /806093406/files/doc_ downloads/governance/2011-Inside-the-Lines-online-booklet-FINAL-11-10-26.pdf, at 5 (last
accessed on Aug. 28, 2018).
25 62
Id. at 1.
63
26 Id. at 18.
64
Id. at 6.
2 Furthermore, the Code of Ethics pledged that NIKE would “not tolerate retaliation against
3 any employee who reports in good faith a suspected violation of the law or policy or who
4 participates in any investigation of a suspected violation.”65 Indeed, the Company vowed that
5 “NIKE will investigate reports of retaliation and will take appropriate action to prevent future
6 violations.”66 Consistent with these principles, the Company encouraged employees to report
7 violations of the laws. To that effect, NIKE has contracted with a third party vendor for the
9 report violations of the law and/or the corporate policies and principles.67
10 79.
11 Thus, NIKE’s Corporate Governance Principles and its Code of Ethics made clear that Director
12 Defendants were tasked with taking all necessary and appropriate steps to make sure that the
13 Company, including its highest management, complied with all applicable internal policies and
24
25 65
Id. at 21.
66
26 Id.
67
Id. at 24.
2 81.
3 Defendant Graf, Jr. is currently the Chairman of the Board’s Audit Committee and has
4 been since at least 2003. Defendant Connors is a current member of the Board’s Audit Committee
5 and has been since 2005. Defendant Donahoe II is a current member of the Board’s Audit
6 Committee and has been since 2016. Defendant Peluso served on the Board’s Audit Committee
8 82.
9 Pursuant to its charter, the purpose of the Audit Committee is to “provide assistance to the
10 Board in fulfilling its legal and fiduciary obligations with respect to matters involving the
11 accounting, auditing, financial reporting, and internal controls of the Company and to oversee
12 the financial policies and activities of the Company that may have a material impact on the results
13 of operations or the financial position of the Company.”68 The stated purpose expressly included
14 the Board’s oversight of: (i) the integrity of the Company’s financial statements; (ii) the
15 Company’s compliance with legal and regulatory requirements; (iii) the independent auditor’s
16 qualifications and independence; and (iv) the performance of the Company’s internal audit
17 function and independent auditor. The following specific responsibilities, amongst other, are
18 incumbent upon the Audit Committee members, pursuant to the Committee’s charter:
25
68
See Nike, Inc. Audit & Finance Committee Charter, available at
26 https://investors.nike.com/investors/corporate-governance/?toggle=topBanner#nav-committee (last accessed on Aug.
28, 2018).
9 • “To meet periodically with the general counsel or other legal counsel
to review legal and regulatory matters, including any matters that may
10 have a material effect on the financial statements of the Company.”
2 To ensure that the Audit Committee has the resources to discharge its duties and
3 responsibilities, the Committee was expressly authorized to “select, retain, terminate, and approve
4 the fees and other retention terms of special or independent counsel, accountants or other experts
5 and advisors, as it deems necessary and appropriate,” without the Board’s approval. Thus, the
6 Audit Committee was provided with all the necessary tools to fulfill its responsibilities under its
7 charter.
9 84.
10 Defendant Cook has been serving as the Chairman of the Board’s Compensation
11 Committee since 2010. Defendant Cook joined the Compensation Committee in 2006. Defendant
12 Comstock is a current member of the Compensation Committee and has been since 2012.
13 Defendant Rodgers is a current member of the Compensation Committee and has been since 2009.
14 Defendant Lechleiter has served on the Compensation Committee between the years 2009 and
15 2014.
16 85.
17 Pursuant to its charter, the purpose of the Compensation Committee is to: (i) “discharge
18 the Board’s responsibilities relating to compensation of the Company’s executive officers and
19 directors”; (ii) “oversee the administration of the Company’s executive compensation plans”; (iii)
20 “evaluate the performance of the Chief Executive Officer”; and (iv) “perform all other duties as
21 set forth in this charter.”69 To fulfill its purpose, the Compensation Committee was charged with
25
69
See Nike, Inc. Compensation Committee Charter, available at
26 https://investors.nike.com/investors/corporate-governance/?toggle=topBanner#board-chart (last accessed on Aug. 28,
2018).
23 • Perform such other duties and responsibilities as the Board may, from
time to time assign to the Committee.
24
25
26
86.
2 responsibilities, the Committee was expressly authorized to: (i) retain or obtain the advice of a
3 compensation consultant, independent legal counsel or other adviser; (ii) terminate such adviser;
4 and (iii) be directly responsible for the appointment, compensation and oversight of the work of
5 any adviser and receive appropriate funding from the Company, for the payment of reasonable
6 compensation to the adviser. Thus, the Compensation Committee was provided with all the
25
26
2 Charter, the Committee was tasked with, amongst others, the following responsibilities:
24
25
70
See Nike, Inc. Corporate Responsibility, Sustainability & Governance Committee, available at
26 https://investors.nike.com/investors/corporate-governance/?toggle=topBanner#board-chart (last accessed on Aug. 28,
2018).
2 90.
3 Defendant Parker has been serving as the Chair of the Board’s Executive Committee since
4 June 2016. Defendant Travis Knight has served as a member of the Board’s Executive Committee
5 since 2016.
6 91.
7 Pursuant to its charter, the purpose of the Executive Committee is to “support the efficient
8 functioning of the Board of Directors by taking actions on behalf of the Board of Directors (1)
9 between regular meetings of the Board of Directors as the Committee deems appropriate or
10 advisable, and (2) as the Board may delegate to the Committee from time to time.”71
11 Accordingly, the Executive Committee is expressly authorized to “exercise all powers of the Board
14 92.
16 unlawful pattern and practice of sexual harassment and gender discrimination. NIKE’s conduct
17 violated applicable federal and state laws and regulations and operated to the detriment of the
18 Company and its shareholders. State and federal governmental enforcement agencies have the
19 authority to impose severe monetary penalties and other forms of sanctions should they find that
20 NIKE’s conduct violated the laws with respect to which they have enforcement powers.
21 93.
22 Further, regulations promulgated by the EEOC make clear that a company is liable for acts
23 of sexual harassment by its employees when it knows, or should have known, about the
24
71
25 See Nike, Inc. Executive Committee Charter, available at
https://investors.nike.com/investors/corporate-governance/?toggle=topBanner#board-chart (last accessed on Aug. 28,
26 2018).
72
Id.
2 Associated enforcement guidance and judicial rulings confirm that companies must undertake a
3 thorough investigation and impose appropriate remedial measures when they learn of sexual
4 harassment allegations. Otherwise, they are liable for failing to remedy known hostile or offensive
5 work environments.
6 94.
7 As a direct and proximate result of the Individual Defendants’ actions, NIKE has expended,
8 and will continue to expend, significant sums of money. Such expenditures include, but are not
9 limited to:
10 a. costs incurred from defending, settling, or paying an adverse judgment in the Wage
Class Action or in any other legal action pertaining to NIKE’s sexual harassment and
11 gender discrimination practices;
12
b. costs incurred from implementing any corrective and/or remedial measures ordered by
13 state and federal authorities or agreed to by virtue of a settlement or a compromise;
14 c. costs incurred from compensation and benefits paid to the Individual Defendants who
have breached their duties to NIKE.
15
95.
16
As a result of the hostile work environment and the public scandal that surrounded it, NIKE
17
has lost and will continue to lose high profile talent, which will further exacerbate the harm to the
18
Company.
19
96.
20
Finally, NIKE’s business, goodwill, and reputation have been, and will continue to be,
21
severely damaged by the Individual Defendants’ decision to allow and/or failure to prevent the
22
Company’s systemic violation of state and federal laws.
23
DERIVATIVE ALLEGATIONS
24
97.
25
Plaintiffs bring this action derivatively in the right and for the benefit of NIKE to redress
26
injuries suffered, and to be suffered, by NIKE as a direct result of the Director Defendants’
2 named as a nominal defendant solely in a derivative capacity. This is not a collusive action to
4 98.
5 Plaintiffs will adequately and fairly represent the interests of NIKE in enforcing and
7 99.
8 Plaintiffs were stockholders of NIKE at the time of the wrongdoing complained of, have
9 continuously been stockholders since that time, and are current NIKE stockholders.
10 100.
11 The current NIKE Board consists of the following thirteen individuals: defendants
12 Comstock, Connors, Cook, Donahoe II, Graf, Jr., Henry, Travis Knight, Lechleiter, Parker, Peluso,
15 101.
16 Plaintiffs repeat, re-allege, and incorporate by reference each and every allegation set forth
18 102.
19 Plaintiffs did not make a pre-suit demand on the Board to pursue this action because such
20 a demand is excused. Demand would have been futile, and a wasteful and useless act, since a
21 majority of the Board is beholden to Philip Knight, and a majority of the directors have participated
23 Thus, Demand under ORS 60.261(2) is excused for a number of reasons, as set forth below:
24 103.
25 First, the Individual Defendants had an obligation to ensure that NIKE complied with the
26 law that they actively shirked. Faced with knowledge that NIKE was engaging in a systemic and
2 Individual Defendants caused or allowed the Company to continue the misconduct. Based on the
3 facts alleged herein, there is a substantial likelihood that Plaintiff will be able to prove that these
4 individuals breached their fiduciary duties by condoning the misconduct and failing to take any
6 104.
7 Second, the Individual Defendants unheeded the very responsibilities that NIKE’s own
8 Code of Ethics imposed on them. Specifically, the Company committed to conduct its business
9 with “integrity and a commitment to the highest ethical standards” and mandated that all
10 employees “comply with all applicable laws, rules, and regulations.” Consistent with this
11 principle, NIKE’s Code of Ethics expressly prohibited “discrimination and harassment” and made
12 all employees responsible for “creating and maintaining a work environment free from
13 harassment or other inappropriate behavior.” The Code of Ethics acknowledged that adherence
14 to the policies and principles set forth in it, were of “vital[ ] important[ce]” to the Company.
15 105.
16 Notwithstanding these very clear provisions, there is little doubt that the Board members
17 deserted their responsibility to uphold them in failing to take any meaningful action to remedy the
18 harm NIKE suffered as a result of the purposeful breach of its fiduciary duties. Indeed, the
19 Individual Defendants attended nearly every meeting of the Board as well as many of the meetings
20 of the Audit Committee and the Corporate Governance Committee during which their members
21 discussed the very subject matters that underly this complaint. For example, the February 12, 2018
22 meeting of the Board, which was attended by almost every Board member (i.e., Comstock,
23 Connors, Cook, Donahoe II, Graf, Jr., Travis Knight, Dr. Lechleiter, Peluso, Rodgers, and Philip
24 Knight), provided an overview of the complaints lodged by NIKE employees with the Company’s
25 anonymous whistleblower hotline. NIK-000004. In this regard, the Board was expressly notified
26 that the “overwhelming majority of concerns [received at the whistleblower line] were human
2 well as a detailed breakdown by “category of concern” and “allegation,” thereby fully apprising
3 the Board of various accusations of violation of NIKE's Code of Ethics. Id. These same
4 individuals and a number of executives who also attended the Board meetings were repeatedly
5 updated on the status, nature, and volume of employees’ complaints during the subsequent meeting
6 of the Board on February 11, 2016 (e.g., NIK-000042), February 16, 2017 (e.g., NIK-000076),
7 and February 14, 2018 (e.g., NIK-000109). Similar detailed updates were provided to the Audit
8 Committee during their respective meetings on February 10, 2015 (e.g., NIK-000032), February
9 15, 2018 (e.g., NIK-000065), February 14, 2018 (e.g., NIK-000102, NIK-000127).
10 106.
11 Furthermore, the Board was repeatedly confronted with information that should have put
12 its members on notice that NIKE HR Department was not discharging its responsibilities as it
13 should, and therefore, should have triggered investigations and inquiries by the Board to ensure
14 that NIKE HR Department was not abdicating its responsibilities to the detriment of NIKE and its
15 employees. As alleged in detail above (see supra at ¶¶ 60-65), beginning in at least 2014, NIKE
16 experienced a trend of declining reports to the NIKE whistleblower hotline. (e.g., NIK-00004).
17 This trend continued well into 2017 and became increasingly more pronounced during the
18 subsequent years. NIK-000065 (Meeting Minutes of the Audit Committee dated February 15,
19 2017, reflecting that NIKE experienced a 27 percent decline in the amount of calls received by its
20 whistleblower hotline); NIK-000076 (Meeting Minutes of the Board dated February 16, 2017,
21 reflecting that the “number of calls had declined year over year, despite the number of employees
22 increasing”).
23 107.
24 NIKE’s third party vendor — who maintained and administered the whistleblower hotline
25 — provided NIKE with benchmark figures, comparing NIKE’s reporting rate with those of other
26 Companies. Based on these figures, the NIKE Corporate Audit & Chief Risk Officer concluded
2 that NIKE’s reporting rate dramatically diverged from the trends in the industry, the Board has
3 done nothing to investigate or to make any reasonable inquiries to the causes and roots of the
4 declining reporting rate. Had the Board and/or the Audit Committee investigated the facts
5 surrounding NIKE’s dropping reporting rate, the Board could have vindicated the Company’s
6 interests before the issue reached its colossal size and ended in a public scandal.
7 108.
8 Furthermore, the Board also knew that women were severely underrepresented in the
9 executive ranks. As evident from the Books and Records Production, the Board was regularly
10 updated on the culture and diversity within the organization. See, e.g., NIK-000039 (Feb. 11, 2016
11 Board meeting); NIK-000073 (Feb. 16, 2017 Board meeting); NIK-000116 (Feb. 14, 2018 Board
12 meeting). In fact, each of the relevant meetings during which diversity and culture were discussed
13 was attended by NIKE executives, who were directly responsible for the perpetuation of the sexual
14 harassment and gender discrimination within the organization, including Trevor Edwards and
15 David Ayre (e.g., NIK-000035; NIK-000069; NIK-000109). At these meetings, the Board was
16 free — but failed to — inquire regarding the Company’s gender pay equality, pay trends, female
17 employee promotions, etc. Had the Board adhered to the responsibilities conferred upon it, the
18 Board would have discovered that women were underrepresented within the higher corporate
19 positions and could have vindicated this disparity between female and male employees prior to the
2 110.
3 Defendants Thompson, Cook, and Parker personally benefitted from NIKE’s participation
4 in the unlawful sexual harassment and gender discrimination practices. As such, demand upon
6 B. Demand on Defendants Connors, Donohoe II, Graf, Jr., and Peluso is Futile for
Additional Reasons
7
111.
8
Defendants Connors, Donohoe, Graf, Jr., and Peluso lack the requisite level of
9
independence necessary to weigh the merits of this litigation, having served as members of the
10
Audit Committee at all relevant times. Pursuant to the Audit Committee Charter, defendants
11
Connors, Donohoe, Graf, Jr., and Peluso were required, amongst other things, to assist the Board
12
in “fulfilling its legal and fiduciary obligations with respect to matters involving the accounting,
13
auditing, financial reporting, and internal controls of the Company.” Critically, it was the
14
responsibility of the Audit Committee members to ensure the “Company’s compliance with legal
15
and regulatory requirements.”
16
112.
17
As alleged herein, and in direct contravention of the responsibilities vested to it by the
18
Audit Committee Charter, NIKE’s Audit Committee ignored complaints lodged with NIKE’s
19
whistleblower telephone line despite knowing that the “overwhelming majority” of those related
20
to the “human resources issues,” and therefore, posed a serious threat to the Company’s
21
compliance with legal and regulatory requirements. NIK-000032; NIK-000042. Notwithstanding
22
that detailed reports were provided to the Audit Committee revealing the types of concerns and
23
the allegations made against the Company (e.g., NIK-000005), the Audit Committee did nothing
24
to assess the Company’s exposure to liability in connection with these complaints. This is so
25
despite the Audit Committee being expressly apprised of its authority to “investigate
26
independently” concerns relating to, amongst other things, auditing and internal controls. NIK-
2 into the merits of the complaints lodged and the internal controls in place to adequately address
3 these complaints, they could have vindicated the Company’s interests before the issue reached its
5 113.
6 Neither did the declining reporting rate of AlertLine calls motivate Connors, Donohoe,
7 Graf, Jr., and Peluso to investigate the Company’s internal compliance programs, its policies and
8 procedures for addressing employee complaints, not even after the Audit Committee learned that
9 NIKE’s reporting rate has been consistently declining year over year (e.g., NIK-000065; NIK-
10 000076), while the rest of the industry experienced a significant increase over the same period of
11 time. E.g., NIK-000105. Indeed, Connors, Donohoe, Graf, Jr., and Peluso did not implement or
12 recommend the implementation of any policies or procedures that would save NIKE of the
13 embarrassment, reputational damages, and a significant (and costly) loss of high talent individuals
14 after the sexual harassment scandal was exposed to the public. Accordingly, demand on Connors,
16 C. Demand on Defendants Cook, Comstock, Rodgers, and Dr. Lechleiter is Futile for
Additional Reasons
17
114.
18
Defendants Cook, Comstock, Rodgers, and Dr. Lechleiter lack the requisite level of
19
independence necessary to weigh the merits of this litigation, having served as members of the
20
Compensation Committee at all relevant times. Pursuant to the Compensation Committee Charter,
21
defendants Cook, Comstock, Rodgers, and Dr. Lechleiter were required to, amongst other things,
22
“review the Company’s overall philosophy and practices regarding executive compensation”
23
and annually evaluate the performance of the CEO and other executive officers “against approved
24
goals and objectives.” Additionally, pursuant to the Company’s Proxy Statement,73 NIKE’s
25
26 73
Nike, Inc. Proxy Statement filed on SEC Form DEF 14A on July 25, 2018, available at
https://www.sec.gov/Archives/edgar/data/320187/000032018718000144/nke-2018xdef14a.htm (last accessed on
2 and most importantly, maximize shareholder value.” Instead of rewarding NIKE’s executives
4 and approved generous bonuses indiscriminately to any performance metrics set forth in the
5 Company’s Proxy Statements. For example, despite being instrumental in perpetuating a culture
6 of sexual harassment and gender discrimination within the organization, in July 2017, the
7 Compensation Committee granted Edwards 100,000 option shares and approved a 14.3 percent
8 increase to his base salary for fiscal year 2018, bringing his base salary to $1,200,000.74
9 115.
10 Noticeably, defendants Cook, Comstock, Rodgers, and Dr. Lechleiter ignored their duties
11 prescribed by the Compensation Committee’s Charter by ensuring key executives would continue
12 to financially benefit while the Company suffered financially and reputationally. Thus, they each
3 Corporate Governance Committee Charter, defendants Henry, Dr. Lechleiter, Peluso, Rodgers,
4 and Thompson failed to make any reasonable inquiries regarding the piling number of complaints
5 submitted via the Company’s anonymous whistleblower line to assess the adequacy of the
6 Company’s internal controls, policies and procedures relating to compliance with the labor laws.
7 This was despite being aware that the “overwhelming majority” of the complaints related to human
8 resources issues, and could therefore, have implications on the Company’s labor practices, the
9 sustainability of which was within the Corporate Governance Committee’s purview. NIK-000004.
10 Additionally, the members of the Corporate Governance Committee utterly abdicated their
11 responsibilities to monitor and oversee NIKE’s strategies, activities and policies regarding the way
12 NIKE’s HR Department addressed employee complaints. Despite being regularly apprised of the
13 details of the employee complaints, including the nature of the allegations, the Corporate
14 Governance Committee has done nothing to assess the adequacy of the Company’s procedures
15 relating to the resolution of any such complaints. As a result, the Company’s deeply ineffective
16 resolution mechanisms went unnoticed while the underlying issue was gaining colossal scale.
17 118.
19 reasonable inquiries into the policies and procedures relating to the compensation of female
20 employees, the frequency and probability of them being promoted within the organization, their
21 compensation as compared to male employees, and their representation among the executive-level
22 ranking personnel. Instead, the Corporate Governance Committee members ignored red flags,
23 including NIKE’s diverging figures of report rates and the underrepresentation of women amongst
24 the executive-level employees. Had defendants Henry, Dr. Lechleiter, Peluso, Rodgers, and
25 Thompson exercised even minimal oversight, they would have been alerted to the significant
26
2 sexual harassment and gender disparity, allowing it to continue far longer than necessary.
2 COUNT I
4 128.
5 Plaintiffs incorporate by reference and realleges each and every allegation contained above,
7 129.
8 The Director Defendants owed and owe NIKE and its shareholders fiduciary duties. By
9 reason of their fiduciary relationships, the Director Defendants owed and owe NIKE and its
10 shareholders the highest obligations of loyalty and due care in the administration of the affairs of
11 the Company, including, without limitation, the oversight of NIKE’s compliance with and the duty
12 to conduct good faith investigation into known violations of laws, regulations, and internal policies
14 130.
15 The Director Defendants violated and breached their fiduciary duties of loyalty and due
16 care by allowing: (i) a hostile work environment, which included a rampant pattern and practice
19 notwithstanding the damage he has caused to the Company’s image and goodwill; and (iii) the
20 generous severance package to Edwards despite the untold damage he has done to the NIKE brand.
21 131.
22 As a direct and proximate result of the Director Defendants’ failure to perform their
23 fiduciary obligations, NIKE has sustained, and will continue to sustain, significant damages – both
24 financial and to its talent, corporate image and goodwill. As a result of the misconduct alleged
25 herein, the Director Defendants are liable to the Company for the damages resulting directly and
3 COUNT II
5 133.
6 Plaintiffs incorporate by reference and realleges each and every allegation contained above,
8 134.
9 As detailed above, the Director Defendants diverted corporate assets for improper and
10 unnecessary purposes to protect their positions as officers and directors (and the financial and other
12 135.
14 responsibilities and intentionally breached their fiduciary duties to protect the rights and interests
15 of NIKE, by failing to address the known pervasive sexual harassment and gender discrimination
16 practices at the Company, and by approving excessive compensation packages to, inter alia,
17 Trevor Edwards and Jayme Martin at the time when both individuals were directly and actively
18 contributing to the creation and perpetuation of the hostile work environment at NIKE. All
20 136.
21 Furthermore, because Martin’s and Edwards’ contribution to the hostile work environment
22 was significant and consequential and caused the Company severe harm to its reputation and
23 goodwill, any severance pay to Martin and Edwards upon their termination was unjustified,
25
26
2 As a direct and proximate result of the Individual Defendants’ conscious failure to perform
3 their fiduciary obligations as set forth herein, they have caused the Company to waste valuable
4 corporate assets and expend corporate funds unnecessarily by providing defendant Edwards with
5 excessive and unjustified compensation during the time period when sexual harassment and gender
7 138.
8 As a result of the waste of corporate assets, the Director Defendants are liable to the
9 Company.
10 COUNT III
12 139.
13 Plaintiffs incorporate by reference and realleges each and every allegation contained above,
15 140.
16 As alleged in detail herein, NIKE Brand President, Trevor Edwards has engaged in
17 widespread misconduct, and yet he received total compensation of over $26 million between the
18 years 2015 to 2018, inclusive. Additionally, pursuant to his noncompete agreement with NIKE,
19 Edwards will leave the Company with a $525,000 payout over the next year in monthly
21 141.
22 Accordingly, Edwards received and will receive improper remuneration despite his
23 widespread misconduct leading to his separation with NIKE. Edwards will thereby be unjustly
25
26
76
Id.
2 To remedy the unjust enrichment of Edwards, the Court should order him to disgorge to
3 the Company the amounts paid to him under the terms of his Employment Agreement, his
6 143.
7 Plaintiffs are entitled to the award of their reasonable attorney fees in this derivative
8 proceeding under the Court equitable power and case law. Crandon Capital Partners v. Shelk, 342
9 Or 555, 157 P.3d 176 (2007); Hoekstre v. Golden B. Products, Inc., 77 Or. App. 104, 712 P.2d
12 (1) Against all Director Defendants for the amount of damages sustained by the
13 Company as a result of Director Defendants’ breaches of fiduciary duty, and corporate waste, in
15 (2) Against Edwards for the amount of damages sustained by the Company as a result
16 of Edwards’ unjust enrichment, in the amount to be determined at trial, but not less than
17 $10,000,000;
18 (3) Requiring disgorgement and imposing a constructive trust on all property and
20 (4) Awarding Plaintiffs the costs and disbursements of the action, including reasonable
22 (5) Granting such other and further relief as the court deems just and proper.
23 JURY DEMAND
25
2 s/ Robert J. McGaughey
Robert J. McGaughey, OSB #800787
3
Aurelia Erickson, OSB #126170
4 Kevin Kress, OSB #146003
65 SW Yamhill Street, Suite 200
5 Portland, Oregon 97204
Telephone: 503-223-7555
6 Facsimile: 503-525-4833
Email: office@law7555.com
7
8
Gustavo F. Bruckner
9 Andrea Farah
POMERANTZ LLP
10 600 Third Avenue
New York, NY 10016
11
Telephone: (212) 661-1100
12 Facsimile: (917) 463-1044
E-mail: gbruckner@pomlaw.com
13 afarah@pomlaw.com
14 Brian J. Robbins
15 George Aguilar
ROBBINS ARROYO LLP
16 600 B Street, Suite 1900
San Diego, CA 92101
17 Telephone: (619) 525-3990
Facsimile: (619) 525-3991
18 E-mail: brobbins@robbinsarroyo.com
19 gaguilar@robbinsarroyo.com
20 Eduard Korsinsky
Amy Miller
21 William J. Fields
LEVI & KORSINSKY, LLP
22 55 Broadway, 10th Floor
23 New York, NY 10006
Telephone: (212) 363-7500
24 Facsimile: (212) 367-7171
Email: ek@zlk.com
25 amiller@zlk.com
wfields@zlk.com
26
Attorneys for Plaintiffs