8/31/2018 4:17 PM 18CV38553
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2 3 4 IN THE CIRCUIT COURT OF THE STATE OF OREGON 5 FOR THE COUNTY OF MULTNOMAH 6 SHIVA Y. STEIN, ALISON SHERMAN, 7 and LISA UDINE, derivatively on behalf of Case No. NIKE, INC. 8
9 Plaintiffs, COMPLAINT 10 v. (Derivative Action, Breach of Fiduciary Duty, Waste of Corporate 11 PHILIP H. KNIGHT; JOHN G. Assets, Unjust Enrichment) CONNORS; ELIZABETH J. COMSTOCK; 12 TIMOTHY D. COOK; JOHN J. Amount of claim: $10,000,000 13 DONAHOE II, ALAN B. GRAF, JR.; PETER B. HENRY; DR. JOHN C. Filing fee $1,111.00 per ORS 14 LECHLEITER; MARK G. PARKER; 21.160(1)(e) MICHELLE A. PELUSO; JONATHAN A. 15 RODGERS; JOHN R. THOMPSON, JR.; JURY TRIAL DEMANDED TRAVIS A. KNIGHT; and TREVOR A. 16 EDWARDS, Not Subject to Mandatory Arbitration 17 Defendants, 18 -and- 19 NIKE, INC. an Oregon Corporation, 20 21 Nominal Defendant. 22
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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: [email protected]
1 NATURE OF THE ACTION ...... 4
2 JURISDICTION AND VENUE ...... 7 PARTIES ...... 8 3 A. Plaintiffs ...... 8 4 B. Nominal Defendant ...... 9 5 C. Individual Defendants ...... 9 6 FACTUAL ALLEGATIONS ...... 17 7 A. NIKE’s Ability to Maintain a Positive Brand Image and Reputation is Key 8 to Its Continued Success, Especially in Its Fast Growing Women’s Brand ...... 17
9 B. NIKE’s Pervasive Culture of Sexual Harassment, Gender Discrimination, Gender Bias, and Hostility ...... 18 10 C. Despite Maintaining a Dedicated HR Department, Clear Cases of Sexual 11 Harassment Occurred with Impunity ...... 22
12 D. NIKE’s HR Department’s Acquiescence to the Sexual Harassment Triggered the Departure of Several Talented Female Employees ...... 25 13 E. Public Scandal Exposing Widespread Sexual Harassment Triggers a 14 Belated and Limited Wave of Reforms at NIKE ...... 26
15 ...... 31 16
17 ...... 31
18 ...... 33 19
20 ...... 35
21 DUTIES OF DIRECTOR DEFENDANTS ...... 38 A. The Fiduciary Duties of the Director Defendants ...... 38 22 B. NIKE’s Corporate Governance Principles and Its Code of Business Conduct 23 Impose Additional Responsibilities on Certain Director Defendants ...... 39
24 C. NIKE’s Board Committee Charters Impose Additional Duties on Director Defendants ...... 41 25 1. Additional Fiduciary Duties of the Audit & Finance Committee 26 Members ...... 42
2. Additional Fiduciary Duties of the Compensation Committee Members ...... 44 MCGAUGHEY ╫ ERICKSON 65 SW YAMHILL ST., SUITE 200 PORTLAND, OREGON 97204 TELEPHONE (503) 223-7555 • FAX (503) 525-4833 Page 2 – COMPLAINT E-MAIL: [email protected]
1 3. Additional Fiduciary Duties of the Corporate Responsibility, Sustainability & Governance Committee Members ...... 46 2 4. Additional Fiduciary Duties of the Executive Committee Members...... 48 3 DAMAGES TO THE COMPANY ...... 48 4 DERIVATIVE ALLEGATIONS...... 49 5 DEMAND FUTILITY ALLEGATIONS ...... 50 6 A. Demand on Defendants Thompson, Cook, and Parker is Futile Due to Their Insider Sales ...... 53 7 B. Demand on Defendants Connors, Donohoe II, Graf, Jr., and Peluso is 8 Futile for Additional Reasons ...... 54
9 C. Demand on Defendants Cook, Comstock, Rodgers, and Dr. Lechleiter is Futile for Additional Reasons ...... 55 10 D. Demand on Defendants Henry, Dr. Lechleiter, Peluso, Rodgers, and 11 Thompson is Futile for Additional Reasons ...... 56
12 E. Demand on Defendants Travis Knight, Parker, and Thompson is Futile for Additional Reasons ...... 58 13 F. Demand on Defendants Comstock, Connors, Cook, Donahoe II, Graf, Jr., 14 Henry, Travis Knight, Lechleiter, Parker, Peluso, Rodgers, and Thompson and Nondefendant Benko is Futile for Additional Reasons ...... 59 15 CAUSES OF ACTION ...... 60 16 COUNT I Derivatively Against Director Defendants for Breach of Fiduciary Duties ...... 60 17 COUNT II Against the Director Defendants for Waste of Corporate Assets ...... 61 18 COUNT III Against Edwards for Unjust Enrichment ...... 62 PRAYER FOR RELIEF ...... 63 19 JURY DEMAND ...... 63 20
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MCGAUGHEY ╫ ERICKSON 65 SW YAMHILL ST., SUITE 200 PORTLAND, OREGON 97204 TELEPHONE (503) 223-7555 • FAX (503) 525-4833 Page 3 – COMPLAINT E-MAIL: [email protected]
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. 14 NATURE OF THE ACTION 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
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1 allegations of sexual harassment and gender discrimination by NIKE’s senior management. The
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 7 accountable for the harm that he has caused to the Company. 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 14 “unsubstantiated,” avoided taking any meaningful corrective or preventative actions, and 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
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1 its Board met its fiduciary duties to monitor developments at NIKE, investigate when red flags
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 14 discrimination practices at the Company. Instead, members of the Compensation Committee 15 indiscriminately approved excessive compensation packages and generous severance payouts to
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 22 harassment and gender discrimination practices.
23 6. 24 The Individual Defendants’ breaches of fiduciary duties have resulted in substantial 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
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1 the United States District Court for the District of Oregon. See Wage Class Action. The Wage
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 6 promotions, and prematurely dismisses employee complaints of sexual harassment by Company 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 14 active involvement in fostering such a hostile and unlawful environment. 15 JURISDICTION AND VENUE
16 8. 17 This court has jurisdiction over each defendant named herein because each Defendant is 18 either a corporation that conducts business in and maintains operations in Oregon or is an 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 24 in this county. See ORS 14.080(2). 25 26
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1 PARTIES
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 13 Complaint, on May 24, 2018. 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
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1 B. Nominal Defendant
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 8 revenue for the fiscal year 2017 was $36.4 billion.2
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.
16 17 18 19 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.
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1 LLC — which was formed by Philip Knight to hold the majority of his shares of Class A Common
2 Stock, and which is controlled by Philip Knight’s son, Travis Knight — beneficially owned more 3 than 77 percent of NIKE Class A Common Stock.3 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. 7 8
9 10 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, 15 currently beneficially owns 128,603 shares of NIKE common stock.
16 16. 17 Defendant Elizabeth J. Comstock (“Comstock”), 57, a director since April 2011 is a 18 member of the Compensation Committee. 19
20 21 22 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.
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1 NIKE’s activities complied with all applicable federal and state laws and regulations. Comstock,
2 whose total compensation for the years 2015 to 2018, inclusive, exceeded $1 million, currently 3 beneficially owns 102,763 shares of NIKE common stock. 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. 8
9 10 11 12 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. 22
23 24 25 26 Donahoe II knowingly, recklessly, or with gross negligence made, caused,
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1 condoned, or allowed the Company to engage in unlawful practices as described herein, and has
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 5 NIKE common stock. 6 19. 7 Defendant Alan B. Graf, Jr. (“Graf, Jr.”), 64, a director since November 2002 is Chair of 8 the Audit Committee.
9 10 11 12 13 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. 22
23 24 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
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1 adequate internal controls to ensure that NIKE’s activities complied with all applicable federal and
2 state laws and regulations. Defendant’s Henry compensation for 2018 was set to $191,263. He 3 currently beneficially owns 2,416 shares of NIKE common stock. 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. 7 8
9 10 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 15 million, currently beneficially owns 157,763 shares of NIKE common stock.
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 24 25 26 Parker knowingly,
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1 recklessly, or with gross negligence made, caused, condoned, or allowed the Company to engage
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. 11 12 13 14 15 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. 22 Defendant Jonathan A. Rodgers (“Rodgers”), 72, a director since November 2006, is a
23 member of the Compensation Committee. 24 25 26
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1 Rodgers knowingly, recklessly, or with gross negligence made, caused, condoned,
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. 10 11 12 13 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
16 proceeds of nearly $5 million. 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.
20 21 22
23 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
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1 state laws and regulations. Travis Knight controls 77 percent of NIKE Class A Common Stock by
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. 15
16 17 18 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
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1 28.
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 4 Defendants,” and together with Edwards, as the “Individual Defendants.” 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).
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1 regulatory or legal action against us, or by us, could damage our reputation and brand image, undermine consumer confidence in us and reduce long-term demand 2 for our products, even if the regulatory or legal action is unfounded or not material to our operations. 3
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 8 products could harm our business.”
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 5 12 performance Hijab, and products emphasizing “Equality.” 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 18 made up only about a fifth of NIKE’s total business. 19 B. NIKE’s Pervasive Culture of Sexual Harassment, Gender Discrimination, Gender Bias, and Hostility Towards its Female Employees 20 33. 21 Despite its ads pushing to empower all genders, pervasive sexual harassment, gender 22 discrimination and bias against women is deeply engrained in NIKE’s corporate culture. From its 23
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.
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1 inception, the Company fostered an environment of impunity for plainly offensive behavior. As
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
9 communicating patriarchal beliefs of male superiority and entitlement to preferential treatment 10 over women have permeated through all corporate levels, including among the Company’s 11 highest-ranking executives. As a result, female employees at NIKE were routinely subjected to 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 19 vice presidents were women.
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).
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1 President, was one of the ringleaders of the wrongful conduct occurring at NIKE. In 2013,
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 8 the role of NIKE CEO.10
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 17 welcomed as “members” in the Friends of Trevor club. 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). 25 10 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”).
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1 with claims of sexual harassment and gender discrimination. To begin with, from 2007 to July
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 5 foreshadow deeper problems with NIKE’s HR Department.13 6 38. 7 Specifically, several years ago, NIKE conducted an investigation in response to complaints 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 14 million worth of his personal holdings of NIKE stock. 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. 26 15 Id. 16 Id.
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1 system that contributed to women receiving lower ratings (id. ¶¶ 87-95); and (iii) granting women
2 lesser salary increases and smaller bonuses (id. ¶ 100). 3 C. Despite Maintaining a Dedicated HR Department, Clear Cases of Sexual Harassment Occurred with Impunity 4 40. 5 The pervasive sexual harassment problem was brewing at NIKE for decades before it 6 erupted in a public scandal on April 28, 2018. On that day, the New York Times published an 7 extensive story appearing on the front page of the Sunday edition, titled “At Nike, Revolt Led by 8 Women Leads to Exodus of Male Executives,” detailing female employees’ experiences of being 9 subject to sexual harassment and gender discrimination at NIKE.17 As revealed through more than 10 50 interviews of present and former NIKE employees conducted by the New York Times, dozens 11 of instances of clear misconduct — including overt sexual hostility, racy sexual remarks, and even 12 inappropriate physical contact — were reported to NIKE’s HR Department over the years. 13 Notwithstanding the frequent and repeated complaints, sexual misconduct at NIKE went 14 unpunished, for years, fostering a culture of complicity toward hostile work environment, 15 belittlement of women, and superiority of male employees. 16 41. 17 Through the New York Times interviews, dozens of cases have emerged accusing NIKE’s 18 male employees of making explicit sexual remarks, dismissive comments, and crude epithets 19 targeted at women. For example, at least three former employees reported that male superiors 20 would refer to people using a vulgar term for women’s genitals.18 Another female employee 21 recounted being subject to her manager’s bragging about always carrying condoms with him and 22 about the magazines he kept on his desk, which were decorated with scantily clad women on the 23 cover.19 A complaint filed with the NIKE HR Department did little to remedy the situation. Rather 24
25 17 See generally, New York Times Article. 26 18 Id. 19 Id.
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1 than confronting the offender, the HR Department shifted its responsibility to the female employee,
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. 7 Furthermore, many of those interviewed reported an environment that was demeaning to 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 10 continued to be her supervisor.23 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.
16 Despite frequent complaints, those directly engaging in inappropriate continued to climb 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 21 NIKE’s Vice President of Global Marketing Innovation in January 2017. 22
23 20 Id. 21 Id. 24 22 Id. 25 23 Id. 26 24 Id. 25 Id.; also see Wage Class Action, ¶¶ 67-69.
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1 45.
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
9 — over whether strip clubs in Portland or Los Angeles were better.28 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.
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1 communicated to management directly. For example, prior to her departure from NIKE, Nikki
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. 5 NIKE subsequently admitted to receiving and reading Neuburger’s letter.32 6 D. NIKE’s HR Department’s Acquiescence to the Sexual Harassment Triggered the Departure of Several Talented Female Employees 7 47. 8 As a result of NIKE’s HR Department’s lack of any meaningful action to redress the 9 unlawful sexual harassment at the Company, NIKE’s corporate female employees grew frustrated 10 and skeptical that anything could be done to improve their working conditions. The Books and 11 Records produced in connection with this litigation corroborate the women’s account of the 12 growing skepticism and reluctance to turn to NIKE’s HR Department. See infra, Sec. E.2. 13
14
15
16
17
18
19
20 These figures are even more 21 alarming when viewed in conjunction with the global industry average, where whistleblower 22 reports increased by over 50 percent. See infra, Sec. E.2. 23
24
25
26 32 Id.
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1 48.
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 12 presidents are women. 13 E. The Public Scandal Exposing its Widespread Sexual Harassment Triggers a Belated and Limited Set of Reforms at NIKE 14 49. 15 Fed up with the working conditions and frustrated from observing men receive coveted 16 promotions over more experienced and qualified women, in 2017 a group of female employees 17 inside NIKE’s Oregon headquarters distributed a survey to their female peers, seeking input on 18 whether they were victims of sexual harassment and gender discrimination at the Company.36 On 19 March 5, 2018, a packet of the completed questionnaires was delivered to NIKE CEO, Parker. 20
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).
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1 50.
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). 26 39 Id. 40 Id.
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1 Martin and Edwards caused and exacerbated a hostile work environment towards women and
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 11 Kim, Vice President of NIKE East for North America.43 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 15 empowerment — threatened to be irreparably blemished, destroying the Company’s image and
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 22 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- 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).
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1 years after incidents of harassment and discrimination were first reported at the Company.44 Under
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. 10 11 12 13 14 15
16 17 18 19
20 21 22
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). 26 45 Id. 46 Id.
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1
2 3 4 5 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 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, 17 18 19
20 Instead, 21 the Board continues to stall to the detriment of the Company and its shareholders. 22
23 24
25 47 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.
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1 F.
2 57. 3 For years, the Board was confronted with documents that pointed to the existence of a 4 systemic and widespread pattern and practice of sexual harassment, gender discrimination, 5 retaliation and gender hostility. 6 7
8
9 10 11 12 According to NIKE’s own internal research, only 13 29 percent of the Company’s vice presidents were women, despite half of NIKE’s global 14 workforce consisting of women. See infra, Sec. E.3. Had the Board made any reasonable inquiry 15 or investigation, rather than blindly deferring to the Company’s management, it could have 16 prevented the issue of sexual harassment reaching its colossal scope. 17 1. 18 19 58. 20 At all relevant times, members of the NIKE Board were aware of the systemic and ongoing 21 pattern and practice of sexual harassment, gender hostility, and gender discrimination. 22
23
24
25
26
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1
2 3 4 5 6 7 8
9 59. 10 11 12 13 14 15
16 17 18 19
20 21 22
23 24 25 26
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1 60.
2 Accordingly, the Board was put on notice that a pervasive and systemic violation of state 3 and federal labor laws was ongoing within the organization. 4 2.
5 61. 6 At all relevant times, the Board was fully apprised of the 7
8
9
10 11 12
13 62. 14
15
16
17 18
19
20 21 22
23 63. 24 25 26
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1
2 3 4 5 6 7 8
9 10 11 64. 12 13 14 15
16 65. 17 18 19
20 21 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
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).
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1
2 3 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 7 the ongoing sexual harassment and gender discrimination. 8 3.
9 67. 10 11
12 13 14 15 Board was free to inquire with
16 Ayre regarding female employee salaries, complaints, trends, representation in the executive ranks, 17 promotion rates and frequency of their promotion to fully understand diversity at NIKE. 18 19
20 21 22
23 24 25
26
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1 68.
2 3 4 5 6 7 8
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 17 ranking disparity did not exist at the Company. 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 25 26
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1
2 Indeed, it was not until the publication of the New 3 York Times article became imminent that the 4 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’ 8 attendance in summary form:
9
10 11
12
13
14
15
16
17
18 19
20
21
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. 26 53 “X” indicates Individual Defendants’ attendance at the given meeting. 54 “NCG” refers to the meeting of the Nominating and Corporate Governance Committee.
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1 DUTIES OF DIRECTOR DEFENDANTS
2 A. The Fiduciary Duties of the Director Defendants 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 11 been aware posed a risk of serious injury to the Company. 12 73. 13 Director Defendants, because of their positions of control and authority as directors of 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
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1 (2) Exercise good faith to ensure that the Company was operated in a diligent, honest, and prudent manner and in compliance with all applicable federal and state laws, 2 rules, regulations, and requirements; and
3 (3) Refrain from wasting the Company’s assets or otherwise unduly benefitting 4 themselves at the expense of the Company.
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. 26 58 Id. 59 Id.
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1 provided with both clear guidance as to its responsibilities and duties, as well as the tools to ensure
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 13 Company. In this regard, the Code of Ethics, stated in pertinent part: 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. 26 63 Id. at 18. 64 Id. at 6.
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1 78.
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 8 provision of a toll-free telephone line — referred to as the “AlertLine” — enabling employees to
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 14 fair business practices. 15 C. NIKE’s Board Committee Charters Impose Additional Duties on Director Defendants 16 80. 17 The Company maintains four standing committees: (i) the Audit Committee; (ii) the 18 Compensation Committee; (iii) the Corporate Governance Committee; and (iv) the Executive 19 Committee. Each of these committees operates under a written charter, setting forth the purpose 20 of the committee as well as the fiduciary duties of its members. These written charters create 21 obligations that are independent of and in addition to those set forth in the Company’s Guidelines, 22 its Code of Ethics, and other internal corporate documents. 23
24
25 65 Id. at 21. 26 66 Id. 67 Id. at 24.
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1 1. Additional Fiduciary Duties of the Audit Committee Members
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 7 between the years 2014 and 2017. 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:
19 • “To discuss policies with respect to risk assessment and risk management and to discuss the Company’s major financial and other 20 risk exposures, including risks related to information security and data protection, and the steps management has taken to monitor and control 21 such exposures.” 22 • “To review with the independent auditor any audit problems or difficulties and management’s response, including, but not limited to . . 23 . any “management” or “internal control” letter issued, or proposed to 24 be issued, by the independent auditor to the Company.”
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).
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1 • “To review management’s assessment of the effectiveness of the Company’s accounting and internal control structure and 2 procedures.” 3 • “To establish procedures for (i) the receipt, retention, treatment, processing and resolution of complaints received by the Company 4 regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by employees of the 5 Company of concerns regarding questionable accounting or auditing 6 matters.”
7 • “To set hiring policies for employees or former employees of the independent auditor, all in accordance with applicable legal 8 requirements.”
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.” 11 • “To receive reports from the Company’s internal Disclosure Committee, which is responsible for quarterly review of material issues 12 regarding accounting, financial reporting, public disclosure, internal control, and fraud issues in respect of the financial statements of the 13 Company.” 14 • “To report regularly to the Board any material issues that arise with respect to the quality or integrity of the Company’s financial 15 statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s 16 independent auditor, or the performance of the internal audit function.” 17 • “To report regularly to the Board any material issues that arise with respect to the quality or integrity of the Company’s financial 18 statements, the Company’s compliance with legal or regulatory 19 requirements, the performance and independence of the Company’s independent auditor, or the performance of the internal audit function.” 20 • “To review and approve policies and procedures for managing the 21 Company’s financial (i.e. interest rate and foreign exchange), casualty and liability risks.” 22 • “To annually evaluate the performance of the Committee and report the 23 results of the Committee performance evaluation to the Board.” • “To review and assess annually the adequacy of the Committee’s 24 charter.” 25 • “To perform such additional activities and consider such other matters within the scope of its responsibilities as the Committee or the Board 26 deems necessary or appropriate.”
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1 83.
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. 8 2. Additional Fiduciary Duties of the Compensation Committee Members
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 22 a number of responsibilities, including, but not limited to:
23 • Recommend to the Board the selection of corporate officers. 24
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).
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1 • Review the succession plans and leadership development for the executive officer positions, including a review of the Company's 2 development, succession management and diversity efforts. 3 • Review and approve employment, severance, change-in-control, termination, and retirement agreements for executive officers. 4 • Review the Company’s overall philosophy and practices regarding 5 executive compensation. 6 • Review and make recommendations to the Board with respect to significant retirement and benefit plans subject to the terms of the plans. 7 • Review and make recommendations to the Board with respect to 8 adoption and amendment of executive compensation plans, including incentive compensation and equity-based compensation. 9 • Administer and interpret equity-based and executive incentive 10 compensation plans as required by the terms of the plans. 11 • Annually review and approve corporate goals and objectives relevant to the compensation of the CEO. 12 • Annually evaluate the performance of the CEO against approved 13 goals and objectives, and, based on the evaluation, determine and recommend to the independent members of the Board the CEO’s 14 compensation (other than compensation required to be approved solely by the Committee). 15 • Review and make recommendations to the independent members of 16 the Board with respect to the compensation of the other most highly compensated executive officers listed in the Company’s proxy 17 statement (other than compensation required to be approved solely by the Committee); and review and approve the compensation of all other 18 executive officers. 19 • Review and make recommendations to the Board with respect to compensation of directors. 20 • Annually evaluate the performance of the Committee and report the 21 results of the evaluation to the Board. 22 • Review and assess annually the adequacy of the Committee's charter.
23 • Perform such other duties and responsibilities as the Board may, from time to time assign to the Committee. 24 25 26 86.
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1 To ensure that the Compensation Committee has the tools to discharge its duties and
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 7 necessary tools to fulfill its responsibilities under its charter. 8 3. Additional Fiduciary Duties of the Corporate Governance Committee Members 9 87. 10 Defendant Lechleiter has been serving as the Chair of the Board’s Corporate Governance 11 Committee since 2018. Defendant Henry is a current member of the Corporate Governance 12 Committee and has been since February 2018. Defendant Peluso is a current member of the 13 Corporate Governance Committee and has been since 2014. Defendant Rodgers served on the 14 Corporate Governance Committee during the year 2017. Defendant Thompson has served on the 15 Corporate Governance Committee since at least the year 2003. 16 88. 17 Pursuant to its charter, the purpose of the Corporate Governance Committee is, among 18 other things, to: (i) “develop and recommend to the Board for approval a set of corporate 19 governance guidelines and a code of business conduct and ethics, to enhance the integrity of 20 NIKE’s corporate governance”; (ii) “review NIKE’s significant strategies, activities and policies 21 regarding sustainability (including labor practices), and community impact and charitable 22 activities, and make recommendations to the Board”; and (iii) identify individuals qualified to 23 become Board members and recommend director nominees to be proposed for election at the 24 25 26
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1 annual shareholder meeting.70 To fulfill its purpose consistent with the Corporate Governance
2 Charter, the Committee was tasked with, amongst others, the following responsibilities:
3 • Identify, evaluate and recruit individuals qualified to be a director. 4 • Recommend to the Board director nominees to be proposed for election at the annual meeting of shareholders, or for appointment by the Board 5 to fill vacancies or newly-created directorships. 6 • Recommend to the Board nominees for appointment to each committee of the Board, and the chair of each committee. 7 • Oversee an annual self-evaluation of the Board and each committee of 8 the Board.
9 • Develop and recommend to the Board for approval corporate governance guidelines. 10 • Review the corporate governance guidelines from time to time, and 11 recommend to the Board for approval any proposed changes. • Develop and recommend to the Board for approval a code of business 12 conduct and ethics for NIKE. 13 • Review NIKE’s code of business conduct and ethics from time to time, and recommend to the Board for approval any proposed changes. 14 • Review, provide guidance to management, and report to the Board on 15 sustainability (including labor practices) within NIKE’s supply chain, and review reports of NIKE’s sustainability audits. 16 89. 17 To ensure that the Corporate Governance Committee has the resources and tools to 18 discharge its duties and responsibilities, the Committee is expressly and solely authorized to 19 “retain and terminate any search firm used to identify director candidates, and to approve the search 20 firm’s fees and other retention terms.” The Committee was also empowered to “select, retain, 21 terminate and approve the fees and other retention terms of special counsel or other experts or 22 consultants, as it deems appropriate.” 23 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).
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1 4. Additional Fiduciary Duties of the Executive Committee Members
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 12 of Directors in the management of the business and affairs of NIKE.”72 13 DAMAGES TO THE COMPANY 14 92. 15 As a result of the Individual Defendants’ improprieties, NIKE engaged in a systemic
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
25 71 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.
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1 misconduct, unless the company shows that it took immediate and appropriate corrective action.
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’
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1 breaches of fiduciary duty, waste of corporate assets, and Edwards’ unjust enrichment. NIKE is
2 named as a nominal defendant solely in a derivative capacity. This is not a collusive action to 3 confer jurisdiction on this Court that it would not otherwise have. 4 98. 5 Plaintiffs will adequately and fairly represent the interests of NIKE in enforcing and 6 prosecuting its rights. 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, 13 Rodgers, and Thompson and nondefendant A. Cathleen Benko (“Benko”). 14 DEMAND FUTILITY ALLEGATIONS 15 101.
16 Plaintiffs repeat, re-allege, and incorporate by reference each and every allegation set forth 17 as though fully set forth herein. 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 22 in or approved the alleged wrongdoing or is otherwise financially interested in the transactions.
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
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1 widespread pattern and practice of sexual harassment, gender hostility and discrimination, the
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 5 meaningful action to remedy the resultant harm. 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. 19
20 21 22
23 24 25 26
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1
2 3 4 5 6 7 8
9 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.
16 17 18 19
20 21 22
23 107. 24 25 26
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1 Notwithstanding
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 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. 10 11 12 13 14 15
16 17 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
20 issue erupting into a public scandal. 21 A. Demand on Defendants Thompson, Cook, and Parker is Futile Due to Their Insider Sales 22 109. 23 While aware of the illegal sexual harassment and gender discrimination at NIKE, 24 Defendants Thompson, Cook, Edwards, and Parker made large stock sales of their personally held 25 NIKE stock. Since 2015 to April 2018, defendants Thompson, Cook, Edwards, and Parker sold a 26 combined over 1.7 million shares for proceeds of nearly $140 million.
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1
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 5 them would be futile. 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, 19
20
21
22
23
24
25
26
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1 . Had defendants Connors, Donohoe, Graf, Jr., and Peluso made any reasonable inquiries
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 4 colossal size and erupted in a public scandal. 5 113. 6 7 8
9 10 11 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, 15 Donohoe, Graf, Jr., and Peluso is futile.
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
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1 executive compensation program was designed to “reward business results and performance . . .
2 and most importantly, maximize shareholder value.” Instead of rewarding NIKE’s executives 3 based on performance, however, the Compensation Committee increased executive compensation 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 13 lack the requisite level of independence needed to consider a demand. 14 D. Demand on Defendants Henry, Dr. Lechleiter, Peluso, Rodgers, and Thompson is Futile for Additional Reasons 15 116. 16 Defendants Henry, Dr. Lechleiter, Peluso, Rodgers, and Thompson lack the requisite level 17 of independence necessary to weigh the merits of this litigation, having served as members of the 18 Corporate Governance Committee. Pursuant to the Corporate Governance Committee Charter, 19 Henry, Dr. Lechleiter, Peluso, Rodgers, and Thompson were required to, amongst other things, 20 “develop and recommend to the Board a “set of corporate governance guidelines and a code of 21 business conduct and ethics, to enhance the integrity of NIKE’s corporate governance.” 22 Importantly, the responsibilities of the Corporate Governance Committee included the review of 23 “strategies, activities, and policies regarding sustainability (including labor practices)”75 24
25 Aug. 28, 2018). 26 74 Id. at 20. 75 Id. at 2.
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1 117.
2 As alleged herein, and in direct contravention of the responsibilities vested to it by the 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 8
9 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. 18 Additionally, the Corporate Governance Committee members failed to make any 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 24 Had defendants Henry, Dr. Lechleiter, Peluso, Rodgers, and 25 Thompson exercised even minimal oversight, they would have been alerted to the significant 26
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1 sexual harassment by senior management at NIKE. Consequently, the Board failed to identify
2 sexual harassment and gender disparity, allowing it to continue far longer than necessary. 3 E. Demand on Defendants Travis Knight, Parker, and Thompson is Futile for Additional Reasons 4 119. 5 As the Company readily admits in its Proxy Statement, filed on July 25, 2018, three of the 6 Company’s current fourteen Directors, namely Travis Knight, Parker, and Thompson, are not 7 independent directors. 8 120. 9 Defendant Travis Knight is the son of NIKE’s co-founder and former Chairman of the 10 Board, Philip Knight. Travis Knight controls Swoosh, LLC, a limited liability company formed 11 by Philip Knight to hold the majority of Philip Knight’s shares of Class A Common Stock. Travis 12 Knight thereby controls 77 percent of NIKE Class A Common Stock. The Company admits that 13 Travis Knight is not independent. 14 121. 15 Defendant Parker is the Chairman of the Board of Directors, and has served as President 16 and CEO, and a director since 2006. Parker has held a variety of leadership roles within NIKE 17 over nearly 40 years, including corporate Vice President in charge of product development from 18 1987 to 1989, General Manager from 1989 to 1993, Vice President of Global Footwear from 1993 19 to 1998, and President of the NIKE Brand since 2001. Additionally, Parker beneficially owns 20 nearly 5 million shares of NIKE common stock, making him the second largest individual 21 shareholder of NIKE. The Company admits that Parker is not independent. 22 122. 23 Defendant Thompson is not independent because the Company contracted with his son, 24 John Thompson III, former head basketball coach at Georgetown University, to provide 25 endorsement and consulting service to the Company with compensation in excess of the NYSE 26 threshold. The Company admits that Thompson is not independent.
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1 F. Demand on Defendants Comstock, Connors, Cook, Donahoe II, Graf, Jr., Henry, Travis Knight, Lechleiter, Parker, Peluso, Rodgers, and Thompson and 2 Nondefendant Benko is Futile for Additional Reasons
3 123. 4 In addition, demand is futile because defendants Comstock, Connors, Cook, Donahoe II, 5 Graf, Jr., Henry, Travis Knight, Lechleiter, Parker, Peluso, Rodgers, and Thompson and 6 nondefendant Benko will not vote to initiate litigation against defendant Philip Knight. 7 124. 8 Philip Knight exercises absolute control over NIKE. Although Philip Knight has retired
9 from the Company, he is the Chairman Emeritus. Critically, Philip Knight is the largest 10 shareholder of NIKE with a beneficial ownership of more than three quarters, or 77 percent, of 11 NIKE Class A Common Stock. 12 125. 13 As a founder and a controlling stockholder, Philip Knight has closely overseen the business 14 operations of NIKE since its establishment and has unfettered control over the day-to-day business 15 operations at NIKE.
16 126. 17 Philip Knight’s son, Travis Knight, has served on NIKE’s Board since 2015. 18 * * * 19 127. 20 NIKE has been and will continue to be exposed to significant losses due to the wrongdoing 21 complained of herein. Despite the Director Defendants’ knowledge of the claims and causes of 22 action raised by Plaintiffs, the Board has not filed any lawsuits against themselves or others
23 responsible for the wrongful conduct in an attempt to recover any part of the damages NIKE 24 suffered and will suffer thereby. The Board’s obstinate failure to investigate, correct, and 25 commence legal action against those responsible for sacrificing NIKE’s interest demonstrates that 26 the Board is hopelessly incapable of independently addressing any legitimate demand.
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1 CAUSES OF ACTION
2 COUNT I 3 Derivatively Against Director Defendants for Breach of Fiduciary Duties 4 128. 5 Plaintiffs incorporate by reference and realleges each and every allegation contained above, 6 as though fully set forth herein. 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 13 concerning sexual harassment and discrimination. 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 17 of sexual harassment, gender discrimination, exploitation, and retaliation, to go unchecked for at 18 least two decades; (ii) excessive compensation to be awarded to defendant Edwards 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 26 proximately from their breaches of fiduciary duties.
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1 132.
2 Plaintiffs, on behalf of NIKE, have no adequate remedy at law. 3 COUNT II 4 Against the Director Defendants for Waste of Corporate Assets 5 133. 6 Plaintiffs incorporate by reference and realleges each and every allegation contained above, 7 as though fully set forth herein. 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 11 benefits flowing therefrom). 12 135. 13 The Individual Defendants knowingly unheeded their corporate stewardship 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 19 compensation to Martin as well as Edwards was a waste of NIKE’s corporate assets.
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, 24 irresponsible, and wasteful to NIKE’s corporate assets. 25 26
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1 137.
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 6 discrimination at NIKE flourished due to his efforts. 7 138. 8 As a result of the waste of corporate assets, the Director Defendants are liable to the
9 Company. 10 COUNT III 11 Against Edwards for Unjust Enrichment 12 139. 13 Plaintiffs incorporate by reference and realleges each and every allegation contained above, 14 as though fully set forth herein. 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
20 installments and $9 million of unvested stock awards.76 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 24 enriched by his own wrongful acts. 25
26 76 Id.
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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 4 Separation Agreement, and/or his Stock Option Agreement. 5 PRAYER FOR RELIEF 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 10 149 (1985), review denied, 300 OR 563, 715 P.2d 94 (1986). 11 WHEREFORE, Plaintiffs demand judgment as follows: 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 14 the amount to be determined at trial, but not less than $10,000,000; 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 19 profits Edwards received as a result of Director Defendants’ wrongful conduct;
20 (4) Awarding Plaintiffs the costs and disbursements of the action, including reasonable 21 attorney fees, costs, and expenses; and 22 (5) Granting such other and further relief as the court deems just and proper.
23 JURY DEMAND 24 Plaintiffs demand a trial by jury. 25 26 DATED this 31st day of August, 2018.
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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: [email protected] 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: [email protected] 13 [email protected]
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: [email protected] 19 [email protected] 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: [email protected] 25 [email protected] [email protected] 26 Attorneys for Plaintiffs
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