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Wednesday, November 24, 2021

The gaming giant can't reinvent itself if he's still in charge

Activision Blizzard (ATVI) CEO Bobby Kotick needs to step down. The CEO of one of the country’s largest video game companies, Kotick has reportedly told executives at Activision Blizzard that he’ll resign if he can’t resolve the company’s myriad harassment scandals in short order.

But the problems at Activision Blizzard will require systemic changes, including Kotick’s removal right now — especially after The Wall Street Journal’s revelations last week that he knew about the company’s issues for years. Those problems include allegations of rape, sexual harassment, and sexual and racial discrimination.

If the company wants to move past these controversies, it needs to make a dramatic move. If not, Activision Blizzard risks losing the very people who make its games so successful: its software developers, testers, and engineers.

“People are leaving. I'm getting goodbye emails, like almost at least three a week,” explained Jessica Gonzalez, senior test analyst at Activision Blizzard’s Battle.net.

“I'm seeing people leaving the company, and high-level women, women that are in senior positions are just leaving the company because they have no faith in Kotick,” added Gonzalez, who helped organize an employee walkout after last week’s Journal report.

The exodus could get even worse, explained Colleen Ammerman, director of the Gender Initiative at Harvard Business School.

“This is something that is very bad for the health of your organization and ultimately for effectiveness,” she said. “You have people who are disengaged in the work. They don't trust leaders. They're more likely to look elsewhere. So you're going to lose talent, and the talent that you retain is probably not going to be performing at its true potential.”

Employees are calling for change

The Journal’s investigation into Activision Blizzard and Kotick kicked off a firestorm among employees who staged their second walkout of the year.

On Monday, Activision Blizzard announced that it’s launching a workplace responsibility committee that has the ultimate goal of eliminating harassment and discrimination. But that might not be enough to satisfy workers, who have been calling for change for months.

Activision Blizzard employees first walked out in July when the California Department of Fair Employment and Housing filed a suit claiming the “Call of Duty” and “World of Warcraft” maker allowed a culture of sexual harassment to fester unchecked for years.

The suit portrays a company as one that fostered a “fratboy culture” with men groping female colleagues and women being denied promotions and raises. One woman died by suicide due to a relationship with a male supervisor, the complaint alleged. The same woman was also allegedly harassed by other coworkers who shared a nude image of her at a holiday party.

According to the suit, one employee noted that “women on the Battle.net team were subjected to disparaging comments, the environment was akin to working in a frat house, and that women who were not ‘huge gamers’ or ‘core gamers’ and not into the party scene were excluded and treated as outsiders.”

New allegations have also surfaced, including one claim that Kotick left an assistant a voicemail in which he threatened to have her killed. That matter, according to The Journal, was later settled out of court. (A spokeswoman for the company told the Journal: “Mr. Kotick quickly apologized 16 years ago for the obviously hyperbolic and inappropriate voice mail, and he deeply regrets the exaggeration and tone in his voice mail to this day.”)

The Journal also reported that Kotick failed to tell the board that an employee alleged she'd been raped by her male supervisor. The allegations have increased pressure on Kotick to resign, with employees creating a Change.org petition seeking to build public pressure to oust him. As of Wednesday, the petition has received more than 28,000 signatures.

That petition likely received support from at least some game developers, who arguably have the most crucial roles at Activision Blizzard. And according to Jefferies analyst Andrew Uerkwitz, the longer Kotick stays in his position, the more difficult it will be for Activision Blizzard to retain or recruit star developers.

“The longer he stays, the more likely we'll see very high turnover, if not higher turnover than what we've seen the past couple of years. And that's going to make game development very difficult,” he said.

In an analyst note following the publication of The Journal’s story, Uerkwitz acknowledged that the CEO of a gaming company is more valuable to that company than any one developer. “However, collective development talent is the most important asset by a wide margin to a game company. Erosion of this talent is the biggest key risk to any creative business,” he added. “This risk is currently playing out and accelerating.”

It’s not just employees who are unhappy

The Big Three video game console makers have also come out against Activision Blizzard, telling their workers that they are disturbed by the allegations at the company.

According to Bloomberg, Sony's (SONY) PlayStation chief Jim Ryan wrote in an email to employees that he and the company’s leadership were “disheartened and frankly stunned” to learn that Activision Blizzard hadn’t done enough to address its problems with harassment and discrimination.

Microsoft’s (MSFT) Xbox head Phil Spencer, meanwhile, told employees via email that he was “disturbed” by the reporting in The Journal’s piece. And FanByte has confirmed that Nintendo of America (NTDOY) head Doug Bowser wrote in an email to staff that he found the accounts in The Journal’s article “distressing and disturbing.”

With some of Activision Blizzard’s biggest industry partners coming out against it, the firm could face serious consequences. Spencer in particular said that Xbox is evaluating all aspects of its relationship with Activision Blizzard in the wake of The Journal story.

According to Uerkwitz, a lack of change at Activision Blizzard could hurt the company’s ability to market its games at major events like Sony’s PlayStation Showcase and at the annual E3 conference. So far, Sony seems to have pulled the latest installment of “Call of Duty” from its featured games spot on its sales site.

“It's going to be harder to market games. It's going to be harder to make games. And ultimately, Blizzard fans are very passionate. They may choose not to buy games. Reviewers may choose not to review games. So they're potentially in a very precarious spot,” Uerkwitz explained.

Of course, Kotick’s removal as CEO wouldn’t change Activision Blizzard overnight. But it would go a long way in proving the company is actually serious about reinventing its broken culture.

By Daniel Howley, tech editor at Yahoo Finance.

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