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Why Does Google Drug Stockholder Settlement Cover Golden Parachutes for Felonious Employees?

August 18, 2014

Google recently filed a tentative settlement with its stockholders over the $500,000,000 of the company’s money that Google’s executive team authorized be spent to keep from being indicted by a Rhode Island grand jury.  (I invite you to read the sordid history in the settlement and also the story of the Google sting operation in the Nonprosecution Agreement between Google and the United States,)

The settlement is full of the kind of stuff you’d expect to see in a settlement of this kind:  Google refuses to admit liability, but agrees to spend even more of the stockholder’s money to stop itself before it sins again.  But then out of the blue comes this section:

2.7 Criminal Activity Reporting

Google’s General Counsel shall be responsible for reviewing every situation in which a  Google employee is convicted of a felony under U.S. federal or state criminal statutes in connection with his employment by Google and for reporting to the Board (or an appropriate committee of the Board) with respect to that violation. Presumptively, any employee convicted of a felony under a U.S. federal or state criminal statute in connection with his employment by Google shall be terminated for cause and receive no severance payments in connection with the termination. If the General Counsel determines that such termination is not warranted, he shall so recommend to the Board (or an appropriate committee of the Board), which will act upon his recommendation in its discretion.

Notice that there’s not one word in this section dealing with drugs, drug advertising or the like.

Why would this language need to appear in what will eventually be a court order requiring Google to essentially deny a severance package to Google employees who are terminated for being convicted of a felony under either a federal or state statute.  When would a publicly traded company ever pay a severance package to an employee terminated for cause?  (And being convicted of a felony is almost invariably grounds for termination for cause whether or not it relates to your employment.)

Note that this language appears to be preventative and forward looking in nature as is the rest of the proposed settlement (assuming that all of the settlement has been made public, a big assumption when it comes to Google).  So it appears that during their discovery the shareholders found some information that led them to think this provision of their settlement agreement would have been required.

That would lead me to think that the behavior being proscribed had occurred.  Meaning that somebody was convicted of a felony, was fired, but was given a severance package.

I would also venture a guess that this wasn’t something like two weeks salary–that wouldn’t rise to the level of a court order applying to all Google employees and Google’s most senior management.  What would rise to the level of a court order would be something like a two or three year salary payout, accelerated vesting of stock options, a flat payment of at least six or seven figures, or some combination.   And if you are talking about accelerated vesting of Google stock options, you can get into the million dollar range very quickly.

Now what might motivate a company like Google to make such a payment–given that corporate lawyers are often looking for a basis for termination for cause for the very purpose of getting out of any payout for a termination without cause that can trigger all of the above.  Also known as a “golden parachute.”

Remember–this paragraph deals with employees who have actually been convicted of felony violations of U.S. law, and it might be stretched to include employees who were convicted in other countries of what would have been a felony under U.S. state or federal law.

There’s another reason a public company like Google might give severance payments of a size to warrant this type of response:  Hush money.

Whatever it is, this paragraph didn’t come out of nowhere.

Which leads one to think that there is something putrefying in Mountain View.  Shareholders have a right to know what it is.

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