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Alphabet settles shareholder lawsuit

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Alphabet has reached a settlement on a shareholder lawsuit that accused the board of allegedly mishandling sexual misconduct by its executives.

Execs will not be able to receive severance or amend their stock sale plans while they are while they are subject to investigations or a lawsuit for sexual misconduct, according to a summary of the settlement provided by the plaintiffs’ attorneys. The settlement also eliminates mandatory arbitration and limits Google’s use of non-disclosure agreements for employees involved in these cases.

It also includes a $310 million commitment to fund and create a diversity, equity and inclusion advisory council comprised of outside experts.

In a post announcing the settlement, Google’s head of people operations Eileen Naughton said the company is committing to five new guiding principles and a list of detailed changes. 

Among those changes:

  • The Settlement prevents employees with 10b5-1 stock purchase plans from amending them while under investigation for sexual misconduct or harassment. This would prevent, for example, an executive under investigation from accelerating sales of stock.
  • Alphabet will commit $310 million to fund the DEI Council and diversity, equity, and inclusion initiatives over 10 years.
  • The Advisory Council includes outside experts including Judge Nancy Gertner, former EEOC Commissioner Fred Alvarez, and employment lawyer Grace Speights as well as internal leaders, including CEO Sundar Pichai who will participate for the first year.
  • The settlement requires Alphabet to amend its leadership charters for its Leadership Development and Compensation Committee — the committee that approved payouts to former Google executives Andy Rubin and Amit Singhal — to oversee data regarding reports and resolutions of claims of sexual harassment, discrimination and retaliation. It will also need to report to the board any compensation decisions for senior executives who may have engaged with claims of misconduct. Google’s chief diversity officer will also have access to misconduct allegation data and add it to its annual diversity reports.
  • On limiting Google’s use of non-disclosure agreements, employees of Alphabet, including its Other Bets segments, who settle claims will be able to discuss facts and circumstances of alleged harassment, discrimination or wrongdoing.
  • Google said it will also create a new “Employee Disciplinary Committee” to review the investigative team’s recommendations prior to taking disciplinary actions.
  • It will also expand its coaching for executives, and will emphasize that senior leaders will be held to a higher standard, “while ensuring fairness and consistency by having the relevant investigative team continue its existing practice of both formally calibrating corrective action recommendations and recommending a single disciplinary outcome,” plaintiffs’ attorneys stated.

“Over the past several years, we have been taking a harder line on inappropriate conduct, and have worked to provide better support to the people who report it,” Naughton stated. “Protecting our workplace and culture means getting both of these things right, and in recent years we’ve worked hard to set and uphold higher standards for the whole company.”

In early 2019, attorneys filed a lawsuit against Alphabet’s board of director’s on behalf of a company shareholder for allegedly shielding senior execs from accusations of sexual misconduct, claiming a breach of fiduciary duty, abuse of control, unjust enrichment and waste of corporate assets.

Google reportedly paid Android leader Andy Rubin a $90 million exit package, despite asking for his resignation after finding sexual misconduct claims against him credible, which led to a global walkout of employees and the amendment of some of its policies relating to sexual misconduct in 2018.

The settlement comes nearly one year after the board of Google parent company Alphabet formed a Special Litigation Committee of independent directors last year and hired the law firm Cravath, Swaine & Moore to conduct an investigation into sexual misconduct by executives, CNBC first reported last November.  

The investigation encompassed behavior by Alphabet’s Chief Legal Officer David Drummond — one of the highest paid executives at the time — who ended up retiring from the company shortly after, in January.

In a statement, the plaintiffs’ attorneys said:

“This settlement is likely to have lasting, long-term success in bringing about major, transformative changes at Alphabet because, subsequent to the filing of Plaintiffs’ lawsuit, many of the enablers and perpetrators were forced to step back or leave the Company altogether: Chief Legal Officer David Drummond—whose unpunished violations of the company’s relationships policy epitomized Google’s double-standard—resigned, and Eric Schmidt—whose open affairs and flouting of company policies set the tone for Google’s executives—left the Board.”

A spokesperson for Schmidt declined to comment. Drummond could not be immediately reached.

WATCH NOW: Why Alphabet’s investigating executives over inappropriate relationships

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Rising rates seem to signal a recovery is near, but investors wonder whether they can be believed

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A worker uses a nail gun while installing trim in a home under construction at a Romanelli and Hughes Building Co. subdivision in Dublin, Ohio, July 9, 2020.

Ty Wright | Bloomberg | Getty Images

Bonds, it would seem, are speaking the bulls’ language.

Treasury yields rolled to a four-month high last week, the 10-year note reaching 0.84%, as U.S. economic data continue to arrive generally better than expected and the markets anticipate further fiscal-support worth trillions either sooner or later, under this administration or the next.

Bonds racked up the style points, too, in ways that Wall Street tends to read as signs of better economic growth to come. The spread between five- and 30-year Treasurys hit nearly a four-year high, and corporate debt has traded firm against the rising government rates.

The gust of selling in the Treasury market cleared the way for more cyclical, financial and value stocks to improve relative to the big growth stocks that have been largely in pullback mode since before Labor Day. Bank shares in the S&P 500 last week gained more than 6%, while the small-cap Russell 2000 managed a gain versus about a 2% decline for big momentum stocks as a group.

All this is encouraging as far as it goes, implying investors are gaining comfort with a solid growth trajectory into 2021, perhaps boosted by another fiscal infusion, without new Covid-related restrictions undercutting the recovery.

The ‘reflation’ trade

Still, it’s worth considering other drivers of the backup in yields and related equity reactions.

Fidelity’s head of macro strategy Jurrien Timmer last week notes that Treasury yields have simply been catching up to other indicators of a “reflation” trade that have been working for a while.

The idea here is, assets geared to a global economic quickening have been climbing off their post-Covid lows for months, making the yield rise a belated and grudging follower and not a harbinger of fresh insight about the economy.

Bond folks are also pointing out the yield move coincided with commentary by Federal Reserve officials casting some doubt on any plans for the Fed to shift its buying to longer-dated Treasurys to suppress their yields as the government prepares to ramp up its debt issuance to fund the deficit. And hedging by mortgage-securities holders could have accelerated the bump in yields.

Some technical factors, too, might restrain further lift in yields. The 10-year Treasury yield has just levitated enough to meet its steeply down-sloping 200-day average, a potential friction area for the yield rally on a first approach.

Bank of America noted Friday that the spread between U.S. and German 10-year government yields has grown to multi-month highs. At a time when currency hedges are inexpensive and the dollar weak, this should draw overseas buyers to Treasurys to capture richer yields – and ultimately to cap them

Yields trigger value stock move

Whether the start of a long-running expansion in yields or not, the action in bonds is enabling another attempt by value stocks to narrow their yawning performance gap against growth-company shares.

The Russell 1000 Value index relative to the Russell 1000 Growth measure has gained some traction, and to some eyes, is building a foundation for further comeback.

Still, the prominent spike in this relationship back in June also generated enthusiastic calls that the long-awaited renaissance for value strategies was at hand. The peak of Treasury yields and value relative performance was June 8, days after a surprisingly strong jobs report and at a peak of “reopening the economy” enthusiasm. What followed was a reversal in value, a pullback in the S&P 500 as the Sunbelt Covid-case surge unfolded, a strong bond rally and three months of furious Big Tech growth-stock outperformance.

There is no handy way to determine if this display of reflationary energy in financial markets is another head fake. But it makes sense to stay alert to the possibility.

Meantime, the broad stock market has pulled itself into a neutral, somewhat indecisive condition.

‘Mixed, muddled and inconclusive’

On one hand, the S&P sagged a couple of times last week toward the 3400 area, which traders consider the border between its recent breakout range and the former correction zone. The index finished off half a percent for the week, some 3.5% below its early-September peak.

The broadening out of the tape allowed the index to withstand diminishing hopes of a quick stimulus deal and absorb further pressure from mega-cap Nasdaq stocks without breaking its uptrend. Yet that Nasdaq pressure reflects some fatigue among former leaders. Amazon, Apple, Tesla and Zoom Video, to name just a few, have struggled, while homebuilders, semiconductors and cloud-software have come off the boil.

Stocks of companies reporting results responded without much enthusiasm, even for big upside surprises, a sign investors already assumed good numbers were on the way.

And while this looks like benign ebb-and-flow at the index level, investor sentiment and positioning has not reset much from fairly aggressive postures. This is evident in hedge-fund leverage, rampant speculation in upside call options, individual-investor attitudes and general commentary implying most everyone is looking to catch a post-election rally no matter the outcome.

At the end of last week, Citi strategist Tobias Levkovich wrote, “The backdrop for the equity market is mixed, muddled and inconclusive.” Investors leaning bullish, valuations fairly stout, indexes hard-pressed to rise easily without dominant growth stocks working and the Street attitudes toward the election swinging from intense anxiety in September to confidence that any outcome is market-friendly now.

Last week’s lethargic action could well be the market’s chewing through these issues and creating a chance for both bulls and bears to second-guess their views. For what it’s worth, one of the strongest seasonal stretches of the calendar starts early this coming week, just as industrial and Big Tech earnings bombard the market.

Through it all should come a few more hints of whether the bond market’s upbeat-seeming message is worth heeding.

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China to reveal its five-year (FYP) growth strategy in Xi Jinping era

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One technique for staying upbeat during the pandemic

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As the coronavirus pandemic rages on, it can be difficult to remain upbeat.

Aside from the health implications and associated financial stressors, uncertainty over the outcome of the virus has eroded one of the key contributors to our overall happiness, making optimism hard to obtain.

“A sense of control is very important for happiness,” Tali Sharot, a cognitive neuroscientist and author of “The Optimism Bias,” told CNBC Make It.

Indeed, in her research during the height of lockdowns, Sharot and her peers at University College London found that control was the number one contributor to people’s overall level of happiness: Those who felt they had a sense of agency in their day-to-day lives were far happier than those who did not.

In the months since then, people have adapted to the pandemic and the average person’s happiness level has returned to a “baseline,” said Sharot, describing happiness like a treadmill.

Tali Sharot, cognitive neuroscientist at University College London and author of “The Optimism Bias”

Tali Sharot

“You can go up and down, but people do converge to a certain baseline of happiness,” she said. “That’s true when things are very, very difficult; they eventually find their way back to that baseline. But also when things are good; after a while, they adapt to these good things and go back to the baseline.”

However, that doesn’t mean we shouldn’t find new ways to boost our happiness levels, said Sharot.

One of the best ways of doing that is to start making plans, or what she calls “anticipatory events.” Such tactics can not only help us regain feelings of excitement but also that sense of control, she said.

Anticipation makes us happy in and of itself.

Tali Sharot

cognitive neuroscientist, University College London

“Anticipation makes us happy in and of itself,” said Sharot. Indeed, in a 2010 Dutch study of close to 1,000 holidaymakers, researchers found that the act of planning a holiday contributes a greater boost to respondents’ happiness levels than the aftermath of the trip itself.

Of course, planning for the future can be easier said than done right now. With so many unknowns ahead and further potential lockdowns looming, it can be difficult to arrange anything with certainty.

However, such plans don’t need to be huge or immovable. They could range from vacation for next summer to smaller highlights like dinner with friends, watching a movie or going on a hike.

“It’s important to still get into the habit of making those plans, putting them in the diary, and having things that we can look forward to,” she said.

Don’t miss: Why optimism could be unhelpful in a pandemic, according to behavioral psychologists

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