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11/27/2018 5:23 PM

18CV38553

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

23

24

25

26

MCGAUGHEY ╫ ERICKSON
65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
Page 1 – COMPLAINT TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
1 NATURE OF THE ACTION ......................................................................................................... 4

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 F. The Board Was Frequently Confronted With Documents that Evidenced


Pervasive Violations of the State and Federal Labor Laws .................................. 31
16
1. The Board Was Fully Aware of the Mounting Number of
17 Complaints Lodged With the Company’s Whistleblower Hotline ........... 31

18 2. The Board Turned a Blind Eye to Red Flags Indicating Employee


Distrust Toward NIKE’s HR Department................................................. 33
19
3. The Board Knew that Women Were Significantly Underrepresented
20 in the Executive Ranks of the Company ................................................... 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 ...................................................................................................
MCGAUGHEY ╫ ERICKSON
44
65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
Page 2 – COMPLAINT
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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26

MCGAUGHEY ╫ ERICKSON
65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
Page 3 – COMPLAINT
1 Plaintiffs Shiva Y. Stein (“Plaintiff Stein”), Alison Sherman (“Plaintiff Sherman”), and

2 Lisa Udine (“Plaintiff Udine, together with Plaintiff Stein and Plaintiff Sherman, “Plaintiffs”),

3 derivatively on behalf of NIKE, Inc. (“NIKE” or the “Company”), bring the following Shareholder

4 Derivative Complaint (the “Complaint”) pursuant to ORS 60.261 against the Company’s board of

5 directors (the “Board”), and former NIKE Brand President Trevor Edwards (“Edwards”), for

6 breaches of fiduciary duty, corporate waste, as well as for unjust enrichment against Edwards.

7 Except for allegations specifically pertaining to Plaintiffs and Plaintiffs’ own acts, the allegations

8 in the Complaint are based upon information and belief, which include but are not limited to: (i)

9 documents and other information obtained from the Company pursuant to ORS 60.774 (the “Books

10 and Records Production”); (ii) the Company’s public filings with the United States Securities and

11 Exchange Commission (the “SEC”); (iii) the initial complaint filed in the class action lawsuit,

12 titled Cahill et al. v. Nike, Inc., No. 3:18-cv-01477-PK (D. Or.) on August 9, 2018 (the “Wage

13 Class Action”); (iv) media reports; and (v) other public sources.

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

Page 4 – COMPLAINT MCGAUGHEY ╫ ERICKSON


65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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

Page 5 – COMPLAINT MCGAUGHEY ╫ ERICKSON


65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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

Page 6 – COMPLAINT MCGAUGHEY ╫ ERICKSON


65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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. Defendant Philip Knight was present at each meeting of the Board of

16 Directors, as identified in the Books and Records, during which the Board discussed: (i) the nature

17 and volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-

18 reporting of violations to the NIKE Human Resources Department (the “HR Department”); and

19 (iii) the level of diversity within the organization. Defendant Philip Knight knowingly, recklessly,

20 or with gross negligence made, caused, condoned, or allowed the Company to engage in unlawful

21 practices as described herein, and has failed to implement adequate internal controls to ensure that

22 NIKE’s activities complied with all applicable federal and state laws and regulations. Defendant

23 Philip Knight is the largest, and controlling, shareholder of NIKE. As of June 30, 2018, Swoosh,

24

25 1
See Nike, Inc. Annual Report on SEC Form 10-K, filed on July 25, 2018, available at
26 https://www.sec.gov/Archives/edgar/data/320187/000032018718000142/0000320187-18-000142-index.htm.
2
See id., at 18.

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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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. Connors was present at each meeting of the Board of

7 Directors, and attended every meeting of the Audit Committee, as identified in the Books and

8 Records, during which the Board discussed: (i) the nature and volume of employee complaints

9 alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE

10 HR Department; and (iii) the level of diversity within the organization. Connors knowingly,

11 recklessly, or with gross negligence made, caused, condoned, or allowed the Company to engage

12 in unlawful practices as described herein, and has failed to implement adequate internal controls

13 to ensure that NIKE’s activities complied with all applicable federal and state laws and regulations.

14 Connors, whose total compensation for the years 2015 to 2018, inclusive, exceeded $1.1 million,

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. With the exception of one meeting, Comstock was

19 present at each meeting of the Board of Directors, as identified in the Books and Records, during

20 which the Board discussed: (i) the nature and volume of employee complaints alleging violation

21 of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE HR Department;

22 and (iii) the level of diversity within the organization. Comstock knowingly, recklessly, or with

23 gross negligence made, caused, condoned, or allowed the Company to engage in unlawful

24 practices as described herein, and has failed to implement adequate internal controls to ensure that

25

26 3
See NIKE, Inc. Annual Report on SEC Form 10-K, filed on July 25, 2018, available at
https://www.sec.gov/Archives/edgar/data/320187/000032018718000142/nke-5312018x10k.htm, at 13.

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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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. Cook was present, with the exception of one, at each meeting of the Board of

8 Directors, and also attended every meeting of the Nominating and Corporate Governance

9 Committee, as identified in the Books and Records, during which the Board discussed: (i) the

10 nature and volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the

11 under-reporting of violations to the NIKE HR Department; and (iii) the level of diversity within

12 the organization. Cook knowingly, recklessly, or with gross negligence made, caused, condoned,

13 or allowed the Company to engage in unlawful practices as described herein, and has failed to

14 implement adequate internal controls to ensure that NIKE’s activities complied with all applicable

15 federal and state laws and regulations. Cook, whose total compensation for the years 2015 to 2018,

16 inclusive, exceeded $1.1 million, currently beneficially owns 108,763 shares of NIKE common

17 stock. Since 2015, Cook has sold 32,000 shares of NIKE common stock for proceeds over $3

18 million.

19 18.

20 Defendant John J. Donahoe II (“Donahoe II”), 58, a director since June 2014 is a member

21 of the Audit Committee. Donahoe II was present at each meeting of the Board of Directors and

22 also attended every meeting of the Audit Committee as well as the Nominating and Corporate

23 Governance Committee, as identified in the Books and Records, during which the Board discussed:

24 (i) the nature and volume of employee complaints alleging violation of the NIKE Code of Ethics;

25 (ii) the under-reporting of violations to the NIKE HR Department; and (iii) the level of diversity

26 within the organization. Donahoe II knowingly, recklessly, or with gross negligence made, caused,

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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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. Graf, Jr. was present at each meeting of the Board of Directors and also

9 attended every meeting of the Audit Committee as well as the Nominating and Corporate

10 Governance Committee, as identified in the Books and Records, during which the Board discussed:

11 (i) the nature and volume of employee complaints alleging violation of the NIKE Code of Ethics;

12 (ii) the under-reporting of violations to the NIKE HR Department; and (iii) the level of diversity

13 within the organization. Graf, Jr. knowingly, recklessly, or with gross negligence made, caused,

14 condoned, or allowed the Company to engage in unlawful practices as described herein, and has

15 failed to implement adequate internal controls to ensure that NIKE’s activities complied with all

16 applicable federal and state laws and regulations. Graf, Jr., whose total compensation for the years

17 2015 to 2018, inclusive, exceeded $1.1 million, currently beneficially owns 195,715 shares of

18 NIKE common stock. Graf, Jr. is the fourth largest shareholder of NIKE.

19 20.

20 Defendant Peter B. Henry, 48, a director since February 2018, is a member of the Corporate

21 Governance Committee. Defendant Henry attended each meeting since he joined the Board, as

22 identified in the Books and Records, during which the Board discussed: (i) the nature and volume

23 of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of

24 violations to the NIKE HR Department; and (iii) the level of diversity within the organization.

25 Henry knowingly, recklessly, or with gross negligence made, caused, condoned, or allowed the

26 Company to engage in unlawful practices as described herein, and has failed to implement

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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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. With the exception of one meeting,

7 Dr. Lechleiter was present at each meeting of the Board of Directors, as identified in the Books

8 and Records, during which the Board discussed: (i) the nature and volume of employee complaints

9 alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE

10 HR Department; and (iii) the level of diversity within the organization. Dr. Lechleiter knowingly,

11 recklessly, or with gross negligence made, caused, condoned, or allowed the Company to engage

12 in unlawful practices as described herein, and has failed to implement adequate internal controls

13 to ensure that NIKE’s activities complied with all applicable federal and state laws and regulations.

14 Dr. Lechleiter, whose total compensation for the years 2015 to 2018, inclusive, exceeded $1.1

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 Parker was present at each meeting of the Board of Directors, as identified in the Books and

24 Records, during which the Board discussed: (i) the nature and volume of employee complaints

25 alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to the NIKE

26 HR Department; and (iii) the level of diversity within the organization. Parker knowingly,

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65 SW YAMHILL ST., SUITE 200
PORTLAND, OREGON 97204
TELEPHONE (503) 223-7555 • FAX (503) 525-4833
E-MAIL: OFFICE@LAW7555.COM
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. With the exception of one, Peluso was present at

11 each meeting of the Board of Directors, and also attended each meeting of the Audit Committee,

12 as identified in the Books and Records, during which the Board discussed: (i) the nature and

13 volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-

14 reporting of violations to the NIKE HR Department; and (iii) the level of diversity within the

15 organization. Peluso knowingly, recklessly, or with gross negligence made, caused, condoned, or

16 allowed the Company to engage in unlawful practices as described herein, and has failed to

17 implement adequate internal controls to ensure that NIKE’s activities complied with all applicable

18 federal and state laws and regulations. Defendant Peluso, whose total compensation for the years

19 2015 to 2018, inclusive, exceeded $1 million, currently beneficially owns 17,099 shares of NIKE

20 common stock.

21 24.

22 Defendant Jonathan A. Rodgers (“Rodgers”), 72, a director since November 2006, is a

23 member of the Compensation Committee. Rodgers was present at each meeting of the Board of

24 Directors, as identified in the Books and Records, during which the Board discussed: (i) the nature

25 and volume of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-

26 reporting of violations to the NIKE HR Department; and (iii) the level of diversity within the

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1 organization. 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. Thompson attended four meetings

10 of the Board of Directors, as identified in the Books and Records, during which the Board

11 discussed: (i) the nature and volume of employee complaints alleging violation of the NIKE Code

12 of Ethics; (ii) the under-reporting of violations to the NIKE HR Department; and (iii) the level of

13 diversity within the organization. Thompson, whose total compensation for the years 2015 to

14 2018, inclusive, exceeded $1.1 million, currently beneficially owns 77,946 shares of NIKE

15 common stock. Since January 2015, Thompson sold 66,000 shares of NIKE common stock for

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. With the

20 exception of one meeting, Travis Knight attended every meeting of the Board of Directors, as

21 identified in the Books and Records, during which the Board discussed: (i) the nature and volume

22 of employee complaints alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of

23 violations to the NIKE HR Department; and (iii) the level of diversity within the organization.

24 Travis Knight knowingly, recklessly, or with gross negligence made, caused, condoned, or allowed

25 the Company to engage in unlawful practices as described herein, and has failed to implement

26 adequate internal controls to ensure that NIKE’s activities complied with all applicable federal and

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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. With the exception

15 of one meeting, Edwards was present at each meeting of the Board of Directors, as identified in

16 the Books and Records, during which the Board discussed: (i) the nature and volume of employee

17 complaints alleging violation of the NIKE Code of Ethics; (ii) the under-reporting of violations to

18 the NIKE HR Department; and (iii) the level of diversity within the organization. Edwards

19 knowingly, recklessly, or with gross negligence made, caused, condoned, or allowed the Company

20 to engage in unlawful practices as described herein, and has failed to implement adequate internal

21 controls to ensure that NIKE’s activities complied with all applicable federal and state laws and

22 regulations. Edwards, whose total compensation for the years 2015 to 2018, inclusive, exceeded

23 $26 million, currently beneficially owns 1,796,180 shares of NIKE common stock.

24

25

26

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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

12 performance Hijab, and products emphasizing “Equality.”5 These efforts to expand its brand to

13 be more inclusive of women and minorities are key to NIKE’s long-term success. Nike’s sexist

14 culture, however, is hindering its development of NIKE’s Women Brand, causing harm to the

15 Company. In this regard, around the world, the women’s category is the fastest growing segment

16 in the activewear market, and female consumers are driving the growth of the $45.9 billion

17 athleisure. Despite such a large a growing market for women’s business, NIKE’s women business

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).
10
25 Id.
11
See Sara Germano & Joann S. Lublin, Inside Nike, a Boys-Club Culture and Flawed HR, March 31,
26 2018, available at https://www.wsj.com/articles/inside-nike-a-boys-club-culture-and-flawed-hr-1522509975 (“WSJ
Boys’ Club Article”).

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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.
15
26 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.
18
26 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.
24
26 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. As
13
reported to the Audit Committee and the Board of Directors during their respective meetings on
14
February 11 and 12, 2015, the Company recorded a 14 percent increase in the number of reports
15
made to the Company’s anonymous whistleblower hotline, despite the fact that NIKE’s employee
16
headcount had increased 18 percent during the same period. NIK-000004 Minutes of the
17
subsequent meetings of the Board of Directors and the Audit Committee reveal that the declining
18
trend continued through the year 2017. See, e.g. NIK-000065. In fact, in 2016, NIKE received 27
19
percent less reports of violation of the Company’s Ethics Code than it did the year before, making
20
a clear case for employees’ distrust toward NIKE’s HR Department. 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).
39
26 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
See Sara Germano & Joann S. Lublin, Inside Nike, Women Staffers Circulated Survey About
22
Workplace Behavior, The Wall Street Journal, March 19, 2018, available at https://www.wsj.com/articles/inside-nike-
women-staffers-circulated-survey-about-workplace-behavior-1521451801 (“WSJ Survey Article”) (last accessed on
23 Aug. 28, 2018).
24 42
See Sara Germano, More Senior Executives Exit Nike, The Wall Street Journal, April 17, 2018,
available at https://www.wsj.com/articles/more-senior-executives-to-exit-nike-1524002546 (last accessed on Aug. 28,
25 2018).
43
See Julie Creswell and Kevin Draper, 5 More Nike Executives Are Out Amid Inquiry Into
26 Harassment Allegations, New York Times, May 8, 2018, available at
https://www.nytimes.com/2018/05/08/business/nike-harassment.html (last accessed on Aug. 28, 2018).

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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. Despite being regularly

10 apprised of the nature, number, and types of allegations submitted to the Company’s whistleblower

11 line, the Board did nothing to prevent the reoccurrence of workplace misconduct. See id. In fact,

12 the Board made no reasonable attempt to investigate the content of the accusations, not even after

13 it learned that the number of complaints sharply dropped, significantly deviating from the industry

14 trend characterized by a steep increase in whistleblower reports. See infra, Sec. E.2. Neither did

15 the fact that women were severely underrepresented in management-level positions motivate the

16 Board to make any inquiries whatsoever. See infra, Sec. E.3. This was so even though members

17 of the management team knowledgeable on the Company’s HR Department (including culture and

18 diversity) were present during many of the Board meetings and could have easily addressed any

19 of the Board’s inquiries. See, e.g., NIK-000001 (Feb. 11, 2015 meeting attended by Carol Coburn,

20 NIKE Vice President of Audit); NIK-000032 (Feb. 10, 2016 meeting attended by Carol Coburn);

21 NIK-0000039 (Feb. 11, 2016 Board of Directors meeting attended by David Ayre and Monique

22 Matheson, Chief Talent and Diversity Officer); NIK-0000059 (Apr. 21, 2015 meeting attended by

23

24 44
See Sara Germano, Nike CEO Apologizes for Corporate Culture That Excluded Some Staff, The
Wall Street Journal, May 3, 2018, available at https://www.wsj.com/articles/nike-ceo-apologizes-for-corporate-
25 culture-that-excluded-some-staff-1525399012 (last accessed on Aug. 28, 2018).
45
26 Id.
46
Id.

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1 Carol Coburn); NIK-000064 (Feb. 15, 2017 meeting attended by Michener Chandlee, NIKE VP

2 of Corporate Audit & Chief Risk Officer); NIK-0000073 (Feb. 16, 2017 Board of Directors

3 meeting attended by David Ayre and Monique Matheson); NIK-000105 (Feb. 14, 2018 meeting

4 attended by Michener Chandlee); NIK-000116 (Feb. 15, 2018 meeting attended by Monique

5 Matheson).

6 56.

7 Like the Company’s management, the members of the Board utterly abdicated their

8 responsibility of overseeing the orderly administration of the Company’s affairs. It was not until

9 Trillium Asset Management (“Trillium”) presented a shareholder proposal that the Board first

10 contemplated changes to the executive compensation structure. Pointing to the “dramatic financial

11 impact on investors,”47 Trillium demanded that the Board incorporate “improvement of culture

12 and diversity metrics into the performance measures of NIKE’s senior compensation incentive

13 plans.”48 See also NIK-000126. In response to Trillium’s request, the Board adopted cosmetic

14 changes that did little to mitigate the severity of the sexual harassment issue at NIKE. Specifically,

15 rather than implementing meaningful remedial measures to correct past wrongs and monitor

16 management’s performance in the area of culture and diversity, the Board merely committed to

17 “consider” and “discuss” the linkage between culture/diversity and executive compensation. See

18 NIK-000126. The Board never committed to investigate the allegations submitted via NIKE’s

19 whistleblower hotline or BOLI. Neither did the Board seek any explanation as to why complaints

20 submitted to the Company’s whistleblower line widely deviated from the industry trends. Instead,

21 the Board continues to stall to the detriment of the Company and its shareholders.

22

23

24
47
25 Trillium Asset Management, Nike, Inc. – Sexual Misconduct Risk Management (2018), available at
http://www.trilliuminvest.com/shareholder-proposal/nike-inc-sexual-misconduct-risk-management-2018/ (last
26 accessed on Aug. 28, 2018).
48
Id.

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1 F. The Board Was Frequently Confronted With Documents that Evidenced
Pervasive Violations of the State and Federal Labor Laws
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. To begin with, the Board was regularly apprised of the nature and
6
volume of allegations that NIKE employees were submitting to the Company’s anonymous
7
whistleblower line, called the AlertLine. See infra, Sec. E.1. The Board was also expressly
8
notified that the number of whistleblower reports sharply declined despite the Company’s
9
employee headcount increasing, and despite the trend in the industry steeply increasing. See infra,
10
Sec. E.2. If this was not significant enough for the Board to make reasonable inquiries into the
11
causes and roots of employee complaints, then management’s regular reports on the status of
12
employee diversity certainly should have been. 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. The Board Was Fully Aware of the Mounting Number of Complaints Lodged
18 With the Company’s Whistleblower Hotline
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. Documents
22
produced pursuant to Plaintiffs’ Books and Records Demands reveal that the Board closely
23
monitored the number and nature of complaints received by NIKE’s AlertLine — a toll free
24
whistleblower hotline set up to receive anonymous complaints of violation of NIKE’s Code of
25
Ethics. In this regard, the Board regularly received a detailed breakdown of AlertLine reports,
26
including “category of concern” and the allegations thereof. See, e.g., NIK-000004. For example,

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1 the minutes from the Board’s meeting dated February 11, 2015 — which was attended by every

2 member of the Board — reflect that Carol Coburn, the Company’s Vice President of Audit,

3 provided the Board with a “detailed breakdown of AlertLine reports by geography, by month, and

4 by category of concern,” (NIK-000004) and also, with a further “breakdown of calls by category,

5 anonymity, and allegation,” thereby fully apprising the Board of the significant number of

6 complaints launched against NIKE employees alleging violations of NIKE’s Code of Ethics. Id.

7 Moreover, the number of calls received by NIKE’s AlertLine was benchmarked against other

8 companies. Id.

9 59.

10 Members of the Audit Committee as well as the full Board continued to be periodically

11 updated on the nature and content of complaints lodged with NIKE’s AlertLine through the years

12 2016-2018. See NIK-00032 (The Audit Committee’s Meeting Minutes dated February 10, 2016,

13 reflecting that the Board was provided with “detailed breakdowns of AlertLine reports”); NIK-

14 000042 (The Board’s Meeting Minutes dated February 11, 2016, reflecting that the members of

15 the Audit Committee “reviewed the annual AlertLine . . . statistics”); NIK-000065 (The Audit

16 Committee Meeting Minutes dated February 15, 2017, reflecting that Michener Chandlee, the

17 Company’s Corporate Audit & Chief Risk Officer, “summarized the FY16 Alertline findings” as

18 detailed in a report circulated to the Board prior to the meeting and “summarized certain other

19 details relating to the mix of calls”.); NIK-000076 (The Board’s Meeting Minutes, dated February

20 16, 2017, reflecting that the Board’s Audit Committee “reviewed the annual AlertLine

21 …statistics”); NIK-000102 (The Audit Committee Meeting Minutes dated February 14, 2018,

22 reflecting that the Committee received materials including summary of AlertLine calls); NIK-

23 000109 (The Board’s Meeting Minutes dated February 14-15, 2018, reflecting that the Audit

24 Committee reviewed the annual AlertLine statistics); NIK-000127 (same).

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. The Board Turned a Blind Eye to Red Flags Indicating Employee Distrust
Toward NIKE’s HR Department
5
61.
6
At all relevant times, the Board was fully apprised of the “process of how reports and
7
concerns are investigated and addressed,” and knew that its own members — particularly those
8
who served on the Audit Committee — had the authority to independently investigate concerns
9
over widespread sexual harassment practices. In fact, the minutes from the Board meeting dated
10
February 11, 2015, reflect that Carol Coburn, VP of Corporate Audit, apprised the Board of the
11
Audit Committee’s authority to “investigate independently” concerns relating to accounting,
12
auditing, or internal controls. NIK-000004; also see NIK-000032.
13
62.
14
Notwithstanding this authority, the Board failed to investigate or make any reasonable
15
inquiry into the specific contents of the many complaints alleging violation of the NIKE Code of
16
Ethics. This was despite knowing that the “overwhelming majority of concerns [received by the
17
AlertLine] were human resources issues” (id.; NIK-000032; NIK-000042; NIK-000076; NIK-
18
000112) and that the number of calls received by the AlertLine started declining. More
19
specifically, in February 2015, Coburn reported to the Board that NIKE experienced a “14%
20
increase in calls over the prior year [while there has been] an 18% increase in the employee
21
population.” NIK-000004. In other words, the number of calls received by the AlertLine did not
22
increase commensurate with the growth of employee population. Id.
23
63.
24
The declining trend continued, with the most significant decline recorded in fiscal year
25
2016, where NIKE recorded a shocking 27 percent decline in the amount of calls received by the
26
AlertLine. The Audit Committee members were apprised of these figures during the February 15,

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1 2017, Audit Committee meeting, which was attended by all of its members as well as a number of

2 the Company’s executives, including Edwards. NIK-000065. Michener Chandlee, the Corporate

3 Audit & Chief Risk Officer, who was also in attendance, told the Audit Committee that “the

4 volume of calls declined almost 5%, despite an increase of 13% in employee headcount” which

5 translated to a 27 percent decline when discounting for robocall activity. NIK-000065. As the

6 meeting minutes reflect, the Audit Committee members “inquired as to what was driving the

7 decline in calls,” (NIK-000065) but were told that “there was no identifiable single driving

8 indicator that led to the decline.” NIK-000066. Yet the Audit Committee, much less the full

9 Board, took no action to investigate this issue further, nor did it make any further inquiries to

10 understand the decline.

11 64.

12 The Board was apprised of this trend during its meeting the next day — attended by each

13 Board member except defendant Cook — in the context of reviewing AlertLine statistics, when

14 defendant Graf, Jr. apprised the Board that the “number of calls had declined year over year,

15 despite the number of employees increasing.” NIK-000076.

16 65.

17 Going into 2018, nothing had changed. As evidenced by the Audit Committee meeting

18 minutes dated February 14, 2018, for fiscal year 2017 NIKE’s AlertLine call volume remained

19 “well below” the industry average. NIK-000105; also see NIK-000112 (The Board’s Meeting

20 Minutes dated February 14-15, 2018, reflecting that “[calls to the AlertLine] remained low

21 considering the size of the Company and the number of employees.”).

22 66.

23 The declining figures were directly contrary to the trends in the industry, which

24 experienced a gradual 56 percent increase in reporting rate since 2010.49 Notwithstanding the

25
49
Navex Global, 2017 Ethics & Compliance Hotline & Incident Management Benchmark Report
26 (2017), available at https://documents.akerman.com/2017EthicsandComplianceHotlineandIncidentManagement
Report.PDF (last accessed on Aug. 28, 2018).

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1 significant divergence between NIKE’s reporting rate and the overall industry average, the Board

2 and its Committee members utterly failed to take any actions to identify the causes thereof and to

3 investigate the roots of such a significant deviation from the industry trend. Put differently, the

4 Board turned a blind eye to a red flag, clearly pointing to significant employee reluctance to report

5 violations of NIKE’s Code of Ethics to the NIKE HR Department. This, in turn, was a direct result

6 of employees’ deep distrust toward NIKE’s HR Department’s willingness and ability to redress

7 the ongoing sexual harassment and gender discrimination.

8 3. The Board Knew that Women Were Significantly Underrepresented in the


Executive Ranks of the Company
9 67.
10 As evident from the Books and Records Production, the Board was regularly updated on
11 “management talent and succession planning,” which included the Board’s review of a report on
12 diversity. See NIK-000039 (Feb. 11, 2016 Board meeting); NIK-000073 (Feb. 16, 2017 Board
13 meeting); NIK-000116 (Feb. 14, 2018 Board meeting). Ironically, the report on diversity was
14 provided by David Ayre, who headed the HR Department at NIKE (and was the subject of multiple
15 internal investigations based on allegations of misconduct). The 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. Other
18 members of the management, knowledgeable on the issue of diversity were likewise in attendance
19 and ready to address the Board’s inquiries. See, e.g., NIK-000001 (Feb. 11, 2015 meeting attended
20 by Carol Coburn, NIKE Vice President of Audit); NIK-000032 (Feb. 10, 2016 meeting attended
21 by Carol Coburn); NIK-000039 (Feb. 11, 2016 Board meeting attended by David Ayre and
22 Monique Matheson, Chief Talent and Diversity Officer); NIK-000059 (Apr. 21, 2015 meeting
23 attended by Carol Coburn); NIK-000064 (Feb. 15, 2017 meeting attended by Michener Chandlee,
24 NIKE VP of Corporate Audit & Chief Risk Officer); NIK-000073 (Feb. 16, 2017 Board meeting
25 attended by David Ayre and Monique Matheson); NIK-000105 (Feb. 14, 2018 meeting attended
26 by Michener Chandlee); NIK-000116 (Feb. 15, 2018 meeting attended by Monique Matheson).

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1 68.

2 Edwards himself attended the majority of the Board’s meetings during which the Board

3 discussed diversity and culture. See, e.g., NIK-000035 (Feb. 11, 2016 Board meeting);

4 NIK000069 (February 16, 2017 Board meeting); NIK000109 (February 14, 2018 Board meeting).

5 In fact, in addition to being present during the Board’s meetings, Edwards also attended a number

6 of meetings of the Audit Committee and the Corporate Governance Committee. See, e.g.,

7 NIK000111 (February 14, 2018 meeting of the Audit Committee); NIK000056 (April 21, 2016

8 meeting of the Corporate Governance Committee).

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 Board became aware that “several news outlets remained focused on [the Company’s culture]”

25 and that “reports and articles” were likely to be published in the media, that the Board took limited

26 steps to remedy the ongoing wrongs. See, e.g., NIK-000124 (April 18, 2018 Board meeting,

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1 reflecting “the key learnings, the goals, and the actions being taken by the Company in pursuit of

2 the goals to improve the Company’s culture). Indeed, it was not until the publication of the New

3 York Times article became imminent that the Board contemplated “enhance[ing] the Company’s

4 culture.” See id.

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:

Dr. Lechleiter
Travis Knight
9

Philip Knight
Thompson
Comstock

Donahue

Edwards
Connors

Rodgers
Graf, Jr.

Peluso

Parker
Henry
Cook
10

11
BOD 4/16/2015 X X X X X X X X X X
12
BOD 2/11/2016 X X X X X X X X X X X X
13 BOD 4/21/2016 X X X X X X X X X X X X X
BOD 2/16/2017 X X X X X X X X X X X
14
BOD 4/20/2017 X X X X X X X X X X X
15 BOD 02/14-15/2018 X X X X X X X X X X X X X
BOD 04/18-19/2018 X X X X X X X X X X X X X
16
BOD50 X
2/12/2015 X X X X X X X X X X X
17 A&FC51 2/14/2018 X X X X
AC 2/10/2016 X X X X X
18 X X X X
AC 2/15/2017
19 AC 4/19/2017 X X X X X X
AC52 2/11/2015 X 53
X X X
20 X X X X X X
NCG 4/21/2016
21 NCG 4/20/2017 X X X X X
NCG54 4/16/2015 X X X X X
22

23
50
“BOD” refers to the meeting of the Board of Directors.
24
51
“A&FC” refers to the meeting of the Audit and Finance Committee.
25 52
“AC” refers to the meeting of the Audit Committee.
53
26 “X” indicates Individual Defendants’ attendance at the given meeting.
54
“NCG” refers to the meeting of the Nominating and Corporate Governance Committee.

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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.
58
26 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.
63
26 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.
66
26 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.
• Develop and recommend to the Board for approval corporate
9
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
71
25 See Nike, Inc. Executive Committee Charter, available at
https://investors.nike.com/investors/corporate-governance/?toggle=topBanner#board-chart (last accessed on Aug. 28,
26 2018).
72
Id.

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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. Indeed, the

19 Individual Defendants attended nearly every meeting of the Board as well as many of the meetings

20 of the Audit Committee and the Corporate Governance Committee during which their members

21 discussed the very subject matters that underly this complaint. For example, the February 12, 2018

22 meeting of the Board, which was attended by almost every Board member (i.e., Comstock,

23 Connors, Cook, Donahoe II, Graf, Jr., Travis Knight, Dr. Lechleiter, Peluso, Rodgers, and Philip

24 Knight), provided an overview of the complaints lodged by NIKE employees with the Company’s

25 anonymous whistleblower hotline. NIK-000004. In this regard, the Board was expressly notified

26 that the “overwhelming majority of concerns [received at the whistleblower line] were human

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1 resources issues,” and were also provided with both, the volume and the nature of complaints as

2 well as a detailed breakdown by “category of concern” and “allegation,” thereby fully apprising

3 the Board of various accusations of violation of NIKE's Code of Ethics. Id. These same

4 individuals and a number of executives who also attended the Board meetings were repeatedly

5 updated on the status, nature, and volume of employees’ complaints during the subsequent meeting

6 of the Board on February 11, 2016 (e.g., NIK-000042), February 16, 2017 (e.g., NIK-000076),

7 and February 14, 2018 (e.g., NIK-000109). Similar detailed updates were provided to the Audit

8 Committee during their respective meetings on February 10, 2015 (e.g., NIK-000032), February

9 15, 2018 (e.g., NIK-000065), February 14, 2018 (e.g., NIK-000102, NIK-000127).

10 106.

11 Furthermore, the Board was repeatedly confronted with information that should have put

12 its members on notice that NIKE HR Department was not discharging its responsibilities as it

13 should, and therefore, should have triggered investigations and inquiries by the Board to ensure

14 that NIKE HR Department was not abdicating its responsibilities to the detriment of NIKE and its

15 employees. As alleged in detail above (see supra at ¶¶ 60-65), beginning in at least 2014, NIKE

16 experienced a trend of declining reports to the NIKE whistleblower hotline. (e.g., NIK-00004).

17 This trend continued well into 2017 and became increasingly more pronounced during the

18 subsequent years. NIK-000065 (Meeting Minutes of the Audit Committee dated February 15,

19 2017, reflecting that NIKE experienced a 27 percent decline in the amount of calls received by its

20 whistleblower hotline); NIK-000076 (Meeting Minutes of the Board dated February 16, 2017,

21 reflecting that the “number of calls had declined year over year, despite the number of employees

22 increasing”).

23 107.

24 NIKE’s third party vendor — who maintained and administered the whistleblower hotline

25 — provided NIKE with benchmark figures, comparing NIKE’s reporting rate with those of other

26 Companies. Based on these figures, the NIKE Corporate Audit & Chief Risk Officer concluded

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1 that NIKE’s reporting rate was “well below” the global average. NIK-000105. 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 dropping reporting rate, the Board could have vindicated the Company’s

6 interests before the issue reached its colossal size and ended in a public scandal.

7 108.

8 Furthermore, the Board also knew that women were severely underrepresented in the

9 executive ranks. As evident from the Books and Records Production, the Board was regularly

10 updated on the culture and diversity within the organization. See, e.g., NIK-000039 (Feb. 11, 2016

11 Board meeting); NIK-000073 (Feb. 16, 2017 Board meeting); NIK-000116 (Feb. 14, 2018 Board

12 meeting). In fact, each of the relevant meetings during which diversity and culture were discussed

13 was attended by NIKE executives, who were directly responsible for the perpetuation of the sexual

14 harassment and gender discrimination within the organization, including Trevor Edwards and

15 David Ayre (e.g., NIK-000035; NIK-000069; NIK-000109). At these meetings, the Board was

16 free — but failed to — inquire regarding the Company’s gender pay equality, pay trends, female

17 employee promotions, etc. Had the Board adhered to the responsibilities conferred upon it, the

18 Board would have discovered that women were underrepresented within the higher corporate

19 positions and could have vindicated this disparity between female and male employees prior to the

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, NIKE’s Audit Committee ignored complaints lodged with NIKE’s
19
whistleblower telephone line despite knowing that the “overwhelming majority” of those related
20
to the “human resources issues,” and therefore, posed a serious threat to the Company’s
21
compliance with legal and regulatory requirements. NIK-000032; NIK-000042. Notwithstanding
22
that detailed reports were provided to the Audit Committee revealing the types of concerns and
23
the allegations made against the Company (e.g., NIK-000005), the Audit Committee did nothing
24
to assess the Company’s exposure to liability in connection with these complaints. This is so
25
despite the Audit Committee being expressly apprised of its authority to “investigate
26
independently” concerns relating to, amongst other things, auditing and internal controls. NIK-

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1 000004. 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 Neither did the declining reporting rate of AlertLine calls motivate Connors, Donohoe,

7 Graf, Jr., and Peluso to investigate the Company’s internal compliance programs, its policies and

8 procedures for addressing employee complaints, not even after the Audit Committee learned that

9 NIKE’s reporting rate has been consistently declining year over year (e.g., NIK-000065; NIK-

10 000076), while the rest of the industry experienced a significant increase over the same period of

11 time. E.g., NIK-000105. Indeed, Connors, Donohoe, Graf, Jr., and Peluso did not implement or

12 recommend the implementation of any policies or procedures that would save NIKE of the

13 embarrassment, reputational damages, and a significant (and costly) loss of high talent individuals

14 after the sexual harassment scandal was exposed to the public. Accordingly, demand on Connors,

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).


74
26 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 This was despite being aware that the “overwhelming majority” of the complaints related to human

8 resources issues, and could therefore, have implications on the Company’s labor practices, the

9 sustainability of which was within the Corporate Governance Committee’s purview. NIK-000004.

10 Additionally, the members of the Corporate Governance Committee utterly abdicated their

11 responsibilities to monitor and oversee NIKE’s strategies, activities and policies regarding the way

12 NIKE’s HR Department addressed employee complaints. Despite being regularly apprised of the

13 details of the employee complaints, including the nature of the allegations, the Corporate

14 Governance Committee has done nothing to assess the adequacy of the Company’s procedures

15 relating to the resolution of any such complaints. As a result, the Company’s deeply ineffective

16 resolution mechanisms went unnoticed while the underlying issue was gaining colossal scale.

17 118.

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 NIKE’s diverging figures of report rates and the underrepresentation of women amongst

24 the executive-level employees. Had defendants Henry, Dr. Lechleiter, Peluso, Rodgers, and

25 Thompson exercised even minimal oversight, they would have been alerted to the significant

26

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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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65 SW YAMHILL ST., SUITE 200
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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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65 SW YAMHILL ST., SUITE 200
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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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65 SW YAMHILL ST., SUITE 200
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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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65 SW YAMHILL ST., SUITE 200
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1 142.

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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65 SW YAMHILL ST., SUITE 200
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1 MCGAUGHEY ERICKSON

2 s/ Robert J. McGaughey
Robert J. McGaughey, OSB #800787
3
Aurelia Erickson, OSB #126170
4 Kevin Kress, OSB #146003
65 SW Yamhill Street, Suite 200
5 Portland, Oregon 97204
Telephone: 503-223-7555
6 Facsimile: 503-525-4833
Email: office@law7555.com
7

8
Gustavo F. Bruckner
9 Andrea Farah
POMERANTZ LLP
10 600 Third Avenue
New York, NY 10016
11
Telephone: (212) 661-1100
12 Facsimile: (917) 463-1044
E-mail: gbruckner@pomlaw.com
13 afarah@pomlaw.com
14 Brian J. Robbins
15 George Aguilar
ROBBINS ARROYO LLP
16 600 B Street, Suite 1900
San Diego, CA 92101
17 Telephone: (619) 525-3990
Facsimile: (619) 525-3991
18 E-mail: brobbins@robbinsarroyo.com
19 gaguilar@robbinsarroyo.com

20 Eduard Korsinsky
Amy Miller
21 William J. Fields
LEVI & KORSINSKY, LLP
22 55 Broadway, 10th Floor
23 New York, NY 10006
Telephone: (212) 363-7500
24 Facsimile: (212) 367-7171
Email: ek@zlk.com
25 amiller@zlk.com
wfields@zlk.com
26
Attorneys for Plaintiffs

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