Risk Oversight Sexual Misconduct

Risks Posed by Sexual Harassment in the Workplace

Improper sexual conduct and/or assault inflicts incalculable harm on victims. Tose who oversee companies have a duty to employees to maintain a workplace environment that is intolerant of such abuses.

In addition to the harm directly inflicted on victims, sexual misconduct is harmful due to

• negative publicity and reputational damage;
• adverse impacts on employee morale, retention, and recruitment;
• loss of clients and customers;
• negative impact on a company’s share price and/or fundraising efforts; and
• legal repercussions.

The damage is exacerbated if sexual misconduct occurs frequently, involves a senior executive, or is part of a broader crisis of corporate culture (such as a strong gender imbalance among the employee population or an unhealthy power dynamic between genders).

 Investors are also urging boards to take seriously their responsibility to prevent misconduct and ensure a safe work environment. The Council of Institutional Investors (CII), an association made up of large pension funds, has called for boards to implement stricter guidelines for those who violate sexual harassment codes of conduct, noting that “expensive and expansive ethical failings occur in the absence of sound governance structures.” Shareholders are likely to become more vocal about stronger oversight of this issue. CII and the investors it represents recognize that in order to maintain profits and create long-term value for the enterprise, boards—and their management teams— need to broaden their views of risk to include elements related to culture and redefine their role in overseeing it.

2. The board’s role in confronting the problem of sexual misconduct in their organization

The role of the board in confronting sexual harassment in the workplace can, initially, appear murky. Sexual misconduct is at the intersection of board oversight of corporate culture, ethics, compliance, and risk (particularly reputational risk), and as such it poses a critical juncture for the board to step into the conversation about this matter.

How should boards become more active in overseeing their companies’ efforts to tackle issues of sexual harassment? How should the board evaluate the effectiveness of management practices? What type of information should directors source and what expectations should they have for their leadership teams?

Familiarize yourself with the company’s existing policies and procedures around sexual harassment, ensuring that these policies are up to date and reflect a standard of zero tolerance for sexual misconduct.

These policies will vary from company to company, and can incorporate sexual misconduct prevention tactics, bystander training, incentives for appropriate behavior, and clearly defned disciplinary action for violating standards of behavior. Directors should work with the company’s general counsel, head of human resources, internal auditor, or director of compliance and ethics to review existing policies and procedures.

Management should create and implement anti-harassment policies that are updated to include clear examples of unacceptable conduct. h policies should detail how Directors should evaluate whether there are detectable patterns, not only in terms of where the complaints are coming from, but also in terms of what kinds of complaints are leveled and the process for resolution. employees should report sexual harassment and emphasize that no employee—regardless of rank—is exempt from the mandates outlined in the policies. The policies should also stress that individuals who lodge complaints will not be retaliated against, and clarify the process by which allegations will be investigated and resolved.

Along with clear and comprehensive policies, companies should provide meaningful training to employees, managers, officers, and board members. The training should aim to bring to life—with clear examples and scenarios—the company’s stated policy, reinforcing an understanding throughout the organization of what is and is not acceptable workplace conduct.

Perform an audit of open harassment cases, as well as an audit of any closed or sealed cases from the past three-to-five years.

Determine whether the sexual harassment claims brought against the company over the past three-to-five years were addressed appropriately. Are any of the individuals who violated the company policy on sexual misconduct still employed at the company? If so, why? How were victims treated? Did the company’s actions align with the policies communicated to employees? Did the company’s actions honor the culture and values that the company publicly espouses?

Take the pulse of the company’s work environment and culture.

As noted above, data from an NACD survey indicate that the board lacks insight into corporate culture below the C-suite. That survey also found that the board primarily receives information about culture from the CEO. Directors can gain a more well-rounded view of corporate culture by reviewing employee surveys (consider asking management to begin conducting such surveys if they don’t currently do this), by reviewing third-party information about the company via websites like Glassdoor.com or Indeed.com, and/or by talking with employees below the C-suite level when visiting company facilities.

Review and strengthen internal reporting systems. The board should ensure that the company’s reporting system for instances of sexual misconduct is well-publicized to employees, and that employees can report misconduct anonymously or confidentially. Directors, or a few individuals designated by the board, should be able to gain access to hotline-complaint reports in order to stay aware of incidents happening at the company and to look for broader trends that might indicate deeper cultural issues. Directors should evaluate whether there are detectable patterns, not only in terms of where the complaints are coming from, but also in terms of what kinds of complaints are leveled and the process for resolution. The factors that will trigger the disclosure of allegations to the board—and, for public companies, those that trigger shareholder disclosures—should be clearly specified. Directors can also ask management to create a hotline with direct access to the board in the event that accusations are made against senior leaders. Finally, a strong nonretaliatory policy toward accusers is also important in encouraging employees to speak up and report incidents of misbehavior.