Boards, investors and sexual harassment in the workplace

As we have seen repeatedly in the United States over the last two years, allegations of sexual harassment have profound repercussions for public and private companies and their shareholders. Operations become disrupted when top executives are forced out. The company’s reputation suffers and morale slumps. Management and the board may face legal charges and the financial costs can be severe.

Many ethical failings in business result from individuals making poor choices. But the more extensive and expensive breakdowns usually occur due to failures of company culture, with governance structures either broken or never properly established. Healthy companies have clear and consistent policies, open lines of communication for employees to report bad behaviour and established methods for the company to respond.

Companies of all sizes and industries stand to benefit when the board of directors plays a central role in setting a strong tone at the top and providing leadership on corporate culture, including combatting sexual harassment, empowering employees to bring forward concerns and treating all employees fairly. Board members should pay attention to these issues, not only because they are responsible for risks that affect their companies’ bottom lines, but also because they have an obligation to shareholders to exercise oversight in the company and promote sound governance practices.

Obviously, allegations against a top executive can be of particular concern to the board of directors. But board responsibilities go further than dealing with the crisis created by credible allegations against the CEO or other top executives.

Earlier this year, the US Council of Institutional Investors (CII) examined strategies and best practices for boards to mitigate the risk of sexual harassment and suggested some questions for investors to pose to boards to assess the quality of their oversight of the risk of sexual harassment. CII suggested these key takeaways for boards:

• Sexual harassment may go unreported because employees believe their HR departments lack the capacity or mandate to handle their cases. Breakdowns of trust can also hinder employees from coming forward with concerns. Companies have a responsibility to provide competent personnel to manage and monitor the company culture and boards have a responsibility to understand how this is done and diagnose where such efforts fall short
• More generally, corporate culture oversight ‘is by definition a key board responsibility’, as stated by a 2017 National Association of Corporate Directors Blue Ribbon Commission. Culture, the report advised, merits ‘regular, routine discussion among corporate leaders’. Culture clearly includes making the workplace free of sexual harassment as well as treating employees respectfully and promoting diversity. Culture also involves fostering trust between employees, managers and company leaders so that all personnel feel comfortable voicing concerns. It is up to the board to ensure that management upholds an appropriate tone at the top, with a sense of ownership and accountability for an ethical corporate culture that prioritises the dignity of all employees.
• Given recent revelations across many industries, all boards should discuss sexual harassment, including an examination of their companies’ policies. To ensure accountability, reports of sexual harassment – especially those against senior officials – must be brought to the board’s attention early, treated seriously and investigated thoroughly.
• Board composition, independence and culture can be critical in cultivating diverse perspectives to hold insiders accountable when sexual harassment occurs. Strong participation of women on boards and independent board leadership are clearly important. It may also be appropriate to assign clear leadership responsibilities
  on ethics and culture to a committee or subcommittee, including working with management to establish and monitor metrics on diversity and inclusion.
• The board should consider requesting information taking the following steps:

1. Include sexual harassment in their regular risk assessments
2. Discuss company culture, systematically and on a regular schedule, including:
3. Request information on past sexual harassment reports and records from HR
4. Require employee surveys that include questions about workplace environment, with meaningful data on employee views flowing to the board
5. Assess organisational tolerance for behaviour by high performers and other high-value employees that is inconsistent with the company’s stated values and code of conduct
6. Assess key factors that may make harassment more likely, including male-dominated power dynamics and decentralised and isolated workspaces

• Ensure that the company explicitly defines sexual harassment and provides examples of intolerable behaviour
• Direct management to ensure that harassment policies extend to the use of technology and advise that the company has the right to review any messages transmitted on company systems
• Have management and HR develop a plan to address harassment by third parties such as vendors and customers who are not subject to company policies and assure employees that they will be protected in those situations
• Verify that the harassment policy has been disseminated and is readily accessible to all employees
• Consider developing a means for employees to report sexual harassment directly to the board, such as through a designated board member, an online platform or an anonymous hotline. For larger companies where this may be impractical, boards should strongly consider putting some such mechanism in place for complaints about officers
• Where there are endemic issues or complaints against officers and senior managers, work with executives, HR and the legal department should determine the scope and timeline of investigations, including the people to be interviewed, the evidence to be weighed and the actions to be considered. In some situations, particularly involving allegations against the CEO and other top officers, a formal or informal committee exclusively composed of independent directors should investigate, drawing on resources including non-conflicted outside law firms
• Oversee a review and potentially revise other policies affecting company culture, including those on office parties, consumption of alcohol and disclosure of workplace romantic relationships
• Ensure all payouts to settle harassment cases are reported to the board
• Review with the legal team when information on incidents of sexual harassment should be reported to shareholders and how much information should be shared
• Include incidents of sexual harassment as a trigger for the recoupment of executive compensation, particularly where senior executives are involved or problems of supervised employees are endemic
• Verify that appropriate employee training is in place, as fostering a culture free of sexual harassment requires awareness throughout the company. Substantive training, not mere check-the-box exercises, can familiarise employees with the boundaries of appropriate workplace behaviour and the policies in place

Finally, boards must assure themselves that the company is effectively promoting workplace diversity​

CII suggested these key questions that investors can pose to boards:

• How does the board set the tone at the top of the company and how does that filter through the organisation?
• Does the full board discuss corporate culture annually or on some other regular basis? Is there a committee of the board that has special responsibilities in this area?
• How does the board learn about morale and attitudes, including employee comfort with avenues to raise complaints of sexual harassment and other workplace incidents?
• What mechanisms are in place for the board to learn about employee complaints generally and allegations of sexual harassment in particular? Does the board receive any direct reports on employee complaints of sexual harassment?
• How does the company handle sexual harassment complaints? For example, in what situations would an individual accused of harassment be put on administrative leave? How is confidentiality of the complainant protected and how do you ensure that there is not retaliation against complainants?
• Has the board or a board committee discussed possible causes for any sexual misconduct, or ways to eliminate sexual harassment?
• How does the board understand employee attitudes with regard to equal employment and diversity? Are there parts of the company or job categories of particular concern for promoting gender diversity?
• Does the board receive reports with statistics on employee turnover? Does the company conduct robust exit interviews and does useful information filter to the board from such interviews?
• Are employees required to use arbitration to pursue sexual harassment complaints?
• Does the board or a board committee meet regularly with the head of HR and other senior officials responsible for workplace conditions and equal employment?
• Is HR staffing adequate to address potential worker concerns about equal employment and sexual harassment?
• Please describe hot lines and whistleblowing mechanisms that would help surface complaints about sexual harassment, including those against senior officers.
• There is mixed evidence on the effectiveness of training about harassment. Does the board have clear explanations of training around harassment and sufficient information on the effectiveness of such training?