War stories or case studies outlining governance ‘failures’ to provide learnings from other people’s mistakes, are often the most requested sessions for The Institute of Directors in New Zealand’s (IoD) conference sessions.
However, it can be challenging to find examples where people are prepared to speak about times when governance was challenging and where things didn’t go as intended. Like many other nations, New Zealand is not short of such incidences. For instance, in 2014, one of the country’s most high-profile executives – the CEO of the Canterbury Earthquake Recovery Authority (CERA) – resigned, following an investigation into a complaint from a senior female staffer about serious misconduct.
CERA was the government department coordinating the rebuild following the devastating 2011 earthquakes and fall-out from that resignation went right to the heart of government. Public concern over the handling of this situation ensured ongoing headlines. Fast-forward four years and several prominent New Zealand organisations are again dealing with sexual harassment allegations.
The Russell McVeagh scandal
What is different this time is that one of these organisations, leading law firm Russell McVeagh, opted to make public the report of the independent investigation into the allegations. The result for New Zealand’s governance community is a blueprint for widespread change, which cannot be ignored – the power of social media won’t let it.
Russell McVeagh is one of New Zealand’s premier law firms. In February this year, a news organisation published allegations of a ‘pattern of sexually inappropriate behaviour’ by several senior male lawyers at the firm towards female university students who spent a summer clerking for the business in 2016. The article resulted in an outpouring of allegations regarding a widespread culture of harassment across the New Zealand legal industry.
Academic and public outrage escalated rapidly. Universities, the Woman’s Law Journal and the NZ School Debating Council cut ties with Russell McVeagh; a blog providing an anonymous platform for reports of sexual violence within the legal profession resulted in 214 accounts of alleged rape, abuse and intimidation; hundreds of law students staged a high-profile demonstration outside Russell McVeagh’s Wellington office. The Wellington Women Lawyers Association, Criminal Bar Association and the Law Society ran surveys, revealing widespread reports of bullying and harassment across the entire legal profession. A third of female lawyers reported having been sexually harassed during their working life.
“IT IS TIME FOR THOSE IN POSITIONS OF GOVERNANCE TO REFLECT IF OUR ACTIONS AND QUESTIONS AS DIRECTORS ARE EXPRESSING THE PRIORITY OF CULTURE CHANGE THAT WE ALL WISH TO SEE”
The Russell McVeagh review was headed by one of New Zealand’s most prominent, now retired, public servants Dame Margaret Bazley. The 89-page report, published in July, pulled no punches. Failings were found in the firm’s governance, structure, management, policies, standards and systems – including having no code of conduct – which Dame Margaret said contributed to poor management of the incidents.
The report speaks to independent review of governance structures, the tenure of board chair and board members, the role of the board chair, the role of the board in driving transformational culture change, the appointment of independent board members and the adequacy of board reports. It also recommends that board committees and appointment processes be reviewed.
Dame Margaret noted that a culture change of the magnitude envisaged by this review takes a long time to come into effect. She estimates it will take 10 years and notes the essential role the board will play in ensuring the culture is monitored, measured and reported on if momentum and priority is to be maintained. Public release of the report was a brave move and has the opportunity to have significant impacts beyond Russell McVeagh’s own transformational culture change. Just as people behave within a company context, companies themselves also exist within an industry context.
We would be naïve to think issues are restricted to one organisation or even one industry – and further examples continue to surface in New Zealand and around the world. To name but a few, New Zealand’s Human Rights Commission came under fire this year over its investigation of a sexual harassment complaint made by a young intern. A ministerial review found the HRC had failed in its handling of sexual harassment claims.
Good governance demands of us that we are scanning across industries for trends and messages that we should adopt, or that could impact our own organisations. It is time for those in positions of governance to reflect if our actions and questions as directors are expressing the priority of culture change that we all wish to see.
New Zealand Prime Minister Jacinda Ardern has called for the energy of the #MeToo movement to translate into action – with solutions needing to have both a cultural and a policy dimension. To quote the Prime Minister: “What we need to do is then say, ‘OK, well what next?’ You don’t want a movement, really, of women continually feeling like they need to tell stories that then equate to nothing in real terms. And so that’s the question that I’m interested in asking: what next?”
But even Prime Minister Ardern’s own Labour Party has found itself in the spotlight for all the wrong reasons. The party launched a review by an independent barrister, acknowledging it failed in its duty of care over its handling of claims by four young supporters that they were sexually assaulted or harassed at its annual ‘summer school’ youth camps in early 2018.
In August, Labour committed to implementing all recommendations of the resulting report. These include, among others, reviewing the Party’s code of conduct, policies around sexual harassment and assault, alcohol, events and host responsibility and complaint procedures.
However, the decision not to release the report publicly was criticised in the media, social media and by at least one of the young people concerned. It may be that the Bazley report’s release has led to an expectation of greater public transparency and that is something boards would benefit from.
What next for boards? How do they begin to make those changes?
While most IoD NZ DirectorsBriefs are usually available exclusively to members, we released our brief on sexual harassment and the board’s role to the public to help create safer workplaces across New Zealand.
The brief outlines clearly to directors that they are accountable for addressing sexual harassment in the organisations they govern. Boards are tasked with ultimate responsibility for organisational culture and performance. The many examples we are seeing highlight how important it is that boards know what is happening within their organisations and deal with issues consistently. How organisations talk about sexual harassment and assault in the workplace is rightfully changing and boards need to evaluate how their organisation addresses this misconduct.
There needs to be a safe zero-tolerance culture that ensures harassment does not happen and if it does occur, that employees, volunteers and contractors feel they can raise the issue and that appropriate action will be taken. The board must set the tone for healthy organisational values, standards and culture, including safety, respect and conduct. This includes addressing unwanted comments or physical contact, persistent and unwelcome social invitations and less-than-professional conversations and behaviours, including smutty jokes and inappropriate material and language.
Boards should hold management to account by requiring regular reports of complaints, investigations and outcomes. Our 2017 IoD Director Sentiment Survey found that only 40 per cent of boards received comprehensive reporting on ethical matters and the actions taken to address them.
Boards need to understand their legal obligations and to ask a lot of probing questions. They should know: whether their organisation has a sexual harassment policy; how values and standards are communicated throughout the organisation; what ethical framework is in place and how regularly it is reviewed. They should be performing cultural health checks with external or independent advisors and looking at what reporting they receive on conduct and behaviour.
Does your board receive reporting on complaints and investigations? What process is in place for a sexual harassment complaint against senior executives? Do complaints about senior executives go to the board and does the board investigate? Do you ensure board-only time to discuss culture, complaints and employee feedback?
Importantly, is sexual harassment treated consistently with other forms of misconduct, such as physical assault or verbal abuse?
Much recent commentary in New Zealand has focussed on the importance, in effecting change, of developing a ‘speak up’ culture within your organisation – thus creating an early warning system for potential issues.
Karin Lasthuizen, who currently holds the Brian Picot Chair in Ethical Management at Victoria University’s School of Management in Wellington, has posed the question: “Are New Zealanders too polite to speak up when they see ethically questionable behaviour at work?”
Lasthuizen points out that ethical leadership is about cultivating organisational ethical behaviour through role modelling, communication and enforcement. She believes New Zealanders find the enforcement angle of this the most difficult.
Contrasting Kiwi behaviour with the “quite critical, direct, open approach” in her native Netherlands, she observes: “Here in New Zealand the culture is very polite. So, people seem to find it more difficult to address others and say, ‘why are you doing this and why do I feel uncomfortable with it’?”
This natural reticence makes it even more crucial that boards ensure safe and effective organisational systems are in place, that encourage and enable employees to speak up without fear of recrimination. An important first step is having a clear policy and procedure for reporting concerns and potential misconduct. The effectiveness of speak-up systems relies on:
- Robust and consistent response systems that build trust, with appropriate recording and follow-up activities
- The operational independence of those who receive and investigate employees’ concerns and the board’s willingness to safeguard that independence
Then there is ‘whistle-blowing’. This differs from ‘speaking up’ in that it is usually an allegation that a wrongdoing has occurred and may be made outside the regular management channels to report suspected illegal or unethical activities or behaviour within the organisation. New Zealand’s protected Disclosures Act 2000 (currently under review) facilitates such disclosures of serious wrongdoing in and by organisations and protects those who make such disclosures.
Peter Boshier, Chief Ombudsman for New Zealand, has expressed concerns that many directors and senior managers in the private sector are putting themselves at risk because they do not have policies and procedures in place to protect whistle-blowers. As Mr Boshier points out in one of our IoD DirectorsBriefs: “When this issue arises in the media, it is the action or inaction of people within government departments that tends to hit the headlines. But the Protected Disclosures Act doesn’t just apply to the public sector, it covers anyone in the workforce who wants to raise issues of serious wrongdoing.”
Mr Boshier encourages directors to consider four key points:
- Have a policy, make it accessible and talk about it frequently. Make sure your staff know how to speak up and what will happen if they do
- Develop a strategy for supporting whistle-blowers. If someone does make a disclosure within your organisation, consider the risks they face from speaking out and take appropriate action. Keep them informed and make sure they are not mistreated in any way for making the disclosure
- Make sure whistle-blower confidentiality is maintained in accordance with the Act
- Recognise the value to your organisation of a culture that encourages speaking up
In a statement following publication of the Bazley Report, Russell McVeagh chairman Malcolm Crotty noted: “We have apologised to the young women for the hurt and damage we caused. We recognise that they have shown great courage and applaud them for this. Their actions will result in meaningful change.”
It is time for boards to be courageous, too, and act. The impact of the #MeToo movement and the winds of change these are driving, is not simply ‘a risk’, but is an unprecedented and powerful opportunity to change and strengthen your organisational culture to address all unethical behaviours.
