Recent events – across industry sectors – underscore the importance and fragility of a company’s reputation. As sexual harassment emerges as a significant business and reputational risk, investors are looking to the board of directors not only to react appropriately when allegations surface but also to act proactively and make the prevention of sexual harassment a focal point of the board’s oversight of culture and risk management. In a report published yesterday entitled How Corporate Boards Can Combat Sexual Harassment, the Council of Institutional Investors (CII) offers directors strategies to help address the risk of sexual harassment at their companies and offers investors targeted questions to help them engage on this issue and evaluate how well boards are doing.
Some of the strategies that CII presents reflect the investor community’s strong advocacy of board independence and diversity as a powerful means of enhancing oversight generally. Others are more directly aimed at sexual harassment, including heightening efforts to improve diversity and inclusion throughout the workforce, oversight of the adequacy and effectiveness of the company’s HR function and providing thoughtful, varied training, particularly of middle managers, whom CII views as often “the first line of defense.”
With regard to policies and procedures, CII recommends that boards:
- Include sexual harassment in regular risk assessments.
- Discuss company culture, systematically and on a regular schedule, including reviewing past reports of sexual harassment provided by HR, requiring employee surveys that include questions about workplace environment, assessing organizational tolerance for behavior by high performers that is inconsistent with the company’s stated values, and assessing special factors that may make harassment more likely.
- Ensure that company policies and communications stress zero tolerance for sexual harassment.
- Ensure that anti-harassment policies extend to the use of technology and address potential harassment of employees by vendors, customers and other third parties.
- Consider developing a means for employees to report sexual harassment directly to the board.
- Oversee and, where necessary, ensure the independence of investigations, particularly when they concern endemic issues or allegations against top officers.
- Oversee a review of company policies on matters such as office parties, alcohol consumption and disclosure of workplace romance.
- Ensure all payouts to settle harassment cases are reported to the board.
- Discuss with legal counsel when, and to what extent, incidents of sexual harassment should be publicly disclosed.
- Include incidents of sexual harassment as triggers for the clawback of executive compensation and “for cause” termination.
Above all, CII emphasizes, it is “up to the board to ensure that management upholds an appropriate tone at the top, with executives setting positive examples, and with a sense of ownership and accountability for an ethical corporate culture that promotes treating all employees with dignity and respect.”