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?