Me Too, But Now What? What Board Members Need to Know About Workplace Sexual Harassment

09 November 2017 Legal News: Labor & Employment Publication
Author(s): Larry S. Perlman Beth I. Z. Boland

Allegations of workplace sexual harassment and assault have been making headlines from Silicon Valley to Hollywood to the halls of Congress and brought down the careers of numerous high-profile executives. Partially a response to the uptick in reports and partially a catalyst for new complaints, the “Me Too” hashtag prompted thousands of women and men to take to social media and share stories of sexual harassment and assault. Now, in boardrooms from coast to coast, directors and trustees are grappling with what role they can play in responding and creating long-term solutions.

This primer discusses the impact that sexual harassment and assault allegations can have on companies and identifies steps that a Board member can take to both respond to allegations and avoid future claims. While this primer focuses on sexual harassment and assault, it is important to note that applicable law and Human Resources policies cover other forms of harassment as well.

Why Sexual Harassment and Assault Allegations Should Matter to the Board

If there is a lesson from the recent wave of high-profile claims it is that sexual harassment and assault allegations are bad for a company’s corporate culture, reputation and bottom line.

  • Above all else, sexual harassment and assault harms victims, and should not be tolerated by any entity that claims to value its employees.
  • Litigating or settling claims can cost millions of dollars, both in terms of defense costs and the costs of settlement or judgments.
  • Boards of Directors of public companies have obligations to disclose harassment claims to shareholders in certain cases. Such disclosures can negatively affect stock price and leave the company vulnerable to shareholder lawsuits.
  • One company’s multiple sexual harassment settlements recently prompted a federal investigation into whether it properly disclosed those settlements to shareholders. Another publicly-traded company is defending against multiple
    shareholder lawsuits after its stock price plummeted in the wake of a media report detailing widespread sexual harassment complaints.
  • Even in closely-held companies or non-profit organizations, high-profile sexual harassment allegations can result in negative media coverage and long-standing reputational damage, which in turn impacts fundraising efforts and recruitment and retention of talented employees, and leads to negative customer or client sentiment.
  • Sexual harassment investigations may result in terminations or resignations. If they involve senior executives, such departures can lead to major organizational shifts and detract from an organization’s long-term growth goals.

What the Board Needs to Know – Questions to Ask Management

Directors should educate themselves on how their companies currently handle sexual harassment claims and when and how the Board is informed about complaints.

  • Ask the Human Resources, Compliance or Operations team for copies of your organization’s sexual harassment policies and investigation procedures.
    • Review them at your next Board meeting and confirm that the Board knows its role in handling sexual harassment or assault allegations. For example, many company policies allow employees to report sexual harassment to the Board. This is a particularly effective approach when the alleged harasser is at the most senior level within the company.
    • Ensure that management is familiar with its role in reporting and investigating harassment claims and that the company is following its own policies and procedures.
  • Find out the details of the company’s diversity and inclusion training and programs: is it a “check-the-box” approach limited to an occasional online module? Or is it an organized, serious, thoughtful, approach that permeates throughout the organization?
  • Ask your Legal and/or Finance team “who, what, where, when and how” with respect to the company’s policies and procedures for reporting sexual harassment claims to the Board.
    • Review who at the company is responsible for reporting claims and at what point the claims should be raised to the Board. Not every internal complaint will need to be reported to the Board depending on the size of the company and the nature of the complaint.
    • Confirm what factors the company is using in determining whether a claim should be reported to the Board, such as monetary thresholds or whether claims are only reported after litigation has been initiated.
    • Determine whether claims are identified to the entire Board or a committee thereof. If it is not clear, implement a plan for who on the Board will receive notice of such complaints.
    • Review how claims are tracked and valued in terms of financial risk to the company.
    • For public companies, review with your Legal team when claims must be disclosed to shareholders and how much information should be shared.
    • Be aware of aware of attorney-client privilege. Ensure that in-house or outside counsel are involved in the reporting process to maintain privilege as necessary.
  • Make sure that the Board has access to information about prior complaints and outcomes, which will help reduce the likelihood that a pattern of complaints goes unnoticed. Identify repeat offenders within the organization’s ranks – and if those offenders are still with the company, demand a detailed explanation why. This especially goes for settlements with claimants involving senior management, even if the settlement amounts are not material to the company’s balance sheet.
  • Require that the Board be notified promptly about any complaints against the CEO or a member of the senior management team, and require Board approval for any settlement of such complaints.
  • Remember, there can be consequences for improper behavior even if it does not amount to illegal harassment or rises to the level of violating company policy, particularly when there is a pattern of improper behavior.

How the Board Should Manage Internal Harassment or Assault Complaints

The Board may learn of a sexual harassment or assault complaint from any number of channels, including a formal report from the company, a direct complaint from an employee to a Board member, a news outlet, or a blog or social media post. However it is notified, once the Board learns of such a complaint, it should take immediate steps to ensure that the company properly addresses the complaint.

  • Create a focused response team with representation from Human Resources, Legal, Public Relations and Compliance that will manage the company’s approach to a sexual harassment or assault complaint on multiple fronts.
  • The Board’s role in investigations and appropriate follow-up action will vary, depending on factors such as the size of the company and whether the complaint involves senior executives.
    • As a general rule of thumb, if the alleged harassers are members of senior management (as defined by the Board), this process should be led by the Board.
    • For other complaints, the process should be led by management, but with reporting up to the Board.
  • Ensure that the company completes a full investigation of the allegations, which may include interviews with relevant witnesses and a review of relevant documents.
    • Employees (and judges and juries) want to see companies move quickly and decisively to review complaints and determine next steps.
    • Consider enlisting outside counsel to conduct your investigation, especially those involving senior management, in order to (1) maintain attorney-client privilege (to the extent possible); (2) ensure an objective third-party reviews the facts; (3) assist you in determining appropriate remedial actions, if necessary; and (4) keep the investigation moving forward on a timely basis.
    • If the complaint involves allegations of sexual assault, discuss with the complainant whether and how to alert the proper authorities.
  • Manage the message, particularly for high-profile harassment claims.
    • Consider a plan for handling media inquiries and work with outside public relations or other parties if necessary to minimize any reputational damage.
    • Ensure that you have outside public relations professionals identified in advance should the need arise.
  • As recent high-profile events make clear, when harassment claims involving senior management arise, things can move quickly, requiring quick action by the Board. That means that Board members must be proactive. Be familiar with your investigation, public relations, and crisis management procedures before receiving a complaint, so that these resources can be marshalled quickly when a situation arises.
  • Be mindful of retaliation and ensure that managers work with your Legal team in taking any employment actions involving the complaining party or any participants in the investigation.

How the Board Can Be Proactive in Avoiding Claims and Mitigating Future Risks

The Board can play an important role in setting the tone for a harassment-free workplace.

  • Maintain a 21st century sexual harassment policy.
    • Revise your policies and procedures if they are outdated or generic.
    • Review your technology policies to ensure that the company’s non-harassment policies extend to use of its technology and that the company has a right, but not the obligation, to review and access any messages or information transmitted on company systems.
  • When the Board has an open seat, make sure that your search includes diverse candidates who reflect the makeup of your workforce. Equal representation in executive and director positions is one of the best ways to promote a business atmosphere in which all employees feel safe and valued.
  • Consider non-harassment training, as well as diversity and inclusion training for the Board, senior management and/or all employees.
    • Trainings should be meaningful and substantive and should focus on how to behave rather than what behaviors to avoid.
    • Quality trainings send a message that the company is committed to maintaining a harassment-free workplace.
    • Outside counsel can tailor trainings to various groups of employees.
  • Discuss the merits and potential drawbacks of additional reporting mechanisms, such as an anonymous hotline or an ombudsperson, with your Legal team.
  • It is important to “walk the walk.” Review the “Cause” provisions and indemnification requirements in executive and other employment agreements. On a go-forward basis, ensure that violation of sexual harassment policies constitutes a “for Cause” termination and consider requiring executives to indemnify the company if there are proven allegations of sexual harassment or assault. These are not only good business practices but they send a clear message that the company will not tolerate sexual harassment or assault.
    • Many companies still have to pay out huge severance packages to C-suite managers who were accused of or even admitted to harassment.
    • Review equity, options, bonus and other incentive compensation plans along the same lines.

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