Writing on Harvard Law School Forum, Institutional Shareholder Services (ISS) writes that though sexual harassment is not a new problem for organisations or for boards, 'the current moment of intense scrutiny' and the wave of recent complaints is an opportunity for boards to make progress in addressing the issue, to broaden their notion of risk and redefine their roles in managing it, and to signal to investors that they are doing so effectively. 

Starting point: Sexual misconduct as a cultural issue requiring board oversight

• Not an HR issue but a cultural issue requiring board oversight: ISS argues that sexual harassment/misconduct and discrimination are fundamentally issues of culture requiring active board oversight especially given the risks associated.  As such, ISS argues that boards have a role to play in creating a company culture in which gender equality and diversity are valued and embedded eg through prioritising diversity and equality at the highest levels, starting with the board of directors. 

• Diversity as a marker of effective risk management:  ISS notes that investors increasingly understand the risks associated with poor culture, and consequently are increasingly paying attention to 'markers' of workplace diversity and gender equity eg the degree of gender diversity at the board and C-suite levels.  At the same time, ISS notes, some investors are also seeking greater transparency on these issues through direct engagement or by submitting shareholder proposals on an array of gender-related issues such as gender pay parity and board diversity.

Signalling the board is committed and engaged in managing the risk: Five signs of effective sexual misconduct risk management

ISS identifies a number of some measures it suggests boards consider implementing to help formalise their role in overseeing this risk and to signal to investors—and employees—that the board is committed to ensuring a safe workplace. 

1. Sexual misconduct risk is specifically enumerated and oversight assigned to a board committee. Making the oversight of anti-harassment and discrimination policies and procedures the mandate of a board sub-committee compels more detailed and focused attention on the matter, ISS writes. Some signs that the board is managing the risk include:

   • Regularly reviewing policies and procedures to confirm that effective grievance mechanisms are in place. These policies should not rely solely on reporting by victims, but they should also urge bystanders to come forward.

   • Requiring regular reports of complaints and outcomes. In cases involving senior management, complaints should be channelled directly to the committee.

   • Proactively performing regular corporate culture health checks. ISS suggests that boards should ensure they have access to individuals at various levels of the organisation to help ensure they get a 'less filtered read' on culture; and in addition that they monitor retention and advancement rates for women and minority employees to get some insight into how women and minority employees are perceived within the organisation.  To be effective, ISS writes, it's important that general employee awareness of policies and procedures as well as whether employees feel safe reporting incidents or fear retaliation is assessed.  

2. The board has expertise in workplace and employee issues. ISS comments that though it is uncommon to find directors with deep human resources-related backgrounds on boards, dealing with workplace topics such as inclusion and safety (integral parts of HR professionals’ roles) would be a valuable skill to include on boards.  As such, ISS suggests that boards should consider incorporating this expertise. 

3. Material penalties are in place for perpetrators and abettors. Imposing real penalties and extending these to include individuals who wilfully conceal violations or engage in retaliation against whistleblowers sends a clear message of non-tolerance ISS argues.  For example: companies could consider including a trigger within compensation clawback policies for misconduct relating to sexual harassment or discrimination. 

4. Executive compensation structures—at a minimum—contain incentives for creating a safe and equitable workplace. Promoting a diverse and equitable workplace culture helps to create an environment where employees feel valued and safe and where an abusive culture is less likely to take hold ISS writes.  Incentivising the promotion of a healthy culture is one way to ensure focus in maintained and progress is tracked eg Integrating diversity into the organisation’s goals and compensation structure. 

5. Diversity at board level: the company should model the behaviour it seeks to promote. 'It is difficult to give credence to claims of being an inclusive organisation', ISS argues, if there is a lack of women and minority directors on the board, in the C-suite and in management positions.  On this basis, ISS argues that the board's makeup should reflect the company’s values by including a diverse group of directors.  Doing so will to ensure that there is a diverse group of leaders managing the company day-to-day and  also may help mitigate the risk.

 [Source: Harvard Law School Forum on Corporate Governance and Financial Regulation 16/02/2018]