There’s new data out showing the impact of sexual misconduct at work on a company’s share price. Companies with complaints of harassment or discrimination perform far worse than others in the same sector, according to University of Manitoba Assistant Professor of Finance Shiu-Yik Au.
The impact is felt even if an incident is not ‘high profile’ enough to make the headlines, as with cases involving a senior figure. “The relationship between rank-and-file sexual harassment and company stock price is probably not evident to most CEOs, who may consider it merely a modest, if unpleasant, cost of doing business,” said Au. “Our study strongly suggests otherwise.”
Au and his colleagues analyzed 1.5 million employee reviews on job sites Indeed and Glassdoor, looking for complaints of sexual harassment and discrimination during the period from 2011 to 2017, which includes the height of the Me Too movement.
“If you’d invested in these sexually harassing firms, you would have actually suffered a loss of around 20%, compared to an increase of about 150% for regular firms,” Au said. This amounts to a loss of about $2 billion per year for some companies.
Some recent examples of this happening with disastrous consequences include the former chief executive of McDonald’s currently being sued by his former employer over sexual relations with multiple direct reports in breach of company policy. Or the Amazon workers shutting down warehouses with protests over inadequate PPE and safety measures while simultaneously hiring employees by the thousand to meet increased demand from online shoppers. Or a revelation by Adidas employees about systemic racism and discrimination at the global brand, resulting in the resignation of the company’s head of people.
One of the key challenges is that legacy tools don’t facilitate a speak up culture. And while companies have had plenty of opportunity to fix these mechanisms voluntarily, now they’re being told to. There are UK Government initiatives such as the EHRC guidelines on dealing with sexual misconduct at work – guidelines that are due to become legislation.
Meanwhile, in the US the Department of Justice (DoJ) updated its Corporate Compliance Guidance indicating heightened scrutiny over its understanding of how compliance programs should work as well as on the effectiveness of such programs. For companies that come under the DoJ’s scrutiny, prosecutors will look at three attributes in investigations:
- Is the corporation’s compliance program well designed?
- Is the program being implemented effectively?
- Does the compliance program work in practice?
A soundbite from the document suggests that the hallmark of a well-designed compliance program is “the existence of an efficient and trusted mechanism by which employees can anonymously or confidentially report allegations of a breach of the company’s code of conduct, company policies, or suspected or actual misconduct.”