Sexual harassment – an emerging risk

This blog originally appeared on GES International’s website and has been republished following Sustainaltyics’ acquisition of the company on 9 January 2019. See the press release for more information.

The 25th of November is the International Day for the Elimination of Violence against Women and its goal is to increase global awareness of this gender-specific problem. Such violence can obviously take many forms, including human trafficking, female genital mutilation, child marriage, as well as sexual violence and harassment. This last kind in particular has emerged as a highly publicised and quite material problem for some companies, and thus for their investors, in the last three years in the form of sexual harassment in the workplace.

Firstly, let’s take a look at the international legal framework. Sexual harassment in the workplace. It is defined by the International Labour Organization (ILO), as “any unwanted sexual attention that is explicitly or implicitly made a condition for favourable decisions affecting one’s employment or that creates an intimidating, hostile or offensive work environment. It is a specific form of violence that concerns primarily, but not exclusively, women.” It is also described by the ILO as a form of discrimination based on sex.

Sexual harassment may include:

• insults, inappropriate remarks, jokes, insinuations or comments on a physical appearance, age, family situation, etc;
• a patronising or paternalistic attitude with sexual implications undermining dignity;
• unwanted invitation or request, whether or not accompanied by threats;
• lascivious look or other signal linked with sexuality; or
• superfluous physical contact such as touching, caresses, pinching or assault.

Interestingly, it has been the US market that provided by far the most examples of alleged sexual harassment in corporate life. The influx of such allegations in the news was seemingly triggered in 2016 after sexual harassment allegations by a former TV host of a top US news channel against its CEO. This ended with a USD 20 million settlement for the benefit of the ex-host, and USD 40 million severance for the now ex-CEO. But this company was not off the hook yet; on the contrary, it was just the beginning of its regulatory, financial and reputational trouble, as more lawsuits followed, also against other senior executives, both men and women, who allegedly abetted the former CEO’s misconduct. Another top US media company has faced somewhat similar allegations in 2018.

However, it is not only media companies that seem to have problems relating to sexual harassment. For instance, another notable case is that of a big Las Vegas casino company and its CEO he was allegedly sexually harassing an unspecified number of women, whereas the board of directors was well aware of this taking place but failed to act. The situation has prompted investigations by gaming regulators, followed by other institutions filing lawsuits against the company for breaching fiduciary duty. The first and foremost risk listed by this company, i.e. losing the services of its CEO, has materialised and he left the company.

As we can see, the alleged victims feel more and more empowered in putting forward such claims, which has a significant impact on the career of the accused, many of whom have been prominent and powerful people. But most importantly from the materiality perspective, the value of the companies is being reduced due to the termination of key management, distraction (by e.g. litigation, probes by regulators), and multi-million dollar legal and severance costs, as well as lost business opportunities. As more sexual harassment allegations are publicised, the phenomenon is something to be considered by the investors assessing risks relating to their portfolios, as well as for those who wish to align their operations with the UN Sustainable Development Goal 5 on achieving gender equality and women empowerment, as its targets include “eliminating all forms of violence against all women”.