The Hidden Costs Of Sexual Discrimination Make It a Financial Concern
It would be dangerous to think that concern about sexual harassment, propelled into the spotlight by the social media #MeToo movement, is focused on what is 'just a women's issue.' It's a concern that should in any case have made its way into boardrooms, as I recently wrote. After all, women equal half the UK population - in fact in 2016 they outnumbered men.
But the real reason for business to focus on sexual discrimination of any sort is that it is a manifestation of inequality and the exercise of power to maintain a status quo that is simply not productive. While some costs of sexual discrimination may be blindingly obvious, others are hidden. In 2018, in ever competitive markets and with multiple challenges to existing business models from technological change, hidden costs equate to flashing red lights for boardrooms. That is also evident when they are increasingly identified by experienced voices, including those of institutional investors.
"Sexual harassment is both a symptom and a cause. It's a symptom of unequal power and it reinforces a sense of those who are harassed as being less valuable. The cost at work (of sexual harassment) is therefore huge" says Matteo Winkler, Professor of Tax and Law at HEC business school in Paris. He is in London to discuss the hidden costs of sexual discrimination, having focused his research on human rights and LGBT issues in international business. Among those hidden costs he includes reputation, lower productivity, higher staff turnover, absenteeism, poor morale - and increased healthcare costs to healthcare systems in place. Sound familiar ?
As a lawyer who has taught international and EU law, Professor Winkler is painfully aware of the potential implications for workers' rights of the UK vote to leave the European Union. He is also sceptical of the value of many corporate diversity and inclusion initiatives that have been undertaken to date.
Diversity was reported as the Number One issue by graduate employers in 2017, according to a survey by the Institute of Student Employers. HEC is launching a new course on diversity and inclusion strategy, to get students acquainted with the many ways in which discrimination works. Professor Winkler suggests - during the course of a round table event in London with media today - that mentoring might be a better way for many businesses looking to succeed in changing the ethos of the workplace towards greater equality.
He believes in the power of storytelling, and has a compelling story of his own that demonstrates well how uncaring corporate power on stereotyped rules of acceptable employee behaviour might not easily be defied when something personal is at stake. You can also draft all the equality laws you want, he suggests, but there may be a fatal flaw in expectation of progress.
"Laws change society but the society itself must have changed a bit before the law, for it to work" says Professor Winkler.
That rings true here in the UK, where the advances since 2011 of women as non-executive directors in the boardroom has taken an enormous amount of government energy and directives, business lobbying and media support. We are still fighting, and 'naming and shaming' - from all-male boards to non-payment of the minimum wage, obscene levels of executive pay compared to pay for average workers, the gender pay gap, and more.
There has been progress, but it is important to remain committed to the need for corporate transparency. What if listed businesses had to disclose how much they have paid to settle sexual harassment claims ?
That might be like putting all the litigation costs at the top of the AGM agenda for shareholders. My latest Governance Watch for a boardroom consultancy looks at litigation costs again, this time for retailers - and links back to 2014 when I wrote on Forbes around a piece about Deutsche Bank: "Litigation costs are the penalties for bad corporate governance in the first place - and it is debatable as to whether they should be met by shareholders. For the reputational costs of litigation costs are likely to be a multiple of the fines paid.”
Unsurprisingly, institutional investors are not asleep on the dangers of sexual harassment to the financials. Also in 2014, I wrote on Forbes about a then-new, predominantly female financial services firm Cornerstone Capital and its CEO Erika Karp, who spoke of 'corporate sustainability' as synonymous with 'corporate excellence.' Now it has almost $1 billion in assets under management.
Recently a report from Cornerstone Capital landed in my inbox. Its title says it all - Structural Complicity: Sexual and Gender-based Violence as an Emerging Investment Risk. Companies that foster an atmosphere allowing sexual harassment and violence and are not transparent about how such matters are handled are putting themselves at financial risk of a backlash from shareholders, it suggests.
These same companies could also be reducing employee productivity, it adds. “We believe it is incumbent upon investors to demand greater transparency on issues of sexual and gender-based violence related to business activity; to hold companies accountable for reducing it, and to incentivize companies to minimize” harassment, says the report.
"Companies that enable such behavior either unwittingly or through negligence are also culpable for the persistence” of sexual harassment, it adds.
“Investment issues are dynamic. Risks evolve alongside stakeholder interest and companies’ strategies. As stakeholders become more aware of an issue, it can evolve from a non-financial to a financial concern for companies” says the Cornerstone Capital report.
Institutional investors have used their clout in the past, and I covered their rising concerns on ESG and other issues of corporate governance on Forbes, in this piece and others. They have even begun increasingly to speak out on the need for gender diversity, with results in boardrooms.
So, when it comes to sexual discrimination and how it is handled - boardrooms, you have been warned.