As more and more companies face allegations of sexual harassment and other inappropriate conduct or relationships, shareholders, the media and the public are often asking: where was the Board of Directors? When did they know? Why didn’t they react more quickly? And Boards themselves ask: how could this crisis have been avoided?
Our webinar attempted to answer these questions and more. Moderated by Trish Oelrich, NACD-NJ Board member and member of the Board of the Federal Home Loan Bank Office of Finance, our two experts, Katherin Nukk-Freeman, Esq.,of Nukk-Freeman & Cerra and Laurie Hayes, of Edelman, covered a range of issues, beginning with the current environment, in which no industry is exempt from #MeToo claims, the challenges Boards face when the story becomes a media event, and the potential impacts on companies.
These consequences can include not only the obvious outlays for investigating, settling and litigating claims of the complainant and shareholders who file derivative actions against the Board, but companies can also incur expenses to restore reputation and rebrand themselves. Many companies have experienced declines in market price of their stock (e.g., 5% at CVS; 9% at Wynn), and there are also the indirect costs of customers expressing their disapproval by moving away from the company’ s products or services.
And, the exit of a senior leader presents potential severance benefits (or litigation over denying those payments) but perhaps more significantly, a negative impact on company financial results if the leader was performing successfully. Moreover, failure by the Board to deal effectively with the senior leader, even in the case of a less serious infraction, can send a message to employees that more serious conduct may be tolerated or induce other employees to conclude that harassment is acceptable in the company’s culture.
With prevention being key, and most directors having limited visibility into the culture of the company, and limited ability to influence culture, what can Boards do consistent with their roles?—
Boards should consider corporate culture to be a risk factor. A healthy culture has an impact on the level of investor trust.
Boards need to make clear to management what information they need and want in order to understand troubling cultural trends in the organization, and whether they are widespread or relate to a particular individual, division or location.
They should articulate to management what kinds of claims the Board wants to hear about. One suggestion is to have the hotline report complaints directly to the Audit Committee Chair so they are not filtered by management.
The Board should consider if and how it wants to incorporate HR expertise into the boardroom: can it rely on the senior HR leader, or is that person too closely aligned with the management team to be objective? Should HR skills be a criterion in recruiting board members?
The Board may have to take “rumblings and rumors” seriously rather than hoping the situation will fade away. Should there be an ombudsperson, similar to a chief of compliance, who reports directly to the Board with dotted line responsibility to the CEO and HR leader and who can give the Board a barometer on negative cultural trends?
The Board should have a sense of the overall diversity of the management team and the quality of diversity training in the corporation; it might decide to take the same training as is provided to employees.
This may be an appropriate time to review any definitions of “Cause” in employment agreements and programs to include sexual harassment or other inappropriate behavior so that the Board is positioned to deny severance benefits to a wrongdoer.
Boards must be honest with themselves: is the Board failing to acknowledge that a senior leader who is adding significant value could be guilty of questionable behavior?
Boards must overcome their reluctance to appear to be judging someone’s personal life. They need to be transparent and honest and insure that there is an objective, independent investigation by a competent expert who will assess the facts and the credibility of the accused and the complainant(s).
If the Board is able to act quickly and decisively, it may avoid a protracted media storm and the ensuing reputational damage.
Bottom line, the Board needs to be aware of negative cultural trends in the organization, take complaints seriously, approach #MeToo situations with objectivity and deal with them promptly.
Our next NACD-NJ program on February 26 is designed to help boards evaluate and contribute to corporate culture.
Laurie Hays advises on strategic, financial and corporate governance communications. She has spent more than 30 years in the world of business and finance as a reporter and leader of newsrooms at the Wall Street Journal and Bloomberg, where she built the global activism and deals team. She now provides counsel to CEO’s, their communications teams and boards of directors.
Laurie joined Edelman’s financial communications group after two years as a partner at Brunswick Group. She has served as a key advisor on numerous high stakes situations in activism defense, #MeToo, CEO transitions and pay. She helped the independent directors of CBS with the resignation of Les Moonves, and Under Armour with workplace misconduct allegations. She worked on communications for Campbell Soup and Equifax around CEO departures. She worked on E.W. Scripps’ successful defense in its proxy fight with Gamco as well as activism defense for AIG and Yahoo. Laurie has advised on crisis and litigation situations for Lending Club, Facebook, 21st Century Fox and Avianca Airlines. She worked on M&A deals for SAP’s acquisition of Qualtrics, Air Liquide’s acquisition of Air Gas, Anheuser-Busch’s acquisition of SAB Miller and 21st Century Fox’s offer to buy Sky.
Laurie joined Brunswick from Bloomberg where she was the senior executive editor overseeing 1,100 reporters covering global beats. At the Wall Street Journal, she spent 23 years covering corporations and also lived in Moscow for four years in the early 1990s covering the downfall and breakup of the Soviet Union. She served as national news editor in charge of the U.S. edition of the Journal and was a deputy managing editor when she left for Bloomberg in 2008. Laurie’s teams won numerous financial journalism awards and Pulitzer prizes in 2003 for reporting on corporate accounting scandals and in 2008 for a series explaining inverted mergers.
Born in Boston, Laurie graduated from Harvard with an honors degree in History and Phillips Exeter Academy. She began her journalism career at the New Orleans States-Item and the Wilmington News Journal where she covered merger and acquisition cases before the Chancery Court.
She serves on the boards of directors of The Marshall Project, The Craig Newmark School of Journalism and The Knight Bagehot Fellowship in Economics and Business Journalism. She is married with two daughters and lives in New York City.
Katherin Nukk-Freeman is the co-founder of Nukk-Freeman & Cerra, P.C. Employment Attorneys, one of the most highly ranked Labor and Employment Law Firms in the New York/New Jersey metropolitan area. Ms. Nukk-Freeman is also the co-founder of SHIFT HR Compliance Training. As a dynamic employment law training instructor and industry thought leader, Katherin partners with clients to develop and implement strategies to manage risk, comply with the law, increase productivity and create an overall better workplace. Leveraging more than 20 years of success as a trusted advisor to corporate leaders, Katherin enables companies to proactively address and effectively manage workplace issues related to harassment and discrimination complaints, COBRA compliance, disability and leave law, wage and hour disputes, social media risks, staff reductions in force, and high-risk terminations.
Katherin created SHIFT HR Compliance Training to provide innovative, engaging and impactful online training services to companies of all sizes from start-ups to Fortune 500 companies. A dynamic, women-owned and certified company, SHIFT provides online HR Compliance training programs to employers to engage their employees through highly interactive modules. SHIFT’s training programs are tailored to an employer’s individual requirements after a detailed assessment. SHIFT helps companies create a better culture of ethical and professional behavior, and diversity and inclusion in the workplace.
Both Nukk-Freeman & Cerra, P.C. and SHIFT HR Compliance Training, deliver employment law training to human resource departments, executives, management teams and employees nationwide. Katherin works with human resources management professionals providing expert guidance and instruction enabling them to better manage and proactively address their training programs and many other employment law issues thereby avoiding costly litigation for their companies.
As a champion for forward-looking employment law applications, Katherin is a frequent presenter on employment law issues and has authored countless articles on current employment law “hot topics”.
Listed in New Jersey Super Lawyers for the past seven consecutive years as one of the “Top 50 Women Lawyers” in New Jersey and as one of the “Top 100 Lawyers” in the state, Katherin is ranked as a “Leading Individual” in Chambers USA and has won numerous additional awards.
Trish is the Audit Committee Chair for the Federal Home Loan Bank (FHLB) - Office Finance. Previously she was Audit Committee Chair for Pepco Holdings a Fortune 500 electric utility before their sale to Exelon Corporation. Trish is an experienced corporate board member and invaluable resource for helping companies create strategies that deal with the risks that emerge as business re-invents itself in a digital world. With a focus on moving to the emerging global marketplace, she guides the conversation and inspires others to think more broadly about the impact of technology, the importance of building a moral and ethical culture, forming a balanced approach to enterprise and social risk management, and addressing cyber security risks. She is an advisory board member for the Raj and Kamala Gupta Governance Institute and a member of the Board of Directors for the Association of Audit Committee Members, Inc. (AACMI). She also serves as co-chair of the Philadelphia Chapter of the Women Corporate Directors and member of the NJ NACD Board of Directors. Trish, a CPA, holds a PhD in Leadership and Organizational Systems.