Risk Management

Sexual Misconduct Poses Financial Risks for Companies

Aside from moral, ethical, and legal considerations, the sexual behavior that's getting many corporate executives fired could blow up the bottom line.
David McCannFebruary 12, 2018
Sexual Misconduct Poses Financial Risks for Companies

Given the continual stream of news about alleged sexual misconduct, it’s hardly a startling idea that such behavior within a workplace can, if it becomes publicly known, present material financial threats to an organization.

Cornerstone Capital Group is calling on investors to demand greater transparency from companies on “sexual and gender-based violence” issues (SGBV) — a term defined as including both physical violence and emotional and psychological harassment. The investment firm also advocates for holding companies accountable for reducing SGBV and incentivizing them to do so.

In a report released on Monday, Cornerstone notes that the technology, finance, and media industries have generated much of the news in recent months that has shined a spotlight on issues of SGBV. However, the firm writes, “Our view is that awareness of SGBV will expand to [other] industries.”

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

To be sure, corporate perceptions of SGBV as a financial risk are already shifting, according to Cornerstone. Social media is driving some of the change, with the “#MeToo” and “Time’s Up” campaigns having achieved enormous global reach and emboldened victims of SGBV to speak out.

“Sexual harassment at work has started to transition from individual experiences kept private into a public discussion,” Cornerstone notes. “Individuals have become increasingly willing to share their experiences online as they see positive reactions from other social media users and tangible results as companies remove perpetrators in response.”

The potential for regulatory responses to SGBV within companies is also drawing attention.

Since 2013, organizations operating in India with a staff of at least 25 have been required to report all sexual harassment complaints; the consequences for noncompliance include monetary fines and, for listed companies, deregistration.

Given the increasing power of the anti-SGBV movement, it may not be farfetched to suggest that other countries could implement similar measures. “In such a scenario, companies that support victims in coming forward will be better positioned to manage future financial and reputational risks,” Cornerstone writes.

The report points to three categories of potential financial risk related to SGBV, although there’s not yet much data available to help drive these points home.

For one, there’s potential for a negative impact on productivity. SGBV may limit workers’ abilities “in ways currently unmeasurable,” Cornerstone says. There has not yet been an economy without SGBV, the report points out. It speculates that “a workforce free to focus on their jobs without fear of assault or harassment could result in productivity gains currently unknown.”

Second, companies or industries that are perceived to enable systemic SGBV could put their “social license to operate” at risk, according to the report. The term — coined in the mining industry many years ago but today routinely used with reference to other industries as well — refers not to an official license but to the level of acceptance or approval granted to an organization or its projects by local communities and other stakeholders.

Third, and perhaps most ominously, consumers may be increasingly likely to limit interactions with companies viewed as facilitators of SGBV. The report cites a 2013 Harvard Business School study that found consumers are quick to walk away from purchases upon merely witnessing a single unpleasant interaction between employees.

“Consumer action is currently seen in some advertisers’ responses to sexual harassment allegations at media companies,” Cornerstone observes. “The allegations suggested that the companies failed to protect the victims, instead favoring ‘star player’ perpetrators; advertisers pulled commercials in response.”

However, the report adds, “[t]o what degree consumer concern over companies’ management of SGBV will translate to industries without ‘star players’ is still an open question.”