Saturday, February 3, 2018

Time's Up for Board Members: Sexual Misconduct Allegations Against CEOs of Wynn and the Humane Society Should Send a Message

Perhaps I'm a cynic, but I have to admit that I was stunned when the news of hotelier  Steve Wynn's harassment allegations at the end of January caused a double-digit drop in stock price.  What began as an unseemly story of a $7.5 million settlement to a manicurist at one his of his resorts later morphed into a story about his resignation as head of the finance chair of the Republican National Committee. Not only did he lose that job, he also lost at least $412 million (the company at one point lost over $3 billion in value). His actions have also led regulators in two states to scrutinize his business dealings and settlements to determine whether he has violated "suitability standards."  Nonetheless, Wynn has asked his 25,000 employees to stand by him and think of him as their father. The question is, will the board stand by him as it faces potential liability for breach of fiduciary duty?

The Wynn board members should take a close look at what happened with the Humane Society yesterday. That board chose to retain the CEO after ending an investigation into harassment allegations. A swift backlash ensued. Major donors threatened to pull funding, causing the CEO to resign. A number of board members also reportedly resigned. However, not all of the board members resigned out of principle. One female director resigned after stating, " Which red-blooded male hasn’t sexually harassed somebody? ... [w]omen should be able to take care of themselves.” Unfortunately, the reaction of this board member did not surprise me. She's in her 80s and in my twenty years practicing employment law on the defense side, I've heard similar sentiments from many (but not all) men and women of that generation. Indeed, French actress Catherine Deneuve initially joined other women in denouncing the #MeToo movement before bowing to public pressure to apologize. We have five generations of people in the workplace now, and as I have explained here, companies need to reexamine the boundaries. What may seem harmless or "normal" for some may be traumatic or legally actionable to someone else. 

As the Wynn and the Humane Society situations illustrate, the sexual harassment issue is now front and center for boards so general counsels need to put the issue on the next board agenda. As I wrote here, boards must scrutinize current executives as well as those they are reviewing as part of their succession planning roles to ensure that the executives have not committed inappropriate conduct. Because definitions differ, companies must clarify the gray areas and ensure everyone knows what's acceptable and what's terminable (even if it's not per se illegal).This means having the head of human resources report to the board that company policies and training don't just check a box. In fact, board members need to ask about the effectiveness of policies and training in the same way that they ask about training on bribery, money laundering, and other highly regulated compliance areas. Boards as part of their oversight obligation must also ensure that there are no uninvestigated allegations against senior executives. Prudent companies will review the adequacy of investigations into misconduct that were closed prematurely or without corroboration.Companies must spend the time and the money with qualified, credible legal counsel to investigate claims that they may not have taken seriously in the past. Because the #MeToo movement shows no signs of abating, boards need to engage in these uncomfortable, messy conversations. If they don't, regulators, plaintiffs' counsel, and shareholders will make sure that they do. 

http://lawprofessors.typepad.com/business_law/2018/02/times-up-for-board-members-sexual-misconduct-allegations-against-ceos-of-wynn-and-the-humane-society.html

Compliance, Corporate Governance, Corporations, Current Affairs, Employment Law, Ethics, Marcia Narine Weldon, Shareholders | Permalink

Comments

Boards are going to give attention to those matters which distract from commerce. However, I tend to fall back on “old Plato” - “If we disregard due proportion by giving anything what is too much for it, too much nutrition to the body, too much authority to a soul, the consequence is always shipwreck.” –Laws III.

Kathleen Parker has a piece today in the Washington Post about accusation serving as conviction and backlash. See: https://www.washingtonpost.com/opinions/a-metoo-backlash-is-inevitable/2018/02/02/51d2d626-0860-11e8-b48c-b07fea957bd5_story.html?utm_term=.4f7eeb45c6f3

Parker's concluding paragraph: “These days, when anyone can be accused of anything, our ipso facto presumption of guilt ought to cause the ghosts of Salem to rise up in protest. Either we respect process and the rules of law and order, or we risk becoming a land of “high-tech lynch mobs,” to borrow a phrase, where anyone’s turn could be next, guilty or not.”

There should be some caution with the enthusiasm and policing. “It’s an unintended consequence of a season of sex scandals. Research shows that building genuine relationships with senior people is perhaps the most important contributor to career advancement. In some offices it’s known as having a rabbi; researchers call it sponsorship. Unlike mentors, who give advice and are often formally assigned, sponsors know and respect people enough that they are willing to find opportunities for them, and advocate and fight for them.

But women are less likely to build such relationships, in part because both senior men and junior women worry that a relationship will be misread by others. At every level, more men than women say they interact with senior leaders at least once a week, according to research by McKinsey and the nonprofit Lean In. This imbalance is a major reason women stall at lower levels of companies, according to a variety of research.” See: https://www.nytimes.com/2017/10/09/upshot/as-sexual-harassment-scandals-spook-men-it-can-backfire-for-women.html

Posted by: Tom N | Feb 3, 2018 7:13:54 AM

Tom N. Thanks for this thoughtful comment. I have used the term "champions" to describe what you call "sponsors" and "rabbis" and agree that we need to look at how women advance and maintain senior positions. Like many, I worry about rushes to judgment and I believe the backlash is imminent if it hasn't already started. But this will take up the time and resources of boards- both for the legitimate and the less credible complaints. Catherine McKinnon, who is credited with the term "sexual harassment," penned an interesting Op Ed yesterday on the #MeToo movement. https://www.nytimes.com/2018/02/04/opinion/metoo-law-legal-system.html. She brings another dimension to the discussion. While I worry about some of the media coverage of these issues, I am glad that there is a dialogue. It just needs to be more measured, nuanced, and comprehensive.

Posted by: Marcia Narine Weldon | Feb 5, 2018 8:38:51 AM

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