Thursday, July 12, 2018

Sexual Harassment & Compliance Culture

The Huffington Post has a gripping article detailing alleged sexual harassment at HSBC.  The case has been covered before and featured allegations about a boss instructing a female subordinate to:

• Dress provocatively on the job
• “…have sex with male HSBC executives and clients at company-sponsored events”
• Specifically, “have sex with an unnamed senior executive at the bank’s Mexico unit”

In addition to:

• “…falsely t[elling] co-workers that Doe was having sex with clients when they traveled to bank functions outside the U.S.”
• “… attempt[ing] to pull down Doe’s blouse and expose her breasts in the presence of male HSBC employees.”

The new story on this HSBC case resonates because it also seems to suggest a link between sexual harassment and other compliance concerns:

Mike couldn’t shake the feeling that he was being retaliated against for elevating sexual harassment complaints—and that the retaliation also conveniently sidelined his questioning of compliance issues. Moving him into what was essentially a junior position limited his exposure to HSBC’s internal operations and contained his objections, at a time when pressure on the bank was intensifying.

HSBC has had other compliance problems in the past and only recently exited a deferred prosecution agreement after its $1.9 billion fine for "helping Mexican drug cartels launder money and breaching international sanctions by doing business with Iran."

How an organization handles sexual harassment and gender equality issues may correlate with how it handles other compliance issues.  In both instances, the organization will often need to discipline upper management.  In organizations where "producers" break rules with impunity, they may not confine misbehavior to one area.  Weak compliance systems that fail to check sexual harassment will also, predictably, fail in other areas.  If management does not respect the compliance team on sexual harassment issues, they probably will not respect them on suitability issues.

If sexual harassment suits do serve as an indicator about other compliance problems, it's another reason to exempt these types of claims from arbitration agreements.  If everything can be hidden away within arbitration systems, public enforcers lose the ability to see the signals that they should take a closer look at a particular firm's compliance systems.

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