The Reason Sexual Harassment Matters To Investors

We are now all values investors.

Intangibles like reputation and human capital are increasingly responsible for generating a significant proportion of financial returns. If it can be measured, it can be quantified. And if it can be quantified, it can be factored into the algorithmic models that drive investment decision making. JL

Elizabeth Winkler reports in the Wall Street Journal:

It has a negative effect on employee recruitment and retention, increases sick leave costs, and lowers productivity. Lost talent and ideas are more difficult to quantify. But research shows that gender-diverse companies deliver higher returns on capital and lower volatility. Today, corporate culture and the behavior of top employees matter to profits, stock prices and to a company’s competitive position.
There was a time when what happened inside a company stayed inside a company. Today, corporate culture and the behavior of top employees matter to profits, stock prices and to a company’s competitive position.

U.S. investors overseeing around $10 trillion in assets now incorporate nonfinancial factors such as environmental, social and governance metrics in their decision making. For both corporate boards and investors, thinking about issues like child labor or climate change has become mainstream.
Yet thinking about sexual harassment has lagged behind. An October study by theBoardlist and Qualtrics found that 77% of boards hadn’t talked about sexual harassment, 88% hadn’t implemented a plan of action as a result of recent revelations and 83% hadn’t evaluated the company’s risks when it came to sexual harassment.
Their most commonly cited reason for inaction? A perception that sexual harassment wasn’t a problem at the company.
That is foolish. A recent Wall Street Journal/NBC poll found that nearly 50% of employed women have been sexually harassed at work. It is now clear that sexual harassment poses significant legal, financial, and reputational costs.
Take 21st Century Fox, where the cost is racking up. The company’s settlements involving accusations against Bill O’Reilly and Roger Ailes now top $100 million. And it isn’t over. One woman who reached a settlement with Mr. O’Reilly is suing him and Fox News for defamation and breach of contract. The woman, whose allegations included abuse but not sexual harassment, claims they violated the settlement. 21st Century Fox and Wall Street Journal parent News Corp share common ownership.

Then there is the loss of valuable assets. Mr. O’Reilly at Fox, Kevin Spacey at Netflix, and Matt Lauer at Comcast’s NBC were central to their companies’ success.
Advertisers, attuned to the new landscape, are paying close attention. “That helps explain why NBC pulled the plug so quickly,” on Mr. Lauer, says Jon Hale of Morningstar. “They don’t want to take the reputational hit of a long, drawn-out process that could cost them viewers and ad revenue.”
And even if a company isn’t hit with publicity-generating accusations, sexual harassment can be a slow, costly drain. A 2007 study found that it has a negative effect on employee recruitment and retention, increases sick leave costs, and lowers productivity. Lost talent and ideas are more difficult to quantify. But research shows that gender-diverse companies deliver higher returns on capital and lower volatility.
Smart investors will ask boards what actions they are taking to mitigate these risks. They should also look at telling indicators, like whether the company has a culture that supports women. An obvious step is pushing companies to put more women on their boards. Chances are they will have a slightly different view on whether sexual harassment is a problem.