First Hollywood, now Westminster. How long before European business is caught up in a sexual harassment scandal?

The allegations levelled against Harvey Weinstein mark a turning point. People feel much freer to speak out about sexual misconduct, and those in power are actually listening.

The breadth of the complaints suggests it’s only a matter of time before a chief executive officer (CEO) of a listed company, a middle-manager or a shop-floor supervisor get caught out. That should be a wake-up call for all boards of directors.

The costs of getting engulfed in a scandal are high. Just look at what happened to Sports Direct International Plc when the Guardian newspaper alleged that it paid warehouse staff less than the minimum wage. A parliamentary probe of working conditions revealed abusive practices, including allegations of sexual harassment. The fallout amounted to a serious financial hit. Customers stayed away, sales slumped and the share price fell.

It’s perhaps easy to think that this is an exception. After all, the business environment should be far less conducive to inappropriate behaviour than casting meetings for independent films. Companies typically take pains to highlight their commitment to a culture of respect, and the importance of abiding by a code of conduct. Senior managers should have spent many years in this structured environment, and this should have—hopefully—prepared them for how to behave in top jobs.

But this can’t be taken for granted. Upper ranks of management have power, but are often less subject to corporate oversight than board members or lower-level employees. What’s more, a poll of 1,533 adult women last year by the UK’s Trades Union Congress (TUC) found that 52% had experienced some form of sexual harassment in the workplace.

While listed companies are nearly certain to have whistleblowing and other procedures in place for employees to report misconduct, the TUC’s poll shows they’re not working. Four out of five women did not report the sexual harassment they had experienced to their employer.

The vast majority of the high-profile allegations that have emerged in the US have been from women. And the TUC’s poll found that in nine out of 10 cases, the perpetrator of the harassment was a man. So the lack of women in senior roles and on the board creates an even bigger vulnerability. However much companies are already striving to improve the gender balance in executive positions, still there’s a long way to go.

Sadly, predatory behaviour can happen anywhere. But board members of retailers and restaurants should be particularly alert, as their employee bases include a large number of women on low pay, and so are more vulnerable to abuse. Finance, on the other hand, is famously male-dominated, frequently with a culture to match.

To start, companies must work hard to improve reporting procedures. But no matter how quickly a confidential hotline or any other mechanism gets installed, it’s for nothing unless there’s a culture to support it. Staff need to see that reporting sexual harassment is not taboo, and more importantly, that their complaints will be heard.

Board members need to see themselves as responsible. After all, no director wants to be at the helm of a company that discovered a case of persistent sexual misconduct and then covered it up. In the current environment, thinking that there’s no problem because nobody has complained is to willfully adopt a false sense of security.

In fact, the bravest thing for a board to do would be to actively encourage any staff who have experienced sexual harassment to come forward. Furthermore, they should make it clear that their allegations will be taken seriously, however embarrassing for the company.

If a company encourages staff to report sexual harassment, and the floodgates open, that can lead to serious reputational and financial costs. But if directors and managers address problems in the right way, in the long term they’ll be in a much better position to focus on the company’s future. Such a move would also send the message that the board is willing to listen on other types of heinous behaviour—from insider dealing to mistreating suppliers. That’s a comfort for investors too. Bloomberg Gadfly

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