This October, dozens of women accused Hollywood mogul Harvey Weinstein of gross severe sexual misconduct, which kicked off a wave of similar allegations against dozens of high-profile individuals in various industries. It became part of the #MeToo movement, and one of the defining moments of 2017. On October 24, the Boardlist, together with Qualtrics, released a survey of some 400 board members to gauge their views on gender diversity and sexual misconduct. And the survey revealed that 77% of the directors surveyed had not discussed accusations of sexually inappropriate behavior and/or sexism in the workplace on their respective boards. More importantly, 88% of them had not implemented a plan of action, in light of recent allegations of sexual misconduct, to deal with such an accusation at the board level.
The points arose in context yet again when PwC recently released its 2017 Annual Corporate Directors Survey, which canvased 866 directors from a selection of companies spanning a dozen different industries, and most of which (75%) had annual revenues north of $1 billion. Men respondents outnumbered women by 84% to just 16%, underscoring how gender diversity issues have become a board priority too big to ignore.
The PwC survey further points out that director discontent is at an all-time high, which almost half of directors believing that one or more of their fellow board directors should be replaced, and with one-fifth of them saying that two or more of them should be replaced. At the same time, the survey points out that while female directors tend to be more socially aware, there is still a significant gender skew among directors themselves, with only 35% of male directors seeing gender diversity as an important issue, versus 68% of female directors. Add to this a final point: that 68% of directors said their board made changes in 2017 as a result of their board/committee assessment process, compared to just 49% in 2016.
Taken together, it all adds up to what seems to be an unusually fragile situation for directors, especially if a Weinstein-level allegation lands among them. Paul DeNicola (Managing Director, PwC Governance Insights Center and co-author of the PwC 2017 Annual Corporate Directors Survey) agrees, but notes that this is all perhaps part of a larger issue.
“The discussion, or lack of it, in boardrooms on sexual harassment is part of a larger discussion that Boards need to have to talk about corporate culture,” DeNicola said in an interview with Compliance Week. “When it comes to the culture of an organization, it’s very easy to take the position that ‘it’s something I just know. I have a gut feeling that things are okay. Culture is qualitative. That’s a fallacy.”
DeNicola says that there are qualitative metrics companies can use to gauge the state of an organization’s culture: employee engagement surveys, employee turnover statistics, attrition rates of high performers, 360-degree feedback, c-suite exit interviews, whistleblower complains, social media posts, and traditional press coverage.
In addition, DeNicola says, boards need to spend more time interacting with employee groups beyond the C-suite to get a true sense of an organization’s culture, and where there might be an environment to give rise to a sexual misconduct allegation.
But boards also need to take their own self-assessments more seriously, DeNicola says, with institutional investors and directors themselves less willing than ever to tolerate an underperforming peer. “Self-assessments are not just a compliance exercise,” DeNicola says. “You need the board leadership to get behind them and drive them, and you need to take action on those results. You can’t just do it once a year and then stick it in the bottom drawer.”
The PwC survey noted that 46% of directors surveyed said that an ideal time to engage with shareholders is when there is a significant crisis at the company. A Weinstein event certainly fits that bill. And while there are still a fair number of directors who simply don’t believe it is appropriate to engage with shareholders, DeNicola says, for the most part companies have turned a corner on that.
“In today’s world, most companies have proactive engagement programs with their largest shareholders, and we would say that proactive engagement is a good thing,” DeNicola says. In the event of a crisis, boards are in a far better position to have those shareholder discussions if they have already established a solid working relationship with shareholders. “Picking up to the phone to call shareholders after the explosion, when there is no relationship beforehand, makes it much more difficult.”
The good news in all of this is that because of boards’ growing desire to talk about culture in general, this is another avenue by which chief compliance officers can gain board-level visibility. The expectation, DeNicola says, is that as boards dedicate more time of their agendas to discuss about culture, compliance will be a key part of that discussion.
“It’s critical for CCOs to be prepared for those discussions,” DeNicola says. “Presenting to the Board is a different context than interacting inside of a company. Boards are looking at it from a strategic point of view. Compliance officers need to make sure their presentations and styles are not too granular. Make sure all the data is available, but be able to provide the insights to help the directors make their decisions.”