March 14, 2018

Our New Checklist: Board Oversight in the #MeToo Era

Over the past several months, media reports involving high profile sexual misconduct & abuse of power by politicians, celebrities, CEOs and other corporate leaders have brought the issue of sexual harassment to the top of the cultural agenda – and placed it prominently on the agenda of boards as well.

We’re posting resources for this emerging area in our “Board Duties” Practice Area – including our own checklist on board oversight of sexual harassment policies. It’s seven pages – check it out!

CII: How Boards Should Combat Sexual Harassment

One of the biggest reasons that oversight of sexual harassment policies has become a priority for boards is that it’s also become a priority for shareholders. The recent experiences of the Weinstein Company, Wynn Resorts & others have demonstrated that high-profile allegations of sexual misconduct by executives can have a potentially devastating effect on shareholder value  – and even threaten the viability of the business itself.

Reflecting rising investor concerns in this area, the Council of Institutional Investors has released a new report that provides boards with advice on how to mitigate the risk of sexual harassment. The report details practical steps that cover five key areas: personnel, board composition, policies and procedures, training and diversity.

Board Oversight: “Is It Just Me, Or Is It Getting Warm In Here?”

Investors aren’t just sharing friendly words of advice when it comes to board oversight of sex harassment & other corporate policies. This “Directors & Boards” article suggests that they’re increasingly seeking to hold directors accountable through fiduciary duty lawsuits alleging failures in oversight. Here’s the intro:

Directors and officers might want to start 2018 by doubling down on their oversight systems. Last year, boards and senior managers at several large corporations faced significant shareholder lawsuits over allegations they were not minding the store when their companies suffered high-profile traumas surrounding data breaches, sexual harassment and discrimination scandals or improper sales practices.

“What I’ve seen in these cases is there were a lot of red flags out there and the board just ignored them,” says Jorge Amador, an attorney representing shareholders in a case against Wells Fargo & Co. over phony customer accounts.

Of course, these oversight claims require plaintiffs to prevail under Delaware’s Caremark doctrine, which requires “bad faith” in the form of intentional dereliction of duty or conscious violations of law on the part of directors.

That’s a demanding standard.  In fact, Delaware’s Supreme Court has said that Caremark may be “the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” Still, no less a figure than Chief Justice Leo Strine recently dissented from a Delaware Supreme Court decision dismissing a Caremark claim against Duke Energy’s board – and the article also notes recent landmark settlements of oversight claims by Home Depot & 21st Century Fox.

So, in today’s rather fraught environment, it pays for directors to remember that however remote the risk may appear – breakdowns in oversight could hit them squarely in the wallet.

John Jenkins