Annual Corporate Governance & Executive Compensation Survey

2018 Corporate Governance Survey

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Shearman & Sterling LLP Board Oversight of Sexual Harassment and Misconduct Claims | 25 DEALING WITH THE FINDINGS The special committee should, early on, establish a media and communications plan that not only addresses the press and social media coverage of the allegations and the investigation, but also puts in place a plan for any contemplated announcement of the findings and the special committees decision. Internal and external communication must be delicately handled. Social and traditional media platforms should be monitored to ensure the investigation has not become public knowledge before its conclusion. Engaging a PR firm experienced in dealing with situations involving sexual misconduct is also well advised. If the claims are substantiated through the investigation, the board should act quickly and decisively once a final determination is reached. Removing the offending employee swiftly may best protect the company's employees and its reputation and may serve to cut off ongoing coverage in the media and social media. If a senior executive officer is removed, the effectiveness of the board's prior succession planning efforts will be at the fore. The board should also consider the consequences of a termination under compensation plans and agreements. Often, a material violation of company policy constitutes grounds for termination of employment without payment of severance. Clawback policies should also be considered in light of the circumstances. The board should review with counsel all related disclosures. A termination of an executive officer will trigger a current report filing on Form 8-K with the SEC. If the employee files a lawsuit, disclosure will be required if the proceeding is likely to have a material quantitative or qualitative impact on the company's financial performance. Commencing an internal investigation would not typically necessitate disclosure; however, a shareholder could argue that failing to disclose an internal investigation – or, more often, its cause – is an omission of material fact if the allegations ultimately lead to a drop in share price or if the subject executive is terminated. Finally, the board should consider what lessons have been learned from the incident. The board should evaluate workplace policies, reporting protocols and training programs. Evaluate the lessons to be learned Establish a media and internal/ external communications plan Consider impact on compensation plans and clawback policies Act quickly and decisively once a determination is made Review all required disclosures with counsel $

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