Corporate Governance

2018 Corporate Governance & Execution Compensation Survey

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BOARD OVERSIGHT OF SEXUAL HARASSMENT AND MISCONDUCT CLAIMS Doreen E. Lilienfeld Shearman & Sterling LLP Board Oversight of Sexual Harassment and Misconduct Claims | 23 BOARD OVERSIGHT OF SEXUAL HARASSMENT AND MISCONDUCT CLAIMS Doreen E. Lilienfeld Individual subject to the allegation Consider requiring a leave of absence or stepping out of a management role Individual who made the allegation Address any immediate concerns, such as personal and professional security AS WE HAVE SEEN OVER THE LAST YEAR, NO INDUSTRY IS IMMUNE FROM ALLEGATIONS OF WORKPLACE SEXUAL HARASSMENT. As with any area of board oversight, perceived failures by the board can result in shareholder derivative litigation against the board, as well as securities class actions in the event of a resulting stock price decline. Where the focus of the complaint is against a senior executive who is also a board member, the board should form a special committee to conduct an investigation of the allegation. Whether or not the board is able to maintain its objectivity, it will be important to take steps to reduce the appearance of and the potential for conflicts of interest to help ensure objectivity in the board's assessment of the allegations. The board should take extra care as to what interim procedures are put in place while the investigation is pending. Consideration should be given to requiring the individual subject of the allegation to take a leave of absence – with or without compensation – or to step out of a direct management role. Additionally, addressing the immediate concerns of the individual who made the allegation, which will likely include personal and professional job security, should also be a focus of the board. All of these immediate actions should be reviewed and either affirmed or modified by the special committee. DEALING WITH COMPLAINTS INSIGHTS Sexual harassment allegations can not only tarnish a company's – and a board's – reputation and impair shareholder value, and it may even imperil the existence of a company, as can be seen from the fate of The Weinstein Company. Employee morale and consumer goodwill are also at risk, with the potential of lasting consequences. For all these reasons, it is critical for a board to act quickly and decisively in the face of any sexual harassment or misconduct allegations. A perception that a company or its board is failing to act or is not responding seriously to sexual harassment claims will not be viewed favorably by customers, investors, juries and in the court of public opinion. As we have seen over the last year, no industry is immune from allegations of workplace sexual harassment.

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