Sexual HARASSMENT CAN Threaten YOUR BOTTOM LINE
Foy, Norman F., Strategic Finance
Sound management practices can minimize or eliminate this financial risk.
Sexual harassment may be the biggest single financial risk that exists in companies today. Some companies have learned this the hard way. Astra USA settled its sexual harassment case for $10 million, Baker & McKenzie--a titan of law firms--paid $7.1 million in damages, and Management Recruiters International paid $1.3 million. Add in typical six-figure tabs for lawyers, and it's obvious that the bottom line takes a big hit.
Because risk management often comes under the financial umbrella and sexual harassment cases are a risk to companies, it's critical that you deal with sexual harassment proactively. You can't afford to leave such a key area as the sole province of the corporate human resources group. The good news is that sound management practices and commonsense techniques can minimize--or even eliminate--this risk. I'll describe the risks, relevant federal legislation, and recent court rulings and provide you, the financial executive, with an action plan to minimize the threat of sexual harassment to your organization's bottom line.
First, a disclaimer. I'm not an attorney, so I don't intend to provide legal advice. But the information will help your organization avoid hiring an attorney to defend a sexual harassment suit. In these cases, the only winners are the lawyers. Case in point: While I was describing a case of sexual harassment at a presentation, an attorney said something like, "Now that's a case you may scare people with, but I could win that one in court!" My response? "Your use of the word 'win' is debatable. Sort of like, 'win a nuclear war.' Once you've reached the stage where a sexual harassment complaint is in court, the organization has already lost. The only issue is how much you've lost!"
It's been said that while most men aren't harassers, most harassers are men. With this in mind, is there a composite of a company most at risk? Organizations that appear most susceptible to breeding sexual harassment consist of older men in positions of power and younger women who have considerably less hierarchical power. Law firms, public accounting firms, the military, and the U.S. Congress are a few types of organizations that fit this profile.
Monetary losses aren't the only risks to companies. Sexual harassment claims impact at least three other areas: the handling of Statement of Accounting Standards No. 5, "Accounting for Contingencies"; your company's reputation; and the work environment. First, think of your responsibilities regarding contingencies that are outlined in SFAS 5. If the contingency is either probable or reasonably probable, you must record the estimate or discuss it in a financial statement note if you can't make an estimate. Only if the contingency is remote can you justify not mentioning the situation. Beginning a financial statement note with "the company is the subject of a sexual harassment suit..?" will only generate negative publicity.
The second area a sexual harassment case impacts is reputation. Estimates indicate that a crisis related to a company's reputation can decrease a publicly traded firm's market value from 5% to 30%. If you doubt the numbers, think of the adverse publicity generated about Mitsubishi in the late 1990s during and after a sexual harassment complaint filed by the Equal Employment Opportunity Commission (EEOC).
Third, and in my opinion the most serious impact of a sexual harassment claim, is the effect on the company's morale, productivity, and general work environment. While the investigators of a sexual harassment claim must protect the privacy of all concerned parties, the grapevine often overcomes those efforts. The rumors can poison the everyday work relationships within your organization.
A few of you might be saying, "It can't happen in my organization!" But take a moment and think of your response if your CEO told you that your firm had just been named in a sexual harassment complaint by the EEOC. Ask yourself who would be the most likely people in the organization to be the harassers. If you can think of a short list of possible harassers, then your company is at risk. If you can't come up with one or more possible harassers, you either work in a very well-managed organization or you're naive. For your sake, I hope the former is true.
FEDERAL LAW AND COURT CASES
Let's take a brief look at the current federal laws and results of court cases. Depending on where you live, you may also need to understand state or local laws. For example, if your organization is located in New York City, you're subject to both state and city laws regarding sexual harassment.
Employees have long used Title VII of the Civil Rights Act of 1964 to bring sexual harassment issues to the courts, even though the act itself never mentions the term "sexual harassment." The act prohibits job discrimination based on race, sex, color, religion, or national origin. In the Mentor case, which was decided in 1986, the U.S. Supreme Court determined that sexual harassment was a form of gender discrimination.
The courts have defined two forms of sexual harassment: quid pro quo harassment and hostile environment harassment.
Quid Pro Quo Harassment. Loosely translated, it means "this for that." In operational terms, some condition of employment such as salary or promotion depends on the employee submitting to sexual advances or conduct. For example, if you don't submit, you'll be fired. In other words, "put out or get out." In some ways, this is the hardest form of harassment to prevent. It only takes one instance of quid pro quo harassment to make the organization liable, and the threat doesn't have to be carried out for the harassment to have occurred.
Hostile Environment Harassment. This form relates to the workplace environment and is more subject to interpretation than the quid pro quo form. A hostile environment consists of such things as sexually explicit photos or "centerfolds," sexual stories, or lewd comments. This type of harassment must be unwelcome to the person involved. And since what's "unwelcome" will differ by person, management should set fairly strict rules as to what materials are displayed in the workplace and what actions are permitted. Management's failure to remedy the situation promptly when a person complains makes the firm liable.
Another law, the Civil Rights Act of 1991, has a number of very specific provisions, and a couple of them apply to sexual harassment claims. The act permits jury trials, which may be more favorable to the alleged victim than trials decided by a judge. In addition to compensatory damages, which provide payment for specific damages caused by the harassment, the act permits punitive damages for pain, suffering, and emotional distress. Depending on the size of the organization, the damages can be up to $300,000.
Seven years later the Supreme Court confirmed in Oncale vs. Sundowner Offshore Services, Inc., that sexual harassment can occur between members of the same sex. Sexual harassment relates to gender, not necessarily due to something involving sex itself. Thus, you can be guilty of harassing someone because they are female (or male) even though you don't attempt to demand sex from the person.
Based on these rulings, there are critical points you need to understand. Even though harassment is a person-to-person offense, the responsibility rests with the organization. While the company may neither condone nor support the offense, that alone isn't enough. Management must be proactive in eliminating the harassment, preferably before it occurs. For example, a client or customer may harass one of your employees, and, if so, you must fix the problem. The "fix" may be difficult and might even involve not doing further business with the client. In some cases it may be possible to remove your employee from the source of harassment, but you and other management must make sure not to compound the injury by impacting the harassed employee's career in any way. For example, if one of your salespeople is being harassed, removing the person from the account is only a solution if you replace the account with another one of comparable value and prestige. Otherwise, the employee becomes a multiple victim of the haras sment.
Another critical point is that third parties can be the victims of harassment even though they aren't directly harassed. For example, assume that Manager Joe promises Employee JoAnne a promotion if she provides sexual favors to him. JoAnne submits and obtains the promotion. Another employee, Mary, expected to obtain the promotion and realizes what has transpired. Protected under the law, Mary can file a third-party complaint against the organization.
Yes, it may look like you're in a somewhat "no-win" situation. But the harassed employee is in an even worse position, and the law and the courts are trying to minimize the damage that already has occurred.
To ensure you have policies and practices that help protect your firm and its employees, you need a plan of action. This action plan provides what the Supreme Court refers to as an "affirmative defense" against sexual harassment claims. But, remember, your goal isn't defense, it's prevention of sexual harassment.
As part of top management, the term "it's not my job" doesn't apply. You should share the action plan with the management team and ensure everyone understands that perception is key in sexual harassment cases. Except for extreme cases, you're dealing with nuances and perceptions. Quite simply, a young female may perceive an event as sexual harassment, while an older male may perceive it as "just joking around?' Here are five steps to take to put your plan into action.
Step 1: Perform an Informal Audit
Walk around the office or factory with someone of the opposite gender who's also a different age from you. Both of you should look at items, such as suggestive pictures, that might create a hostile environment in the eyes of an employee. The two of you should also think of meetings or other activities that might have involved actions that could be considered sexual harassment. You can use the results of this informal audit to bring the subject to management's attention.
Step 2: Update or Draft a Policy
Examine your organization's sexual harassment policy, which must state that the company prohibits sexual harassment. It should also provide a few examples of harassment. The absence of such a policy should be a wakeup call, but don't get too comfortable just because a policy exists. Check out the sidebar for an example. The policy should do the following:
* State that disciplinary action, including termination, will be taken if the policy is violated.
* Assure employees that no retaliatory action will be taken against someone who files a complaint or participates in an investigation.
The policy must also provide a list of people an employee can go to if he or she believes sexual harassment has taken place. Keep the list up to date, and include male and female members along with members of different ethnic groups if appropriate. For example, if your firm employs many Asian-American women, ensure that at least one person listed is an Asian American woman. The key: Employees must have someone they can go to they will trust. Otherwise, they'll have to put up with the harassment, file a harassment complaint with the EEOC, or contact an attorney. None of these actions is desirable. Finally, make sure that the contacts have been trained to investigate alleged harassment incidents, and when an investigation takes place, they must make it their number one priority; period.
Step 3: Distribute the Policy
Disseminate the policy to all employees, and educate them on what harassment is and how to proceed if they're harassed. Many organizations have new employees sign a form acknowledging that they've received the policy and understand it. Then, periodically, the policy and the form can be redistributed to all employees to ensure continued understanding. Memos aren't enough. Unfortunately, many employees are clueless on what constitutes sexual harassment, so training, which can last from a few hours to a day, is necessary.
Step 4: Walk the Talk
Demonstrate zero tolerance for sexual harassment or management attitudes that are in any way sexually demeaning. "Walk the talk" at the highest level of the organization. Without it, all great policies will be of little value. For example, when I attended a meeting with several executives a few years ago, we passed by a recently hired accountant. One of the vice presidents said to the CFO, "She can come over and do my accounting every day." The other executives laughed. Harmless banter? Maybe. But the comment demonstrates an attitude that top management accepts disparaging or suggestive comments about employees. These executives need to ask themselves, "How would I like it if someone made this comment about my daughter?" Enough said.
Step 5: Take Action
Promptly investigate complaints in a confidential, fair, and thorough manner. Remember to respect the rights of both the alleged victim and alleged harasser.
All the advice in the world is useless, of course, unless you act on it. While sexual harassment can be a major threat to your bottom line, an action plan can minimize that risk. Most of all, these practices can make your organization a better place to work.
Norman F. Foy, CMA, CFM, SPHR, is an associate professor of business and accounting in the Graduate School of Management at Mercy College in Dobbs Ferry, N.Y Norm is also a partner with Training Innovations, a firm that provides finance and management training.
A SAMPLE POLICY
Here's an example of a sexual harassment policy
"At ABC Company it is our policy to prohibit harassment of one employee by another or by a supervisor on the basis of sex. Sexual harassment includes unwelcome comments or jokes, sexual advances and requests for sexual favors, and unwanted touching and other verbal or physical conduct of a sexual nature. Employees who feel that they have been subjected to sexual harassment should immediately report the incident to their manager or (list two or three people of both sexes). Violations of this policy will result in disciplinary action that may include termination of employment. Employees should be assured that no one will be retaliated against for either filing a complaint or participating in an investigation of harassment."…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Sexual HARASSMENT CAN Threaten YOUR BOTTOM LINE. Contributors: Foy, Norman F. - Author. Magazine title: Strategic Finance. Volume: 82. Issue: 2 Publication date: August 2000. Page number: 56. © 1999 Institute of Management Accountants. COPYRIGHT 2000 Gale Group.
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