Key takeaways from the ACCR report: Sexual Harassment as Material Risk

Key Takeouts

  • The Australasian Centre for Corporate Responsibility (ACCR) has released an investor briefing flagging workplace sexual harassment in Australian companies as a known 'material risk' and potential destroyer of value about which investors should be more informed.  
  • Ultimately the ACCR calls on companies to provide (and for investors to demand) more detailed disclosure about the concrete steps being taken to prevent and respond to the issue in order to enable investors to properly evaluate how effectively the risks are being managed
  • The report also flags the ACCR's intention to engage directly on the issue with ASX 100 companies in the extractives and financial services sectors and to publish the findings

Overview

The Australasian Centre for Corporate Responsibility (ACCR) has released an investor briefing highlighting workplace sexual harassment as a known 'material risk' and providing a high level overview of the ways in which it can potentially 'destroy company value' – the potential financial, governance, operational and reputational risks.

In light of these risks, the ACCR emphasises investors' need for clear, detailed disclosure by companies of the steps they are implementing to deal with the issue. The ACCR states:

'Timely reporting by ASX companies on sexual harassment prevention and response measures is necessary to ensure investors have relevant information to assess company performance and governance of these issues. Companies need to disclose to shareholders how they are implementing the [email protected] seven domains of change to demonstrate a systematic and thorough approach to sexual harassment prevention and response'.

Workplace sexual harassment in Australia is a 'material risk'

  • The report contends that investors should view workplace sexual harassment as a known 'material risk' and cites various research showing the pervasiveness of sexual harassment in Australian workplaces and the associated costs in support.
  • The report also suggests that Australian companies and investors 'would do well to take notice of trends in the United States' on the issue including:
    • Increasing shareholder pressure for companies to act: The report cites the uptick in the number of sexual-harassment related shareholder proposals filed at US companies and the strong levels of support that some of these have received (eg the mandatory arbitration proposal at Goldman Sachs which received 53.2% shareholder support).
    • The fact that proxy advisers are increasingly considering the issue as a material risk and factoring this into their voting recommendations.

The different types of risk posed by workplace sexual harassment

A long-term financial risk

  • The report cites a number of studies/reports demonstrating that sexual harassment has the potential to negatively impact stock performance, profitability and labour costs.
  • Likewise the report points to research that found that the potential financial consequences of a sexual harassment scandal are significant. According to the report, a scandal of this kind has potential to result in a 1.5% decrease in market value over the 'event day' and the following trading day, with potential for this drop in value to increase if there is CEO involvement.

An operational and reputational risk

  • The report observes that workplace sexual harassment not only has the potential to damage public perceptions of companies but the potential to cause operational/workforce disruptions. In illustration, the report references comments by West Australian Mines and Petroleum Minister Bill Johnson that a failure to report incidents to the government could weaken the mining industry's case for bringing in overseas workers to ease current labour and skills shortages.
  • The report identifies the mining sector as an industry 'presenting very clear risks' but also makes clear that 'the need for improved prevention and response measures is not exclusive to the mining and finance sectors. Sexual harassment is pervasive and widespread across the public and private sectors'.

A governance risk

  • The report argues that the issue of workplace sexual harassment, and the companies' prevention and response mechanisms/policies, should be accorded direct board-level oversight in light of the legal duty directors have to act with reasonable care and diligence including considering foreseeable risks.
  • Further, in light of the fact that companies and their boards can be held vicariously liable for workplace sexual harassment under both anti-discrimination and workplace health and safety laws, the report contends that the issue should be accorded the same priority by boards as workplace health and safety.

Transparency is key: The information companies should be reporting

The report calls on companies to provide (and for investors to push for) detailed disclosure not only on the overall number of incidents per year (as some companies named in the report have started to do), but details of how they are implementing the [email protected] 'seven domains of change' to demonstrate a 'systemic and thorough approach to prevention and response'.

For reference the seven domains of change are: 1) leadership; 2) risk assessment and transparency; 3) culture; 4) knowledge; 5) support; 6) reporting; and 7) measuring.

Topic of engagement

The report observes that 'Investors have the ability to ask key questions to investees and can become an important force for supporting improvements in the companies they hold'.

Page 13 of the report outlines the 'key indicators' that the ACCR considers companies should report against and flags some of the questions that the ACCR has said it will be putting to ASX 100 companies in the extractives and financial services sectors to gauge their approach to the issue.

The ACCR plans to publish findings in H1 2022.

[Sources: ACCR media release 04/11/2021; ACCR Report: Sexual harassment as material risk An investor briefing paper]