Increasing the Pressure on Harassment Risks

Corporations have already been paying more heed this year to sexual harassment in their ranks, as one part of U.S. society after another becomes roiled in allegations of sexual misconduct and leadership turning a blind eye to the problem.

Now two more recent developments promise to make the concern even more acute for companies as we enter 2018.

First, a clause in the new tax reform law (Section 13307) bars companies from treating settlement costs as a deductible expense, if the settlement includes a non-disclosure agreement. (The company can still deduct settlement costs if the agreement is not subject to an NDA.)

Second, Microsoft made headlines earlier this month when it announced that it would no longer require employees to submit to binding arbitration when they raise harassment complaints. Instead, if an unhappy employee does want to pursue litigation immediately, Microsoft won’t stop him or her. For the record, Microsoft says it never actually has required an employee to submit to arbitration, but the clause had always been there in employment contracts. Not any more.

We don’t know how many other companies have taken action similar to Microsoft, but more are likely to follow. Already, legislation pending in the Senate would outlaw mandatory arbitration clauses nationwide. Corporate America knows which way the train is going on this issue, and that it’s time to get on board.

A Shifting Calculus on Compliance

Actions like these are making the costs of sexual harassment more expensive — costs in money, attention, and corporate embarrassment. So, therefore, the importance of preventing harassment is increasing too.

The challenge for compliance officers will be to find the right mix of policies, procedures, and controls to address this risk effectively. Clearly, past approaches haven’t worked. The concept of sexual harassment isn’t new. Nor are measures like anti-harassment training videos and requirements for employees to certify that they’ve taken the training and understand the policy. And yet, we’re still mired in this problem.

One emerging change seems to be a focus on calling out harassment when it happens, and communicating that corporate stance to employees. For example, we’ve all seen the increased calls for other employees, including men, to report sexual harassment when they witness it. A move away from private arbitration agreements sends a similar message: that the company is willing to treat harassment as a problem to be discussed and rectified publicly, rather than an infraction to be paid off and covered up.

Messages like those will require new training and policies — ones meant to encourage a speak-up culture about harassment, which is not the same as the tried-and-true “don’t do it” messages people have seen for years.

The don’t-do-it messages will never disappear, of course. Rather, companies need to enlist other employees in the effort to stamp out harassment: the ones who witness or hear about harassment happening to coworkers.

Those other witnesses won’t take speak-up messages seriously unless they see that the company takes allegations seriously, too. Hence the move away from arbitration is such a powerful signal. It tells employees: we will allow these allegations to be discussed in sunlight, even if that costs us more money.

Companies will need other steps, too: better internal reporting mechanisms; better escalation procedures; more clear disciplinary policies; more consistent enforcement, even against star employees; reviews of compensation policies and performance reviews, to see whether senior managers can manipulate those mechanisms to bully or harass employees.

We can talk about those steps in more detail in 2018. For now, however, at least we can be sure the challenge will continue, and even as companies try to find a path forward, the path forward is still going to be a long one.