5 lessons for boards from the Weinstein scandal
The Weinstein scandal has shown boards what not to do when there are serious accusations of harassment against a senior organisational figure.
Allegations of harassment, intimidation and serious forms of sexual misconduct have rocked the world’s most profitable entertainment industry for the past three weeks, with new victims continuing to speak out against Hollywood mogul Harvey Weinstein, co-founder and now former co-chairman of The Weinstein Company.
The TWC board has been accused of knowing for years about the accusations against Weinstein. The New York Times (NYT) reported Weinstein had reached eight previously undisclosed settlements with women who alleged he harassed them. Weinstein’s former lawyer claims the board knew of some of these settlements as early as 2015.
To avoid the risks and harm to employees of serious misconduct and harassment, boards must shape culture and put in place policies that protect staff, according to three senior directors who spoke about the lessons boards could learn from the Weinstein scandal.
1. Avoid a culture of complicity
The Australian Human Resources Institute (AHRI) said Weinstein’s clout within TWC and influence with a board that included his brother made TWC a “company that enables a predator”, compounded by his seniority and “tremendous amount of power” within his organisations.
Megan Brownlow MAICD, Deputy Chair of Screen Australia and partner at PwC, said the best way for boards to be alert to allegations of sexual misconduct against senior figures is for individual directors to “cultivate trustworthy connections within the company, at a variety of levels.”
“These often informal connections can be great sources of unfiltered, coal-face information,” Brownlow said. She also suggested providing a confidential outlet for whistleblowers like a phone number where employees can report misconduct anonymously.
Louise McElvogue GAICD, NSW AICD division council member and director of US cybersecurity company WhiteHawk referenced the proverb “The fish rots from the head.” She said boards need to set the tone and ensure culture within the company is morally and ethically suitable in all dealings.
“The allegations at TWC are complex and have serious legal implications. Boards need to assess culture, find ways to monitor culture and executive teams are responsible for driving the culture. Culture is not something that can be devolved to a board committee or discussed only when problems arise. The internal culture guides decisions made across the company,” McElvogue said.
2. Swift and effective investigations, even if the matter is ‘settled’
TWC didn’t undertake any form of investigation once some victims entered into settlements involving nondisclosure agreements, according to the NYT.
Brownlow spelt out a better approach. “[TWC] should have had a robust discussion with each other and their CEO about the values of the company and whether the payments indicated behaviour which contravened those values. They should have started an investigation using an independent provider with a report due in a timely manner.”
She explained the business case for this kind of timely and effective action: “After the misconduct is determined to a reasonable degree of certainty, the board must act – swiftly – even if the alleged perpetrator is a highly-valued asset for the company. Misconduct devalues even the best assets and also the company, as research has shown. Three days after the announcement of sexual indiscretion by a CEO, companies experience an average drop in value of US$226 million, according to a Mississippi State University study.”
Non-disclosure agreements and the silence they compel does not void board responsibility or mean the issue is finalised, with some TWC staffers reportedly now seeking to be released or simply breaching those agreements.
McElvogue said, “From the board perspective, it is important to understand what they knew and approved in terms of the content of settlements and non-disclosure agreements with victims. At the very least there seems to an ignorance or refusal to investigate company culture and internal ethics.”
Daryl Karp FAICD, SBS director and Museum of Australian Democracy CEO, said companies should act promptly to investigate once they discover the existence of a settlement. “If you become aware of something like [a settlement] you have a duty and obligation to investigate it. In the case of confidential agreements you probably need to ask: what is the background to this? You need to gather as much information as you possibly can, develop a process for review, pull together a committee or external support if necessary, and keep asking questions until satisfied.”
3. Gender diversity’s role
McElvogue cautioned increased female representation on boards could not be a failsafe solution. However, it would succeed in bringing a “different perspective to workplace relationships.” McElvogue said, “Boards need to reflect our society and for a business like TWC focused on general entertainment, diversity at a board level that reflects your audience makes good business sense.”
“At SBS, we made an active decision to target gender diversity, and have been very successful in this, especially onscreen and in senior management,” Karp said, detailing SBS’s approach and her own personal understanding. “Diversity influences outcomes. In my experience, when there were very few women in senior management positions, the tone of the conversation was different to a more balanced team.”
4. Listen: using policies which empower staff to speak
McElvogue said companies needed “clearly communicated policies and guidelines for CEOs and staff around disclosure of relationships that might influence decisions making.”
Brownlow agreed, saying these formal processes were vital to protect staff. “Nothing is more demoralising for an employee who plucked up the courage to report a misdoing than waiting in vain for the company to act.”
She said a “good controls framework” is useful in these situations, drawing on Robert Simons’ “Four Levers of Control” – Belief Systems, Boundary Systems, Control Systems and Interactive Control Systems. She said the first two systems were key in terms of preventing harassment. “Belief Systems are the values of your organisation – not just recorded somewhere but frequently referred to and lived, through the behaviours of everyone in the organisation and particularly senior management.
Boundary systems – especially important in knowledge worker businesses – are explicit about what employees can’t do, rather than being prescriptive about what they can do.”
Karp explained these policies need to be monitored and visible. “[At SBS], there are regular reviews of HR and governance policies, including code of conduct, whistleblower and harassment policies. And those policies are not hidden – they are embraced and ever-present. Bad behaviour is not accepted at any level. It is tracked through surveys of staff, senior executives and through the managing director.” She emphasised the importance of being proactive, “You can’t wait for the misconduct to occur. You need the policies, processes and buy-in beforehand and you need to be confident they’re being observed. You’ll be in a better position to address those allegations if they arise.”
5. No organisation is immune
AHRI said the issue goes deeper than any single company, commenting on how disturbing “open secret” was in the industry.
McElvogue said, “This matter will not be limited to TWC and the impact on other companies has already started.” The risk also extendes to Disney who bought the Weinstein brothers’ previous company, Miramax, according to McElvogue. “There will be corporate governance questions for Disney about whether any of these allegations relate to this time and what was known internally during and after their acquisition of the company,” McElvogue said.
Brownlow said this industry-wide knowledge offered an important avenue for directors to keep appraised of potential allegations by attending industry networking events. “One striking aspect of the Weinstein case is that nearly everyone in the US film and television industry knew about it and therefore it was most likely discussed at such events, albeit discretely given Weinstein’s prominence. It would be easier for a savvy director to get wind of problems in their organisation if they were in those environments regularly.”
Karp said directors can welcome their managers into the boardroom in order to keep their ear to the ground. “Senior management at SBS have open access to the board, and executive management is present at board meetings. I am a great supporter and believer in having the management team frequently attending board meetings. This ensures transparency and supports an open relationship between CEO, board and senior management.”
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