30 June 2021

[email protected] – The new challenge for directors

This article was written by Andrew Gray, Ruth Rosedale, Marie Veinberg and Nicole Keijzer

Following the release of the [email protected] report in March 2020, which highlighted the challenges associated with sexual harassment in Australian workplaces, the Australian Human Rights Commission and Australian Council of Superannuation Investors have co-published a report titled Equality across the Board: Investing in Workplaces that Work for Everyone.

The report examines the role boards should play in preventing and responding to sexual harassment in their workplace. The report also provides questions investors may ask to ascertain the risk of sexual harassment within a company’s workplace to increase organisational transparency and inform investors of the viability of their investment decisions. It follows a comprehensive survey of 118 ASX 200 companies.

The report recommends that boards take primary responsibility and accountability for ensuring there is a governance framework for sexual harassment and for monitoring performance against this framework. The board should clearly articulate the information it expects to receive to support this monitoring, including information to assess the effectiveness of the organisation’s systems to prevent and respond to sexual harassment.

The report will likely become a blueprint for better practice for boards looking to respond to sexual harassment in the workplace. We have outlined the key elements of the report below.

Recommendations

Recommendations

Deliverable

Leadership

Boards and executive management should demonstrate visible leadership and oversight and governance over culture, sexual harassment and gender equality. The board should maintain a governance framework to prevent and respond to sexual harassment, and for monitoring performance across the entity.

Skills and experience

Ensure the entity has the skills and experience to effectively prevent and respond to workplace sexual harassment.

Culture

Make gender equality a priority and set gender diversity targets.

Systems and frameworks

Ensure systems and frameworks are in place to collect, analyse and use data to effectively manage the risks related to sexual harassment.

Executive alignment

Align appointment, expertise and performance management of the CEO and executive management team with the entity’s values to ensure that executive management team demonstrates and displays visible leadership on culture, sexual harassment and gender equality.

Use transparency to drive outcomes

Report internally and externally to measure and track the effectiveness of systems and frameworks to prevent and manage sexual harassment.

The report also recommends investors:

  • seek information on investee entities' systems and processes to prevent and address sexual harassment; and
  • advocate for improved transparency by encouraging their investee entities to disclose their approach to preventing and responding to sexual harassment.

[email protected]

[email protected], which was led by the Sex Discrimination Commissioner following global realisation of the pervasiveness of sexual harassment amid 2018, found that gender inequality is the key power disparity that drives sexual harassment in the workplace and in society. [email protected] concluded that current approaches by employers have not been effective in reducing sexual harassment and identified seven areas in which workplaces should focus their attention to prevent and better respond to sexual harassment.

[email protected] recommended that the following action is needed to prevent workplace sexual harassment:

  • develop and display strong leadership that contributes to cultures that prevent workplace sexual harassment
  • strengthen focus on risk assessment and transparency to mitigate the risk it can pose to businesses
  • build culture based on trust and respect in order to minimise the risk of sexual harassment and ensure it is managed adequately
  • generate knowledge through education and training.

[email protected] recommended that to better respond to sexual harassment, further action is needed to:

  • prioritise support of workers’ wellbeing before and after reporting
  • increase reporting options available to workers and address barriers to reporting
  • improve understanding of the nature, prevalence and impacts of sexual harassment through measuring and collecting data.

The Government has recently taken steps to address some of the [email protected] recommendations by introducing new laws into Parliament (see our summary of these). However, these proposed reforms stop short of compelling board and senior management to take compelling action to drive the require cultural change to address the [email protected] findings.

Statistics

The recommendations in the Report were informed by a comprehensive survey of 118 ASX 200 companies including confidential interviews with a number of leading companies.

The Report outlines the following key findings regarding governance frameworks and the current level of board engagement with sexual harassment.

Key statistic

Data

Leadership and governance

19% of survey respondents recognised that the board had primary responsibility and accountability for the prevention and response to sexual harassment, including the oversight of policies and frameworks that support the gathering and use of data. However, fewer than half of respondents indicated that sexual harassment was a regular board agenda item (43%).

Risk assessment

64% of respondents had developed a mechanism that identified and mitigated risk factors for sexual harassment.

Gender diversity and expertise

62% of respondents had set a target to increase representation of women on their board. Gender equality was a priority for the majority of respondents (94%) who indicated they have policies and strategies in place to support gender equality in recruitment.

Culture

27% reported that they tied incentive payments, at least partially, to preventing sexual harassment.

Knowledge building

19% of respondents reported that board directors undergo training on good governance and sexual harassment. Three out of five respondents (60%) indicated that the executive management team was required to undergo training on good governance and sexual harassment.

Reporting and supports

The majority of respondents had a range of complaint options available, however practices in respect of follow up and monitoring varied.

Measurement and accountability

Respondents collected a broad range of information regarding corporate culture, including the prevalence of sexual harassment, but there is opportunity to improve the way data is used and reported, especially on an industry basis.

Transparency

There is inconsistency in respect of information sharing internally. In addition, less than one third of respondents publicly reported information relevant to sexual harassment as recommended by the ASX Corporate Governance Principles and 14% of respondents did not report externally at all.


Recommendations for change – what does good look like?

We have provided more detailed discussion of the various recommendations made by the Report below.

1. The Board Should Have, Leadership in Sexual Harassment Management

Boards are encouraged to take primary responsibility and accountability for ensuring that there is an appropriate governance framework for the prevention, monitoring and response to sexual harassment in the organisation. Visible leadership, and commitment to promoting positive workplace culture, is recommended to achieve gender equality and address sexual harassment.

The report recommends the governance framework should include systems of risk identification, management and assurance. Appropriate board oversight would involve regular board assessment of whether these systems and frameworks are appropriate and effective.

Subcommittees are recommended as an effective mechanism to manage board responsibilities in relation to sexual harassment. However, the board must still retain ultimate responsibility and require reporting to the full board. The sub-committees’ roles and responsibilities, as well as methods of coordination should be clearly set out in its Terms of Reference or similar documents.

The report also suggests the recent AICD publication ‘A director’s guide to preventing and responding to sexual harassment at work may provide useful guidance.

2. Skills and experience

The report emphasises the need to develop appropriate expertise on sexual harassment and gender within the board and executive management.

The report recommends:

  • all members of the executive management team should be educated and trained in understanding sexual harassment, gender, safety and trauma to further their understanding of good governance in this area;
  • members of the executive management team who have specific roles in preventing and managing sexual harassment, such as Human Resources executives, undergo training to expand their knowledge of the drivers and consequences of sexual harassment in the workplace, as well as available mechanisms to address these issues.

The report also observes that companies benefit from having a Board Member who has specialist knowledge of gender, culture, or management of sexual harassment. Boards are encouraged to assess whether their cumulative skills and experiences include sufficient understanding of gender, culture or sexual harassment management.

3. Prioritising Gender Diversity

The report recommends setting gender diversity targets for the board of 40:40:20 (being boards comprised of 40% men, 40% women, and 20% discretionary) and a timeframe for achieving these targets. Diverse boards have been found to increase transparency in the company, improve prevention and management of sexual harassment, and improve companies’ financial performance.

The report further recommends that boards prioritise achieving gender diversity throughout the organisation. The report suggests the following as suitable mechanisms for achieving gender equality:

  • Setting gender diversity targets at all levels within the organisation;
  • Requiring the institution of, and implementation of, procedures to support women’s involvement in the workplace; and
  • Ensuring members of the executive, including the Chief Executive Officer, lead advancements of gender diversity.

4. Ensuring Policies are in Place to Effectively use Data Regarding Sexual Harassment

The report recommends instituting policies for the prevention of, and response to, sexual harassment. This should include methods for collecting and analysing data to identify and manage risks related to sexual harassment. Responsibility for data collection should be clearly allocated.

Members of the executive management team responsible for the collection and use of the data should report information to the board, or its sub-committee (if relevant), as well as other members of the executive management team. It is further recommended that this data is shared internationally to facilitate company transparency, and externally, to ensure investor and community trust.

5. Appointing Executives who Share Company Values

When appointing executives, especially the Chief Executive Officer, ensure individuals align with the company’s values and demonstrate leadership with respect to prevention and management of sexual harassment within the workplace. The Board may wish to consider including additional selection criteria for appointments, such as whether individuals have demonstrated experience of gender equality or inclusive leadership.

Performance management tools should also reflect the organisation’s goals. At a practical level this could involve linking performance incentives to the prevention and management of sexual harassment, as well as the maintenance of positive workplace culture and incentivising transparency on sexual harassment matters.

6. Internal and External Reporting of Sexual Harassment

Enhancing transparency and reporting on sexual harassment matters is recommended to motivate companies to improve their policies, strategies and systems for preventing and managing sexual harassment. This includes both enhanced internal and external reporting.

The report recommends improved information sharing practices, which could include discussions on workplace behaviour, systemic themes and trends and high level information about complaints.

For external reporting, the report recommends including information about workplace culture, diversity and approaches to preventing sexual harassment within existing public disclosure mechanisms, such as annual reports. It is further recommended that entities engage in industry-based reporting on corporate culture and sexual harassment, to monitor industry-wide trends. The Report also recommends information for public disclosure, which includes:

  • Board and board sub-committee discussions regarding sexual harassment;
  • The gender balance of the board, as well as any targets which have been set;
  • Director and executive expertise and training on gender, culture and sexual harassment management;
  • Systems and frameworks in place for the reporting of sexual harassment, and effectiveness of those systems, as well as timeframes for complaint resolution;
  • Sexual harassment prevalence rates;
  • Complaint data; and
  • Numbers of relevant separations with confidentiality terms.

The report also sets out a summary of external reporting requirements under existing legislation relating to sexual harassment. This includes a suggestion that for organisations covered by the BEAR, an accountable person found guilty of sexual harassment may also breach their BEAR accountability obligations to act with honesty, integrity and with due, skill, care and diligence which would need to be reported to APRA under mandatory BEAR reporting requirements.

7. Investor action

The report acknowledges the important role institutional investors can play in driving change and their responsibility to protect and enhance investment value and recommends investors:

Recommendation

Deliverable

Seek information on investee entities systems and processes to prevent and address sexual harassment

The report recommends that investors actively seek information from investee entities on their approach to addressing sexual harassment. Information about the entity’s approach to addressing sexual harassment may be publicly available across several platforms, including the company’s website, WGEA reporting, industry reporting, annual reports and Corporate Governance Statements, among others.

Advocate for improved transparency and public disclosure on sexual harassment

The report recommends that investors continue to advocate for improved transparency on sexual harassment. Investors should encourage their investee entities to disclose their approach to prevent and respond to sexual harassment.

In addition, the Commission recommends that investors advocate for stronger and more specific metrics on sexual harassment in existing reporting mechanisms, including annual reporting and WGEA reporting.

The report also recommend that the ASX Corporate Governance Principles may benefit from amendments that specifically target the prevention of sexual harassment as follows:

  • When appointing or re-electing a director or senior executive, boards should undertake appropriate checks and consider all material information. The Commission recommends that appropriate reference checks into a person’s character should include seeking information about ethical and respectful conduct and commitment to gender equality initiatives (ASX Principles Recommendation 1.2).
  • Recognise that information about measures taken to prevent and address sexual harassment should form part of listed entities’ approach to their diversity policy and measurable objectives to achieve gender diversity (ASX Principles Recommendation 1.5).
  • As part of its requirement to introduce a program for new directors and ensure existing directors are undertaking continuous professional development, specifically recommend education and skill building on good governance on preventing and responding to sexual harassment (ASX Principles Recommendation 2.6).
  • Specific mention of sexual harassment in guidance on company codes of conduct (ASX Principles Recommendation 3.2).

8. Concluding Remarks

The underlying theme of the report is that allocating responsibility to the board and senior management for preventing and responding to sexual harassment and increasing the transparency around this issue, should drive positive change in this area.

The report also motivates institutional investors to take action and avoid companies with a large risk of sexual harassment, and lays out a clear challenge to management and boards to take accountability for driving meaningful change in this area. Overall, the report provides useful guidance for boards looking to meet this challenge and improve workplace culture.

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