man in suit with hands on woman's shoulders

This is the first in a series of articles covering the various ways directors and officers can be liable. Here, Stephanie Resnick, Philadelphia Office Managing Partner and Chair of the Directors’ and Officers’ Liability Practice Group at Fox Rothschild, and John Fuller, an associate and member of the Directors’ and Officers’ Liability Practice Group at Fox Rothschild, explore the issue of harassment in the workplace.

with co-author John Fuller

Unfortunately, sexual harassment in the workplace is not a new phenomenon. However, the rise and focus of the #MeToo movement has made sexual discrimination and harassment a very significant concern for shareholders. While companies have historically faced liability for the failure to address allegations of sexual harassment or sexual misconduct properly, the #MeToo era has seen theories of corporate and board liability and damages for sexual harassment and misconduct evolve dramatically.

Directors and officers should use this surge in social awareness as a wake-up call and an opportunity to critically assess their anti-harassment policies and the potential liability if company policies are not meaningfully enforced at all levels.

One significant change signaled by recent cases has come in the ability of plaintiff-shareholders to identify specific monetary damages resulting from public allegations of sexual harassment and misconduct. For instance, in the wake of allegations of pervasive sexual harassment and misconduct, executives in a variety of industries have resigned their positions, and shareholder derivative actions have followed. Not surprisingly, these actions not only have focused on the board’s alleged failures to address purportedly known incidents of sexual misconduct within the workplace, but also have connected particularized monetary damages to the company that resulted from the public disclosure of the misconduct. Specifically, recently filed complaints against the boards of these companies have cited the dramatic drop in share prices in the days following the revelations of misconduct, as well as the companies’ downgrade in investment rating as bases of damages. The complaints also include damage allegations based on the impact on stock value of losing an executive that the companies have historically championed as indispensable parts of the companies’ success.

Another shift in the litigation landscape has come in how boards’ prior responses to allegations of sexual harassment and misconduct have been viewed. Prior efforts to “quietly” resolve claims – or sweep them under the rug – are no longer viewed as discrete or even reasonable business decisions. Liability can attach for making private and confidential settlements without actions to prevent further inappropriate conduct.

For example, in lawsuits filed following allegations of widespread sexual abuse of young athletes, the plaintiffs have asserted that the decisions by governing bodies to keep the allegations against the central perpetrator confidential shielded the perpetrator from outside investigation and permitted them to continue a pattern of abuse. In addition, the plaintiffs have alleged that the governing bodies were aware of similar “red flags” surrounding the perpetrator, but worked to conceal the abuse rather than take corrective steps.

These cases, among others grabbing headlines, signal a fundamental shift both in the demonstrable damages from sexual harassment and misconduct and what constitutes an appropriate board response to such conduct in the workplace. It appears clear, however, that implementing an anti-harassment policy and reacting to violations of the policy with settlement payments and confidentiality agreements can no longer be considered a sufficient response without further corrective action. As a result, companies and their directors and officers must reflect on whether their anti-harassment policies and reporting systems truly address and repair the corporate cultures that allow harassment, discrimination and abuse to continue.

A successful anti-harassment policy must be clear and understandable both with respect to what constitutes appropriate conduct and how reports are made and investigated. Further, any anti-harassment policy must be enforced equally at all levels. Regular trainings to employees, management and the board should include specific examples of both proper and improper conduct and should be tailored for the type of work environment and the nature of the interactions that occur between employees. Trainings should also address the roots of sexual discrimination including both explicit and implicit gender bias. Understanding and addressing the subtle preferences and prejudices that affect decision-making throughout the company is a critical step in stopping the development of toxic work environments.

Trainings should also include clear instructions for making a report of harassment or discrimination. Moreover, employees should be provided with a list of various individuals within the company who have been identified to receive and investigate confidential complaints. These designated individuals should undergo additional training to ensure they are prepared to ascertain the material facts that will form the basis of an investigation in a professional, yet comforting manner.

Promptly addressing complaints and reporting them to upper management and the board for corrective action is critical. Indeed, if improper conduct is widely understood and employee reports are received – but management fails to act – the system has utterly failed. Moreover, if complaints, particularly those regarding high-level personnel, such as C-suite officers and business generators, are susceptible to being downplayed or disregarded, liability and substantial monetary damages will result, and criminal charges are also possible. Therefore, reporting structures which remove managerial discretion from escalating complaints and which generate reports to the board no matter how egregious they may be are necessary to ensure that anti-harassment programs remain effective.

While companies strive to eliminate sexual harassment, boards must also fully appreciate the changing liability facing companies today. Boards must take steps to ensure that their anti-harassment policies effectively address sexual harassment in the modern workplace and – most significantly – that they are seriously considered, followed and enforced at all levels of the company. Corrective action must be taken following a confidential settlement if there is a history of sexual harassment involving that particular manager or officer.

Stephanie Resnick

Stephanie Resnick is the Office Managing Partner of the firm’s Philadelphia office and is Chair of the Directors’ & Officers’ Liability & Corporate Governance Practice Group. She is consistently ranked among the top business trial lawyers both regionally and nationally and is lauded by her colleagues and peers for her strategic handling of high-stakes, complex business disputes in the federal and state courts of Pennsylvania, New York, New Jersey and beyond. She has served as lead counsel in numerous high-profile litigation matters. She has been noted by peers in top publications such as The Best Lawyers in America, Chambers USA and Benchmark Litigation as “one of the best litigators in the city – aggressive, driven and responsive.” She has an “easygoing but powerful presence” and is noted for her “ability to handle things calmly while maintaining an unflinching stance.”

Stephanie is also a member of the firm’s Executive Committee. She previously chaired the firm-wide national Litigation Department, overseeing more than 250 attorneys in 21 offices, a position she held for seven years. In state and federal courts across the United States, she has earned a reputation for sound judgment and innovative problem solving. Corporate executives, Fortune 500 companies and family-owned businesses turn to Stephanie for solutions to their most difficult and sensitive personal and professional issues.

Stephanie has tried and arbitrated complicated and complex business litigation, including injunctions. She handles the following types of litigation:

  • Directors’ and officers’ liability and corporate governance
  • Shareholder and partnership disputes
  • Family business disputes
  • Defense of class actions
  • Books and records demands
  • Shareholder derivative actions
  • Intellectual property disputes
  • Errors and omissions disputes
  • Unfair business practices and competition and misappropriation of trade secrets
  • Breach of fiduciary duty
  • Federal RICO actions
  • Health care/physician issues
  • Employment litigation, including restrictive covenants
  • Defamation and media issues
  • Ethics and professional liability
  • Insurance and reinsurance issues

In recent years, Stephanie has received a remarkable collection of accolades from the most prestigious ranking organizations in the world.

Stephanie has been named in “The Best Lawyers in America” in Commercial Litigation, and as one of the leading litigation attorneys in Pennsylvania by Chambers USABenchmark Litigation lists Stephanie as one of the “Top 250 Female Litigators in America” and as a “Litigation Star” in Pennsylvania. Stephanie was also selected for inclusion in the inaugural edition of the Martindale-Hubbell® Bar Register of AV Preeminent Women Lawyers™, which includes less than five percent of women lawyers, and has been added every year since.

For many years, Stephanie has been named as a “Super Lawyer” and one of the “Top 50 Women Lawyers in Pennsylvania.” She was one of only 10 women included in a list of the “Top 100 Lawyers in Pennsylvania” by Philadelphia Magazine and Law & Politics Magazine, which also recognized her as one of the “Top 100 Lawyers in Philadelphia.”

Stephanie is also a recipient of the coveted Sandra Day O’Connor Award, presented by the Philadelphia Bar Association. Named for the first woman justice on the U.S. Supreme Court, the award has been conferred annually since 1993 on a woman attorney who has achieved the highest degree of professional excellence in her field and has visibly used her position and stature in the community to mentor, promote and advance other women lawyers.

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