Challenges to banks’ use of arbitration a sign of gender fights to come
Two big banks recently avoided confrontations with socially responsible investors over how the banks handle sexual harassment cases, but the industry remains vulnerable to proxy challenges on this and related issues.
Shareholder resolutions filed, and later withdrawn, at Wells Fargo and JPMorgan Chase questioned the banks over the use of mandatory arbitration in cases of sexual harassment. Shareholder groups say such proposals reflect a growing interest by socially conscious investors in better understanding how companies’ employment practices could be affecting diversity and gender issues in the workplace — and ultimately the bottom line.
“There’s a broader investor push for corporate transparency and disclosure as it relates to workplace equity, diversity and inclusion,” said Meredith Benton, a principal at Whistlestop Capital, which consults with investment advisers and asset managers on social and environmental issues. “Arbitration falls within that.”
Industry observers cite a number of reasons the issue has gained traction recently. A number of tech companies, including Google and Facebook, have ended forced arbitration in cases of sexual harassment and discrimination. And the #MeToo movement has sparked a national dialogue about workplace sexual harassment.
Shareholder groups say the use of mandatory arbitration in these cases may obscure the true extent of sexual harassment. Because arbitration often preconditions settlements on nondisclosure agreements, it is impossible for shareholders to know how many of these cases never see the light of day, they say.
In December, Clean Yield Asset Management, a socially conscious asset management firm in Vermont, filed proposals with Wells Fargo and JPMorgan Chase asking both banks to review and report on their use of mandatory arbitration in sexual harassment cases. In neither proposal did the firm ask the bank to end the practice outright.
Wells Fargo responded by ending the practice of forced arbitration for sexual harassment and discrimination cases. JPMorgan initially asked the Securities and Exchange Commission to exclude that proposal from its proxy materials, but later withdrew that request. Partial correspondence filed with the SEC revealed that JPMorgan dropped its request after Clean Yield agreed to withdraw its resolution based on unspecified steps the bank promised to take.
Molly Betournay, director of social research and advocacy at Clean Yield, declined to comment on the proposals her firm filed or what JPMorgan agreed to do that caused Clean Yield to withdraw its resolution. She also said the group had not filed similar proposals with any other banks.
But the issue has already begun to flare up at other publicly traded companies, and Benton said she expects that shareholders may continue to raise this issue with other banks in the future.
Nia Impact Capital in Oakland, Calif., has filed a similar proposal with Tesla, though the carmaker has yet to respond to that resolution. Founder and CEO Kristin Hull said the firm plans to file future resolutions with any other companies it holds that have mandatory arbitration.
“It is a social and moral issue, and yet it’s really an issue for investors,” she said. “We will continue to use our investor voice to help improve company practices.”
Hull said that Nia is also interested in related issues like broader company policies on diversity and inclusion.
Resolutions concerning arbitration share something in common with those asking banks to disclose data on gender and racial pay gaps at their companies, and that is a desire for transparency, said Natasha Lamb, managing partner at Arjuna Capital in Boston. Arjuna has previously filed shareholder resolutions asking banks to disclose raw pay gap data.
“Transparency is the big theme here. At the end of the day, that’s what investors are asking for,” she said. “Investors don’t like surprises. We want to know when there is an issue at hand, and we want to know that it’s being addressed proactively.”
Failure to promote a diverse workforce can have broad operational and corporate governance ramifications, advocates say.
“When you have a company with pervasive sexual harassment and you’re driving women out, that’s bad for the bottom line,” said Nicole Page, a partner with the law firm Reavis Page Jump who has represented employees and employers in a range of workplace disputes.
Page pointed to a 2017 McKinsey study that found that companies in the top quartile for gender diversity among their executive teams were 21% more likely to post above-average financial performance than those in the fourth quartile.
In some particularly high-profile cases, sexual harassment that was initially kept quiet ultimately toppled or caused harm to companies. The Weinstein Company eventually folded, and CBS is currently facing a shareholder lawsuit regarding the sexual harassment scandal that forced out former Chairman Les Moonves.
“The last few years have shown us that companies really are at risk and expose shareholder value to risk when they tolerate cultures of sexual harassment,” Betournay said.