Jonathan Davidson, a senior Financial Conduct Authority director, recently chose to speak up on sexual harassment: in his view, certain companies and senior managers in financial services are turning a blind eye to it, labelling complaints as “political correctness gone mad”.
A wake-up call is now top priority.
With the ripple effect of the #MeToo campaign, which started in October 2017, the flow of reported sexual harassment at work has been continuous in all industries. However, financial services companies may have been slow to grasp the breadth of sexual harassment issues in the City, despite regular press coverage of workplace sexual misconduct, which can range from unwelcome jokes or comments of a sexual nature to serious sexual assault.
A survey published in September last year found that almost 500 workers at Lloyd’s of London insurance had suffered or witnessed sexual harassment in the previous year, but the survey was less clear about the actions that followed.
On November 5 2019, the Prudential Regulatory Authority – a division of the Bank of England and one of the regulators of insurance companies – referred to the “deep concern” caused by such reports, emphasising the work still to do be done to improve the industry’s culture and individual behaviour as one of five key priorities for 2020.
On the regulators’ radar
Though sexual harassment may not fall within the scope of financial misconduct, the PRA and the FCA are aligned in considering that sexual misconduct speaks to personal integrity, a position that FCA director Meghan Butler first expressed in November 2018 when she was heard by the Women and Equalities Committee.
Key Points
- Sexual harassment in financial services was highlighted last year by the FCA.
- Prevention is the first step in reducing sexual harassment.
- Despite legislation to prevent sexual harassment, there are no penalties for businesses failing to apply it.
In other words, perpetrators may fail the fitness and propriety of individuals test within the Senior Managers and Certification Regime, the scope of which was extended significantly on December 9 last year.
The SMCR is expanding the ethical responsibility of staff at all levels and requires companies and employees to be able to demonstrate where responsibility lies, so the prevention, reporting and sanction of sexual harassment falls well into that scope.
The PRA vows to work hand-in-hand with the FCA to cull inappropriate culture and behaviour, and has reminded managements and boards of their responsibility: to foster an environment where staff can speak up and have clear reporting channels to resolve matters effectively.
Prevention
Prevention is the first step to reducing sexual harassment. In practice, this means businesses should carry out a risk assessment across the workplace, led by human resources and, crucially, championed by senior management to identify key areas of risk.
Each situation will be fact specific. However, as outlined by the WEC, potential factors in sexual harassment occurring include: abuse of power; long-hours culture; excessive drinking at work events; inappropriate and unchecked bantering; out-of-date policies, procedures and training; lack of action when concerns arise; and the fear of retaliation.
Financial companies would be well advised to use carefully tailored policies and make a thorough analysis of reporting patterns and trends. This will assist their internal HR teams with completing this assessment, and encourage employees to come forward so matters can be carefully investigated.
The policies should be completed by other measures such as regular training, coordinated communication and setting up discussion groups involving employees of all backgrounds, position and gender. By obtaining employee feedback and tailoring training effectively, businesses will be able to identify the policies and actions that have the most impact.
Sexual harassment claims, particularly serious ones, are often settled due to the potential business disruption and the wish for all parties to move on. However, the abusive use of confidentiality clauses may prevent sexual predators from being stopped in their path, thus leading to more incidents.
The legal professional has a role to play in carefully advising their clients by discussing the appropriateness and scope of confidentiality clauses. According to best practice and new guidance from the Equality and Humans Rights Commission, they should apply when an employee requests it to move on with their life, to protect an individual falsely accused and for a legitimate business interest, such as when there is a pending investigation.
No employee should be forced into a ‘gagging clause’, and it should not prevent a victim from speaking to a relevant regulator, the police, their doctor or immediate family members, among others.
State responsibility
In many cases, the judicial system and the courts are failing victims. Only a small proportion of cases prosper, due to the difficulty in bringing a tribunal claim successfully.
In addition, the burden of proof, litigation costs, the emotional distress the victims of sexual harassment endure and the potential impact on their careers mean victims give up wanting to bring a claim to light. With greater certainty and protection, more claims would be successfully litigated.
There is also insufficient reliable data at the national level to enable corporations and public opinion to realise the extent of the problem and its impact on individuals.
There are sector surveys and opinion polls that make the headlines, such as the recent Lloyd’s insurance survey; however, there is little continued monitoring on a broader level, and no clear understanding of the impact of proactive intervention on a large scale.
Governments have the infrastructure to apply behavioural insights to labour markets, such as financial and social incentives impacting employers. If more focus is given at national level to survey sexual harassment in various sectors, businesses can be involved in order to run trials with recommended approaches and significantly reduce the risk of sexual harassment.
Incentivising employers
There is not enough incentive for employers to take appropriate steps to protect employees against sexual harassment. Though there is a lot of legislation in place declaring that sexual harassment is unlawful, there are no significant penalties for failing to apply the law.
Data Protection Regulation reform that increased fines to up to £20m or 4 per cent of turnover was able to focus businesses’ minds on data privacy, so it may be time the legislator took a similar approach to sexual misconduct at work.
The government is already considering whether to introduce a positive mandatory duty on employers to protect workers from harassment. This proposed reform could have a significant impact, although the measures would need to be carefully considered.
Cultural changes needed
The FCA and BoE, with their consistent messaging, appear to be slowly recognising they have a key role to play in leading changes in the financial sector, including through compliance checks. This is a pressing call for action, but the change must be profound to be effective.
Change in the financial sector, and other business sectors, must include how we all view sexual harassment. It is not an ordinary claim or a litigation cost. Sexual harassment is a cultural and societal issue that impacts the well-being of individuals and in turn damages the long-term success and profitability of the business.
Good leadership of an organisation will be paramount to steer how sexual harassment is handled, so it must start from the top, loud and clear.
Ming Evans is a senior consultant and Clare Murray is managing partner at CM Murray
