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Sexual harassment may be pre-cursor to poor stock performance

by | Sep 9, 2020 | Employment Law

It appears that investors in Wisconsin and elsewhere penalize companies when incidents of sexual harassment are made public. For example, McDonald’s former CEO Steve Easterbrook is now being sued by his former employer to recover the severance pay that he received after being fired for sexual harassment. McDonald’s cites financial damages to the company due to poor stock performance as part of the grounds for its lawsuit against Easterbrook.

The behavior of top executives matters

Researchers discovered that investors do not take kindly to companies whose top executives behave poorly, according to a study conducted by the American Accounting Association that collected data from over 1,000 public firms over more than six years. The study concluded that high rates of sexual harassment claims are an accurate predictor of poor stock performance in the following year.

What does that really mean?

Public firms ranking in the top 2% of sexual harassment complaints as measured by top job information sites have returns on the stock performance that are about 20% lower than what would be expected based on standard asset valuation models. Also, the correlation of rank-and-file level sexual harassment and its impact on stock prices is more severe than many C-level executives believe.

Sexual harassment is not only reprehensible; it represents a significant financial risk to a company. Researchers drew these conclusions based on employee reviews of companies that they worked for on websites Glassdoor and Indeed. These sites allow current and former employees to provide feedback anonymously and without fear of retribution from their employers.

Sexual harassment should never be taken lightly. When it occurs in the workplace, it can have severe financial implications for that company’s future. Although C-suite executives get the most press, it is obvious that a proliferation of sexual harassment complaints at any level of the company is disastrous. An individual who experiences workplace harassment may want to consult a lawyer about the next steps to take.