Trustees at CalPERS, CalSTRS, the Los Angeles City Employees’ Retirement System and the Los Angeles County Employees’ Retirement Association, which together have combined assets of more than $635bn (€555bn), have come together to create the Trustees United Principles.
The principles seek to “ensure portfolio companies are working toward providing workplace cultures and environments that are safe, free of sexual harassment, violence and misconduct”. They focus on human capital management strategies that should help reduce future risks in light of their need for long-term value creation.
While the website, Trustees United, cites the bankruptcy of the Weinstein Company and the $2 billion loss in value at Wynn Resorts following sexual assault allegations against executives there, rather it focuses on “opportunities to create long-term value that have been missed” because companies have allowed sexual harassment and misconduct to occur that has damaged corporate culture.
This is a less headline-grabbing but actually more significant potential value loss. In an interview with RI, Outgoing CalPERS Board President Priya Mathur said: “Major scandals, settlement costs, value loss is important, but there are also other relevant issues for us to think about. For example, a toxic corporate culture is not conducive to productivity.
“Those subject to sexual harassment and misconduct in the workplace are less likely to be productive, their morale will be lower, their ability to be engaged with and represent the company is likely to be hampered. Plus, you see increased absenteeism, and impacts on retention and recruitment. And from the consumer standpoint, a significant scandal can have an important impact on brand loyalty. We have to care about this as investors.”
“Long-term value creation requires companies to fully consider the business risks and opportunities they may face and to take action to manage both,” says the website. The trustees recognise that the wave of sexual harassment and misconduct reports open companies up to “significant operational, financial and reputational risks”.This has forced a focus on surrounding issues as well, such as gender, racial and ethnic diversity.
The trustees have been asking for transparency surrounding how portfolio companies are mitigating these risks.
In the press release, Mathur said: “This is a joint assertion that trustees and investors alike have a stake in engaging companies to promote policies that reduce incidents of sexual harassment, violence and misconduct and provide safe, supportive, and productive workplaces.”
“We have to care about this as investors.”
Mathur also said that sexual harassment and misconduct was a common topic of discussion at the PRI in Person conference in San Francisco in September and was one of the most engaging sessions. And back in August, Bloomberg reported, she said, that investors were including clawback clauses in their M&A documents so that if a sexual harassment incident occurred that damaged the value of an acquired company they could recoup some of that loss.
“We are trustees who talk to each other a lot,” she added, “and the public pension world is our world, so those are the first folks that we are reaching out to, but I have spoken to others who have also integrated principles like this into their engagement policies. I think we will see family offices, endowments, foundations, as they seek to align their investment strategies with their own missions.”
The trustees involved in the principles are intent on using corporate governance engagement strategies addressing these issues, including: general staff, C-Suite leadership and the composition of their boards of directors.
The principles are available at the Trustees United website. They complement principles at each of the signatory organisations. The website invites other trustees to submit their support for the principles by filling in an online form.