The #MeToo movement has undoubtedly transformed modern life and the expectations of how it should be conducted. New research from Copenhagen Business School highlights the significant impact it’s had on the workplace, and especially for the financial hit companies face if they permit sexual harassment in the workplace.
“Sexual harassment has serious consequences for the victim. But it is also something managers and investors should be interested in for purely financial reasons, as it can wipe off enormous amounts of market value in a matter of days,” the researchers explain.
The analysis reveals that companies suffer a fall of around 1.5% in their share price after reports of sexual harassment. This equates to around $450 million on average. What’s more, affected firms only appear to recover around half of that lost value in the longer term.
The cost of harassment
The researchers examined nearly 200 sexual harassment reports from a range of companies, including Disney, Google, Amazon, Goldman Sachs, Fox, and Tesla. Perhaps understandably, the accusations were found to be amplified if the CEO was involved, as it was if it became a high-profile media storm.
Data was collected from news coverage from January 2005 to February 2019 held in the Nexus Uni research database. This was used to identify sexual harassment incidents, with the incidents ranging from verbal abuse to forced sexual relations.
The search returned nearly 200 incidents globally, albeit with 78% of them occurring in the United States. In nearly all of the cases it was a woman that came forward to report the harassment.
Charting the consequences
The researchers believe that while the consequences of sexual harassment have been fairly well documented on the individual, there has been far less analysis of its impact on company value. What’s more, they believe that sexual harassment scandals are sufficiently unique to render them different from other forms of scandal, such as fraud or labor violations as they’re usually not motivated by monetary gain.
“This research moves things forward by offering new insight into quantifying the size of the financial impact a sexual harassment scandal has on company value,” the researchers suggest.
Aside from the obvious moral and ethical reasons, the authors believe that it also makes financial sense for companies to do all they can to prevent sexual harassment in the workplace. The significant financial costs associated provide clear evidence as to the sums that could be spent to ensure this happens and still render it a sound investment.
“Companies need to realise that it is also in their benefit (not only in the victim’s benefit) to prevent and react to incidents of sexual harassment as this ultimately affects their bottom line,” the researchers conclude.
