A coalition of trustees, which includes the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System, (CalSTRS), the Los Angeles County Employees’ Retirement Association (LACERA) and the Los Angeles City Employees’ Retirement System (LACERS), have launched the Trustees United Principles. Priya Mathur, outgoing board president of CalPERS, told IA that the principles provide “best policies that funds can adopt around sexual misconduct in the workplace and that also address internal human and capital management policies and the role of boards in overseeing a constructive corporate culture.” [Mathur’s last day is this week, after which Jason Perez, a sergeant for the Corona Police Department, will take over Mather’s position as a representative on the board.]
The Principles focus on strategies designed to mitigate and reduce future investment risks—a priority for these California institutions,
with combined assets of more than $635 billion, that invest with a long-term focus. Additionally, “the goal of [the Principals] is to develop some tools for trustees to begin to have the conversion within their own funds, within their own teams, and with investment managers and consultants, around relevant investment risk and to broaden the conversation beyond our funds to funds around the U.S. and globally,” said Mathur.
The group has developed “a website and a trustees sign-on letter and is inviting pension fund trustees around world to sign on to the initiative and to develop come up with some framing comments and starter questions in order to better engage with their own investment teams and consults, Mathur said. The California pension funds are also hoping to inspire pension funds to develop a “‘best policy’ that the funds can adopt around expectations regarding sexual misconduct in the workplace that addresses internal human and capital management policies.” Mathurs said. She would also like to see better board oversight in constructing corporate culture.
How to best engage with companies
The idea for the laying out the Principles came when this group of California-based trustees, who are also fiduciaries, realized that the recent wave of sexual harassment and misconduct incidents could leave companies open to significant operational, financial and reputational risks—which, left unmonitored—have the potential to do long-term damage to companies’ bottom line and consequently to pension funds’ portfolios.
Trustees from the four California pension funds in the group had been meeting quarterly to talk about “issues relevant to the oversight of public funds in California surrounding responsible investment and those types of issues,” said Mathur. About seven months ago, they invited experts on misconduct in to talk to the funds’ workers. “They gave experiences, but also stats and numbers related to investment risk,” said Mathur. “The group was extraordinary shocked about by what we heard and the one data point that stood out was in the hospitality industry. I don’t remember the exact figure, but something like 70% of women reportedly suffered some form of sexual misconduct in the workplace,” Mathur said.
Mather and some of the other trustees in the group including, Theresa Taylor, board member designee at CalPERs; Sharon Hendricks, board vice chair, CalSTRs; and Dana Dillon, board chair of CalSTRs, “looked at each other and said, we can’t hear this and sit still. So, we decided to think about what kind of action to take and who to invite to participate. In March, 2018, LACERS and LACERA joined on. The group began seriously planning for the initiative over the summer.
“Data is clearly an issue,” said Mathur. “We know that this [the issue of sexual misconduct in the workplace] is a material risk, but we don’t know how material. We don’t have enough data to assess that this is costing companies. There are multiple ways it costs, in terms of litigation and settlement cost, and that is what you hear most about, but there are also insidious ways in which it costs companies,” she said.
Working in an environment where misconduct goes unchecked can have a toxic affect on the bottom line, she noted. “You can imagine it would be an unpleasant place to work, but it could increase absenteeism and have impacts around moral, productivity, and become hard to retain and recruit talent,” Mathur furthered. “We all know much brand and reputation are such a crucial part of the value of the company and how customers see the company is crucial to how they spend their dollars on it. It is all costly,” she noted.
So, one part of the initiative is designed around helping funds figure out how to better engage with companies. “We want to start a conversation about how it will look,” said Mathur. “It is first about getting them [the companies] to report on what polices they have and on what processes they have to support it,” she said. “This will help hold people accountable and show what is the board’s role in it.” For instance, as far as overseeing corporate culture, does the board get to see the number of allegations and the cost of it? Who is investigating the reports and what agreements have they reached agreement. Also, what is the impact on the insurance costs and is the board doing its job in overseeing it?” The other part is getting a handle on the number of settlements, litigation, and investigations at the companies,” Mathur added. They group is also asking companies to report on the aggregate of claims they have received as well as any significant individual cases.
The Trustees United Principles are:
“Principle 1: Corporations must ensure a work environment free of sexual harassment and violence. Boards must support the right of employees, both individually and collectively, to safely bring forward claims of sexual harassment and violence. Company directors should publicly share due diligence processes used to respond to sexual harassment and violence complaints filed by all employees, including contingent, temporary, and subcontracted workers.
“Principle 2: The use of non-disclosure agreements and forced arbitration policies reinforce the silence that perpetuates harassment. Transparency in reporting sexual harassment and misconduct settlement costs to investors can help change corporate culture and limit the potential for significant exposure to financial and reputational risk.
“Principle 3: Companies must prioritize diversity at all levels, including the board of directors and C-Suite, to take advantage of the opportunities diversity affords and to be more attuned to the risks associated with harassment, misconduct and discrimination. Diverse boards which reflect the racial and gender composition of a company’s workforce can help to create organizational cultures that prevent sexual harassment and related risks from materializing.
“Principle 4: Policies and agreements, such as collective bargaining agreements and responsible contractor policies, that protect workers’ rights provide mechanisms for risk mitigation by addressing power imbalances that often facilitate abuse, harassment and discrimination and by providing clear mechanisms for redress when incidents occur.”
The Trustees Principles complement board-approved principles and policies at each signatory’s organization, respectively: CalPERS Governance and Sustainability Principles; CalSTRS Corporate Governance Principles; LACERA Investment Policy; and LACERS Investment Policy.
Trustees, institutional investors and asset owners that share a similar risk viewpoint surrounding human capital management concepts, including mitigating risks of sexual harassment and workplace misconduct, are invited to visit www.TrusteesUnited.com for more information on submitting their interest to become a signatory and demonstrate their support for these principles.