Recently we were asked by a colleague about the goals of corporate compliance and governance in today’s corporations, both large and small. Corporate compliance is how a board of directors (BOD) oversees a company and the strategy it uses to take into consideration all its stakeholders: management, employees, stockholders, suppliers, customers, and the public. Governance consists of policies and procedures, rules and practices that govern the BOD, CEO, managers, employees, and customers to ensure the financial health and success of a company without engaging in unfair or unwanted practices involving individuals or the environment.
Lawsuits can be avoided with better corporate governance, which includes principals of accountability, transparency, and security. Key to good governance is the recognition of all the company’s stakeholders.
Racial Discrimination Leads in Lawsuits
Most Americans know of companies that completely collapsed due to poor corporate governance such as Enron or Miramax. But you may not be aware that according to a report by goodjobsfirst.org entitled Big Business Bias: Employment Discrimination and Sexual Harassment at Large Corporations, “99 percent of the entire Fortune 500 have made payments to plaintiffs in at least one employment discrimination or harassment lawsuit since the beginning of 2000.” Some of those payments made the news, such as the $20 million settlement to newscaster Gretchen Carlson from 21st Century Fox, or the $310 million claim settled with Google’s parent company Alphabet. However, most payouts are much smaller, and many are settled with a non-disclosure clause so that the public is never aware of the settlement.
The goodjobsfirst.org report lists the top five penalty categories for all corporation types as: race, gender, age, disability, and sexual harassment.
Retail Leads in Disclosed Penalties
Retail has far more cases with disclosed penalties than any other sector of the economy. By comparison, the total disclosed penalties are similar in financial services with a far smaller number of disclosed cases and a significantly larger settlement per case.
And the breakdown of the top five penalty categories for the retail sector are listed below.
Disability Tops the List of Number of Cases in the Retail Sector
The retail industry is the most targeted by Americans with Disabilities Act (ADA) lawsuits. One might think it is because brick-and-mortar stores lack ramps. But according to UsableNet “The retail industry is the most frequently targeted by ADA web accessibility lawsuits—with more than 66 percent of the Internet Retailer’s Top 500 named in an ADA Web or App lawsuit in the past two years. Equally striking, over 40 percent of those cases are against a retailer that received a lawsuit in the past.”
Retail companies provide multiple web experiences, but often they are clumsy and very difficult to access for people with disabilities. Lawyers find it easy to target inaccessible websites or mobile applications with multiple lawsuits. Retailers have to make “digital accessibility a priority to avoid legal actions,” according to the UsableNet blog. Understanding and implementing excellent ADA policies when setting up digital design is crucial to avoid legal actions. Involving legal counsel with expertise in ADA web requirements and members of the disability community to test website accessibility will aid in assuring good compliance.
Saving Resources and Reputation
Since the beginning of 2000, as reported in Big Business Bias, research of disclosed private lawsuits and those conducted by the Equal Employment Opportunity Commission (EEOC) and the U.S. Labor Department’s Office of Federal Contract Compliance Programs (OFCCP), found in 2020, large corporations are known to have paid $2.7 billion in penalties, including $2 billion in 234 private lawsuits, $588 million in 329 EEOC actions and $81 million in 117 OFCCP cases. Wouldn’t stockholders prefer these funds be used to improve business and dividends? Wouldn’t the BODs prefer not to read headlines about litigation and payout? Resources and reputation can be saved by implementing the right checks and balances with policies, procedures, and training.
The issues are deeply embedded. As far back as 1998, Ellen Peirce and colleagues wrote an article in Academy of Management Executive, Why Sexual Harassment Complaints Fall on Deaf Ears. She writes, “The three themes…associated with deaf ear syndrome are: 1) inadequate organizational policies and procedures, 2) managerial rationalizations, and 3) inertial tendencies.” Unfortunately, these behaviors are still in practice today resulting in growing challenges in our woke and litigious callout culture.
Good Corporate Governance
Lawsuits can be avoided with better corporate governance. Good corporate governance includes principles of accountability, transparency, and security. Key to good governance is the recognition of the company’s stakeholders. A company’s BOD should always be working in the best interest of its stakeholders. Leadership should monitor management to assure good business management, as well as good corporate social responsibility practices.
Transparency is important internally and externally. Information should flow up to the BOD as well as down the organization to managers, employees, and shareholders; this will ensure a sense of trust and unity within the organization, and work towards financial stability and social responsibility.
And finally, a word about security. Managing risk keeps a company in both good fiscal and ethical health. Good corporate governance begins with clear policies, procedures and practices that are timely reviewed, evaluated and updated, whether they be in accounting, digital and data management, human resources, and social responsibility. Companies that realize the importance of self-evaluation and ongoing training in these areas will be more likely to avoid suits and penalties, have a discrimination-free and harassment-free environment, and an untarnished reputation.