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The #MeToo Movement and Attention to Sexual Harassment Bring Change To Investment Strategy

Originally published April 27, 2018, Nikkei Newspaper Electronic Edition

By Rina Takahashi

On April 26th, the Dow Jones Industrial Average rose for the second straight day. Facebook rose greatly as their quarterly earnings, released the night before, beat market expectations, buoying the IT sector.

In Japan, while the finance minister's resignation after sexually harassing a reporter was fresh on our minds, in the US financial markets, avoiding risks of sexual harassment and under-utilization women is becoming part of the investment norms. In particular, the #MeToo movement that spread from sexual harassment victims in Hollywood has changed the landscape.

Bruce Goldfarb, president and CEO of Okapi Partners, which provides investment advice including solicitation power of attorney, opened up: "It's become clear that sexual harassment within companies is far more common than investors realize, so shareholders are hoping that companies start to introduce measures to prevent it."

From the second half of 2017, sexual harassment within the film industry came to light, more and more thanks to the #MeToo movement. The February resignation of casino mogul Steve Wynn, founder and CEO of Wynn Resorts, showcased the potential for these issues to upend management. Wynn's stock has been turbulent and continues to fall from the $200 peak it reached before the sexual harassment allegations.

To mitigate this risk and aim for long-term growth, Goldfarb says, "From BlackRock to Vanguard, the big investors of State Street are taking a close look at the diversity of the boards in their portfolio." In particular, the potential for bias of boards composed of "just white men" has brought attention to the importance of appointing female board members.

Making investment choices with an eye to portfolio diversity could also be key. "Looking at whether the company offers products and services that benefit women is the basis of how we assemble our investment portfolio," said Nia Impact Capital founder and CEO Kristin Hull, PhD. Launched in December 2015, "Nia Global Solutions," in addition to looking for revolutionary technology and environmentally friendly products, also selects investments based on the perspective of whether women are represented in management. In 2017 the Nia portfolio performed at 37.59%. The year ending March 31, their 23.47% gain beat the S&P 500, which recorded a 13.98% gain.

The problems stemming from sexual harassment are not just resignation of the perpetrators, but also damaging of the company's image, and litigation related expenses—nothing good. At US-based Fox News, a newscaster sued then-CEO Roger Ailes for sexual harassment 16 years ago, resulting in a $20 million settlement. In 2017, another Fox show host was dropped on suspicion of sexual harassment and his show lost 50 sponsors. In addition to these direct expenses, experts point out that one cannot neglect the "indirect costs" of decreased productivity, increased retirement rate, and reputational damage.

A study also shows that the typical Fortune 500 company further incurred an average of more than $14 million in costs in 2017 related to absence, declining morale, social security expenses, and employee turnover.

According to the law office of McCune Zenner Happell, the US Equal Employment Opportunity Committee (EEOC) found that 90% of sexual harassment victims did not bring a lawsuit because of distrust of their employer or fear of retaliation. But now there is room for many women to raise their voices on the back of the #MeToo movement, and US companies will be pressed to increase their support.

This article is a translation of the original publication in Japanese which can be found here.