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Has MeToo taken a seat on the board?

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The effect of the #MeToo movement in the corporate world is no longer in doubt. Over the last few years Ted Baker’s share price fell 13% after allegations against its founder emerged, the ‘big four’ accountancy firms have all admitted to partner sackings, and Google employees staged a worldwide walkout in protest at claims of sexual harassment, gender inequality and systemic racism. These are not isolated incidents of stakeholder intervention into bad corporate culture.

Practical steps

Enormous reputational damage can result from allegations such as these, and for big brands a public outcry and consequent fall in sales often follows. So it not surprising that we have already worked with a number of clients to review employee and communication policies and to advise in relation to training that may help prevent and manage the types of behaviour that may lead to claims.  Even more prudent clients are reviewing their insurance policies and major contracts to be sure of protection in the event of an allegation. 

"Weinstein Clauses"

We also see #MeToo concerns arising in corporate transactions, with transaction documentation used in the United States regularly including so-called “Weinstein Clauses” or “#MeToo Reps” (representations) to protect buyers against allegations of inappropriate behaviour that come to light after a sale has completed.

Due Diligence

As with all sorts of risks in corporate transactions, the nature of the protection that is available to a buyer will vary from transaction to transaction and from risk to risk.  The first step is to establish if there any issues through the due diligence process. A good buy-side lawyer will ensure that requests for information are carefully worded and, very importantly, do not include any materiality threshold.  This is because the nature of these types of claims means that the true cost to the business from adverse publicity can be very high and may far exceed any damages or settlement that the company may have to pay.

Warranties

Experienced corporate heads will know that due diligence is only as good as the information provided by the sellers and may be limited to “matters of which the sellers are aware”.  In relation these types of risks the sellers themselves may be unaware of any issues; staff might not have not come forward or the matter may have simply not escalated within the business.  Due diligence must therefore be backed up by a full set of commercial warranties and, where appropriate, indemnities.  As well as providing contractual protection, the warranties will give the seller a second opportunity to disclose important information and address any concerns prior to completion. Warranties are a set of statements relating to the target business and, if it can be shown that any of them are incorrect (and the seller has not made adequate disclosure against such warranty), then the buyer has the right to bring a claim for damages against the seller.  If a specific issue has been identified then the buyer should consider a specific indemnity, alongside a retention against the purchase price, or more simply a price reduction.

Very soon after the deal has completed, a sensible buyer will ensure that any issues are addressed alongside its usual integration processes. Correct procedures and policies should be put in place and any issues with corporate culture should be addressed head-on by an engaged leadership team.

Ultimately good management maximises the value of businesses and increases the chances of a successful transaction.  This is as true for allegations of inappropriate behaviour as it is of any other part of the business, so it is not surprising that boards are now paying careful attention.

You may also be interested in our tip sheet for businesses trying to mitigate the effects of reputational damage, it is available here.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.