No more forced arbitration for allegations of sexual harassment or assault
In 2019, Riverwater Partners initiated engagements with several of our portfolio companies regarding the use of mandatory arbitration for allegations of sexual harassment or assault. We consider this topic essential to good corporate governance—the “G” in “ESG.”
Now, in a remarkable bipartisan effort, both chambers of Congress have passed legislation banning forced arbitration in circumstances of sexual harassment or assault allegations. We believe our work, alongside that of many others in the investment community, helped raise consciousness about the need for reform. To us, this success stands as a very strong example of how investors aligning their dollars with their values can contribute to powerful change.
Engagements began in 2019
As we wrote to our portfolio companies back in 2019, there was already nationwide recognition that forced arbitration in circumstances of sexual harassment or assault allegations was a serious problem. In our letters to CEOs and investor relations leaders at 24 portfolio companies, we noted that attorneys general from all 50 states had signed a letter calling for the end of mandatory arbitration in sexual harassment cases.
We also cited examples of high-profile companies that ended their use. Furthermore, we drew attention to risks associated with forced arbitration clauses. These include weak corporate culture, legal exposure, and reputational damage to the company and its brand.
Investee companies responses differed
Many of our investee companies responded indicating they do not use forced arbitration/non-disclosure agreements at all. A few with union employees stated that negotiated contracts require certain disputes to be determined by arbitration; given that these terms are negotiated by experts on behalf of the employees, we believed this was fair. In all cases, we encouraged companies to disclose these policies publicly, as investors had begun to focus on the issue.
Engagement pillar of Riverwater ESG process
At Riverwater Partners, the three pillars of our ESG investment process are due diligence, engagement and collaboration. As is typical for us, we pursued engagement on this topic with a goal of helping companies become more attuned to ESG factors. That awareness, because it means becoming attuned to risk as well as responsibility, often leads to progress along ESG dimensions.
We believe many of the companies we engaged with did become more aware of forced arbitration as a negative to corporate governance. Over the past two-plus years, the topic gained more and more awareness in corporate and legislative circles. Now, that progress has come to fruition with Congressional passage of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. President Biden is expected to sign the bill into law.
Bill banning forced arbitration expected to be signed into law
This legislation guarantees that employees who experience sexual harassment in the workplace are not limited to arbitration as a legal remedy and can pursue recourse in the court system. Importantly, the bill applies retroactively and overrides current employment agreements limiting employees’ recourse to arbitration.
Reflecting on the bill’s passage, Riverwater analyst and Chief Mindfulness Officer Cindy Bohlen said, “Corporations will be required to have strong policy regarding remedy following allegations of sexual misconduct, including the right to legal action. This change will ensure that employees feel comfortable coming forward in such cases, which will promote inclusive and healthy corporate culture, benefiting employees and corporations alike.”
To our clients: thank you for the opportunity to help fulfill your desire to align your values and your investments. Our work on this topic, alongside that of others, helped pave the way for Congressional action that now applies to all companies. We consider this a huge success and hope you will as well.