Sexual harassment: Investment management due diligence's unseen threat

Posted by Andrew Borowiec on May 17, 2018 9:00:00 AM

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In our previous post, we looked at how the failure to investigate sexual harassment as part of operational due diligence could expose investors to unchecked reputational and financial risk.

This week, we’ll confront some of the headline stats from the recent IMDDA sexual harassment survey and take a look at a few recommendations you can implement in your investment management due diligence process to counter this threat to your firm.

Key Survey Findings

  • 89% of allocators do not inquire about sexual harassment in the workplace.
    • This is a huge percentage of allocators who are not even taking the first basic steps towards managing the risk presented by sexual harassment. IMDDA hopes and feels that this statistic would be less extreme if the survey were run again next year.
  • 82% of investors do not ask follow-up questions about sexual harassment if a manager declines to answer questions.
    • As due diligence professionals, we’d be instantly suspicious of a refusal to cooperate and disclose information in any other critical area of risk we were looking to assess, yet here we seem to accept a refusal to answer questions as the prerogative of the manager.
  • 76% of allocators would still consider a fund manager or invest with a fund manager who has had issues with sexual harassment.
    • As with any issue that arises during your due diligence investigations, whether you would still consider investing with that fund manager after the issue has been disclosed has to be decided based on how it is assessed within your risk model, but first you need to build a model to assess sexual harassment risk.
  • 67% of allocators limit background checks to only principals and senior staff.
    • This finding may be caused by constrained resources and this level of background checks may be adequate for some firms, however it should not be considered the gold standard, as firms with organization wide, cultural flaws that facilitate widespread sexual harassment issues at all levels can be more damaging than a single case affecting a principal.
  • 36% of allocators are not checking social media for red flags (e.g., inappropriate pictures and comments disparaging women), indicating harassment is likely not on their radar.
    • This is a typical incidence where there’s a simple, fairly accessible source of information that can provide evidence for your due diligence process, it’s just up to you to build it into the process.

Actions To Assess Sexual Harassment Risk

It is clear from the top level survey findings that there is a lot for due diligence professionals to do in order to properly mitigate the risks posed by sexual harassment. Here are IMDDA’s top 5 suggestions:

  1. Examine HR processes. Is there a procedure for employees to follow to make confidential complaints about sexual harassment? Is an independent individual designated to receive employees’ complaints?
  2. Ask why departures have happened. What percentage of departures were women vs. men – and why did women leave the firm?
  3. Challenge background-check conventions. These firms aren’t looking into sexual harassment claims against fund managers, generally. Independent investigation is necessary.
  4. Investigate NDA history. When it comes to NDAs, the deeper you dig, the more you can find.
  5. Interview former employees. Not all, but many will help you discover the truth about a fund manager’s culture and sexual harassment record.

Curious to see what else your peers are doing and thinking around managing risk for sexual harassment issues? Access the full survey report here:

Download IMDDA's Sexual Harassment and Due Diligence Survey Report

Also, if you’re interested to learn more about the application of the techniques for uncovering sexual harassment, these will be covered in our next classes. Class sizes are limited to under 12, so register early to secure your place.

  1. Conducting Onsite Hedge Fund Operational Due Diligence (Masters Level) – London, May 31 - June 1
  2. Hedge Fund Operational Due Diligence Fundamentals  London, June 4-5
  3. Preparing for a Private Equity Fund Operational Due Diligence Review (Masters Level) – New York, June 12-13

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