Fuelled by the #MeToo movement, change is coming in corporate dispute resolution. But company ethics codes will lack credibility unless there is a willingness to treat all equally, says Airbnb’s former Chief Ethics Officer, Rob Chesnut
In the corporate world, disciplining an employee for a code violation is a necessary part of the integrity process. And I’ll be honest: it’s my least favourite part. While it’s fun and energising to write a code of ethics and feel like you are shaping a great company where everyone will be proud to work, it can be infuriating, frustrating, and sad when someone violates that code.
The primary guidance I have for those who find themselves in a position of having to work out appropriate consequences is: put on your ethics goggles and be intentional. To make this easier, companies should enact forward-looking changes to their approach to bad behaviour in the workplace.
Dispute resolution in the US: the dangerous limits of arbitration
One obvious example is in pre-employment agreements around dispute resolution. Historically, many companies have insisted that employees agree when they are hired that they will not file a lawsuit if they have a dispute, but rather commit to binding arbitration. Every company where I’ve worked, including Airbnb, insisted on agreeing to arbitration as a condition of employment.
Arbitration is typically a more cost-effective way to resolve disputes, and its less formal procedures can result in faster decisions than you would find in crowded court systems. Arbitration is also private – trials are informal and held out of the public eye, and that confidentiality often suits both the company and the complaining employee. Companies do not want their internal decisions dissected in court, potentially exposing them to embarrassing stories and ridicule; and depending on the issues, a complaining employee may appreciate the chance to avoid discussing private or embarrassing matters in a public forum.
But the #MeToo movement has exposed the other side of forced arbitration—it keeps sexual harassment cases ‘under wraps’, and legal clauses prevent the victim, the accused, and the company from discussing the facts publicly. Even if the perpetrator is terminated, the details almost always are confidential. Sound familiar? This trifecta of confidentiality then releases the perpetrator back into the job market to find another position – and perhaps another victim, beginning the cycle anew.
Change is coming
In early 2019, Airbnb announced that it would no longer force employees into arbitration in sexual harassment or discrimination cases. Instead, the company simply asks that employees with a grievance in this area make a good-faith effort to resolve the matter with the company informally, and if they are not satisfied, they have the right to choose between arbitration or court. Months later California enacted a law banning these forced arbitration clauses, and although this law is widely believed to be unlawful as it conflicts with federal law that favours arbitration, it’s clear that change is coming in this area.
There are several dynamics motivating the change in perspective about this. First, one of the persistent issues that has dogged institutions like the Catholic Church and the Boy Scouts of America is that accusations of illegal and inappropriate behaviour were not only shelved and hushed up, but confidential dispositions meant that perpetrators were allowed to move on to other assignments or roles where they had the opportunity to victimise others. We have to come to grips with the fact that secrecy has enabled many accused of sexual misconduct to go to a new workplace and do it again.
Second, people need to be accountable for their actions. And companies need to be accountable for their actions. If we settle with a victim in our workplace, the victim deserves to be able to talk about it. While a public airing of a harassment case obviously will be disconcerting and perhaps embarrassing, there will be benefits associated with transparency. I actually believe it will deter harassment going forwards.
Finally, doing something that’s not in your immediate short-term interest builds trust, and, in my opinion, that is important. A company might have to publicly defend some lawsuits as a result of this move, and perhaps even take a hit if some bad behaviour goes public. In the long run, I think, you’re sending an important message to employees that they matter too, and that the company isn’t going to take advantage of its leverage to force a concession around something so important.
‘Morals clauses’ and venture capitalists
A second consequence-related shift I’m advocating for across business is focusing more attention on personal behaviour clauses in employment contracts and board agreements.
High-value employees with clout – and high-powered attorneys – sometimes negotiate unusual clauses into their employment agreements related to many variables, from base salary to performance bonuses to parking spaces to idiosyncratic compensation like access to personal trainers. Sometimes the clauses, or negotiated exemptions from standard contract elements, can come back and bite a company.
For many years, for example, it was standard for employment contracts to include the stipulation that any severance payment due an employee would be voided if the individual were ‘terminated for cause’, which is defined as committing acts of violence, abusing drugs or alcohol in public, committing sexual harassment, or engaging in other behaviour embarrassing to a brand. In one of the most dramatic recent examples of termination for cause, in 2018 the former CEO of [media conglomerate] CBS, Les Moonves was denied $100 million USD or more in severance compensation after CBS announced that an investigation showed that he repeatedly and over many years violated the company’s sexual harassment policies, which constituted termination for cause.
But references to termination for cause have become watered down or removed entirely in many cases when highly sought-after employees and consultants refuse to sign contracts containing them. In part, the move away from those clauses, sometimes called ‘morals clauses’, was a response to fears expressed by some men that it makes them vulnerable to false accusations by women who might blackmail them. Over the last 20 years, I’ve seen venture capitalists (VCs) refuse to agree to morals clauses when they sign on to a board seat at a company. As a result, the VC can engage in all sorts of inappropriate behaviour that, if made public, could be terribly embarrassing to the company. But contractually, the company is powerless to remove the director and may be stuck with the relationship unless the director agrees to step aside. I’m concerned that the main effect of losing these provisions has not been an increase in protection against false accusations but rather an empowerment to behave inappropriately without serious consequences.
Eradicating engrained inappropriate behaviour
We’ve seen executives receive a significant buyout when they’re fired or when they leave a company after being accused of inappropriate behaviour, though it appears to other employees as if they’ve suffered no consequences and in fact have been rewarded. As for boards, how can companies enforce a code of ethics – that, in theory, ultimately falls to the board to enforce – if board members won’t agree to abide by its provisions themselves? There have been numerous examples of inappropriate behaviour by venture capitalists towards entrepreneurs seeking funding as well as in other situations. In his ‘Decency Pledge’ article, Reid Hoffman [Co-Founder of LinkedIn] notes that ‘on a structural level, venture capitalists unfortunately have no HR department to prevent predatory and inappropriate behaviour, and so try to characterise (falsely) their actions as innocent flirtatiousness or banter.’ What’s more, the structure of VC firms themselves means that powerful partners cannot easily be fired or removed without restructuring the entire firm.
I can appreciate that some fear liability, but as leaders, VCs and all board members need to commit to demonstrating the same integrity they expect to see from executives and employees of companies.
The unfortunate truth is that sometimes people, for a wide variety of reasons, can make consequential mistakes that cost them their jobs, put their families’ financial stability in jeopardy, and create a permanent stain on their reputations – and the company’s as well. Without serious forethought and the willingness to treat all equally when it comes to ethical challenges, companies are limited in how they can respond and their ethics code, no matter how well thought out, will have no credibility.
This article is adapted from Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution by Rob Chesnut (St. Martin’s Press, 2020).
Rob Chesnut is Airbnb’s former Chief Ethics Officer and is now an Adviser at the firm.
