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Sexual Harassment Fallout For Investors

December 12, 2017 Blog

Recent news headlines have revealed that leading politicians, entertainers and prominent business people allegedly have engaged in sexual harassment and assault.

The Weinstein Company, a prominent film production company, is in financial dire straits after multiple harassment allegations have surfaced against one of its founders, Harvey Weinstein.

These cases are career enders for the named individuals and have significant financial consequences for executives and shareholders at the companies involved.

The reputational harm to these companies could jeopardize their bottom lines. Although the stock market is currently roaring, in a tougher market it’s not a stretch to imagine shareholders dumping stock of firms that have sexual harassment issues.

A recent blockbuster legal settlement suggests that this dynamic may not be limited to holding the individuals involved accountable. Shareholders and their attorneys may also launch efforts to hold other executives at the harasser’s company accountable for either allowing the misconduct or for turning a blind eye.

In one of the largest shareholder derivative lawsuit settlements ever, senior officials of 21st Century Fox agreed in November to a $90 million settlement, funded by insurance, over allegations that the company’s management permitted a culture of sexual and racial harassment to permeate. That ultimately resulted in financial and reputational harm to Fox.

“The settlement, which requires a judge’s approval, resolves what are known as ‘derivative’ claims against Fox officers and directors, including: Rupert Murdoch and his son Lachlan, who are Fox’s executive chairmen; James Murdoch, another son and its chief executive, and Ailes’ estate,” according to a report on Reuters from Jonathan Stempel. “In a typical derivative case, shareholders sue in the name of a company to remedy wrongs inflicted by an alleged lack of oversight by a company’s officers and directors.”

The defendants did not admit wrongdoing in agreeing to the settlement filed with the Delaware Chancery Court, according to the report. And Ailes’ estate disputed many of the allegations in the settlement, which was reached before a complaint was formally filed, court records show.

That’s not all, Reuters has reported that Fox has other civil claims pending.

If such a costly settlement over sexual harassment can happen to one of the largest media companies in the world, it can happen to any company that allows a hostile work environment to occur unchecked.

Executives and shareholders need to beware of companies whose workplace culture is soft on harassment.

Zamansky LLC are investment and stock fraud attorneys representing investors in federal and state litigation and arbitration against financial institutions.