Tone at the Top

January 9, 2018

Tone at the top has been a focus for boards for several years, brought into sharper focus by corporate crises, such as at Wells Fargo, particularly after the report commissioned by Wells Fargo’s independent directors was released.  Tone at the top is also an important feature of governance and social trends, as investors and other stakeholders expect that companies will be responsive from the top down and recognize that company standards, culture and compliance are directed and influenced by those in the boardroom. 

In the past few years, shareholder proposals and city and state legislation have brought gender pay inequality to the spotlight, while gender imbalance in such industries as tech and finance has been making headlines.  The pressure from the top down and the bottom up is likely to result in C-suite diversity becoming a primary focus for public companies. In their role as overseers of management succession, directors should examine closely the candidates and plans presented to them and ensure that the issue of diversity has a sufficient focus.  Tone at the top is meant to inform the tone of the entire company—and after the board, senior management is next in line.  Many companies focused on improving board diversity at the board level, as discussed above, continue to lag in gender and race diversity at the executive officer levels.

Boards should also pay attention to another topic in the news—sexual harassment.  Boards should inquire as to the status of the company’s sexual harassment policies and training, as well as complaints, complaint procedures and complaint resolutions.  Companies should be revisiting their policies, training and procedures to ensure that they foster environments in which employees feel free to raise issues and, if so, to find such issues dealt with fairly.  Boards should ask for confirmation of these efforts. 

While day-to-day HR matters may seem unlikely fodder for boardroom presentations, an ongoing and dedicated commitment to respect in the workplace resonates throughout a company.  As with company-wide compensation plan design and execution, a board should demand to be informed as to the soundness of company-wide harassment policies and procedures and as to the vigilance of their enforcement.