By Andrew K. Jennings, Ekdesk
With #MeToo emerging as a distinct risk category in M&A, buyers and their advisers must think about how to diligence these issues.
Nearly a year after the Harvey Weinstein story broke, “Weinstein” and “#MeToo” reps are starting to appear in merger agreements and may be on their way to becoming market terms.
As buyers and their advisers address and quantify #MeToo risk in the M&A process, here are 10 best practices to include on diligence checklists.
- Ask for a #MeToo rep that’s distinct from the litigation rep. The scope of disclosure should at a minimum cover allegations against senior management that have resulted in a settlement or formal complaint, charge or litigation. A broader scope covering all employees with a managerial role may also be appropriate.
- Request copies of anti-harassment and anti-retaliation policies and procedures, including employee handbooks. Validate whether they’ve actually been followed. If the seller has failed to follow its own policies, that’s a red flag for broader compliance concerns.
- Request information on the seller’s anti-harassment program. Does the seller conduct anti-harassment training? If so, how often, who is required to attend, and is it completed in-person or online? Is a traditional anonymous hotline offered and, if so, how many reports have been harassment-related, and what were their outcomes? Are analytics being run on workplace equity, and if so, what are the data showing? The answers to these questions can be a good indicator of how seriously, and proactively, the seller has been addressing workplace equity.
- Get copies of any climate surveys the seller has conducted. The most revealing metrics will be in the trends around diversity and inclusion. If early surveys show a problem in these areas, what did management do to address the problem? Did the metrics improve over time?
- Search court dockets for employment claims. Most claims don’t go to trial, but complaints and dispositive motions can provide helpful leads on potential issues, whether regarding specific individuals or areas within the seller, or broader culture issues. Follow up on those leads.
- Ditto #5 for press reports.
- Search Google for references to the seller and keywords like “harassment,” “sexist,” “discriminate,” “assault” and “racism.” These searches might turn up anonymous reviews on job sites (and hence leads for follow-up) from current and former employees.
- Confirm whether the seller had employment-practices insurance during applicable statutes of limitations. Use the policy limits and remaining coverage in risk modeling.
- Ask harassment-specific questions in management visits. At a minimum these topics should cover known allegations and the company’s anti-harassment efforts (e.g., training, hotlines). They should also delve into the corporate culture around harassment, diversity and inclusion, as well as any rumors relevant to #MeToo risks. These questions are on the vaguer side, but the responses can reveal important information and point to new leads to follow up on.
- A change in control represents an opportunity for employees who have been silent about #MeToo issues to speak up. If the deal process allows (i.e., post-signing), interview rank-and-file employees (especially women and people of color) about their experiences with harassment, diversity, and inclusion.
Andrew Jennings is founder and CEO of Ekdesk LLC, a provider of data analytics software for creating equitable workplaces. Andrew was previously an M&A and corporate-governance attorney at Cravath, Swaine & Moore before serving as a law clerk to a federal appellate judge. He can be reached at [email protected] or followed on Twitter at @ekdesk.