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The CFO of a financial services organization is accused of conspiring with others to manipulate financial statements and artificially inflate earnings. We examine. Read More

NLRB Changes Employee Handbook Standard And Its Joint Employment Rule: What Employers Need To Know

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Sexual Harassment And Bankruptcy: How One Can Easily Lead To The Other

A yoga organization files for bankruptcy because it owes millions of dollars for multiple sexual harassment verdicts. We examine. Read More

How Sexual Harassment Creates Risk For Directors And Officers From Shareholders

The world's largest retailer of diamond jewelry, headquartered in Akron, Ohio, faces a lawsuit for securities fraud for allegedly making "false or misleading statements about the severity of sexual harassment claims against the company."

The defendants include the organization, its former CEO, and several other company officials. This latest lawsuit is just one in a series of suits against the organization after a Washington Post article revealed court documents, accusing the organization of "widespread" sexual harassment. The CEO named in the lawsuit resigned in July, citing "health concerns."

The allegations are that CEO and other executives were allowed to commit sexual harassment against women, and the organization disseminated false statements about the harassment during arbitration. The lawsuit also alleges the defendants engaged in "abuse of control, gross mismanagement and unjust enrichment." "Signet Jewelers faces new shareholder lawsuit," www.ohio.com (Sep. 1, 2017).


Commentary

Officers have a fiduciary duty to the organization and to the shareholders to make appropriate managerial decisions. Acting within the law, such as refraining from allowing, or engaging in, sexual harassment is expected. When management’s indiscretions cost shareholders value—and in this case, the organization’s stock price fell after the Washington Post article was published—then directors and officers will face liability for breach of fiduciary duty.

In the allegations, the CEO and executives are accused of promulgating an atmosphere of sexual harassment. It is also alleged that executives made false statements during arbitration.

Intentional wrongful acts, like promoting sexual harassment, increase liability from shareholders, especially when stock prices drop. The price drop itself is the harm, but the liability flows from not openly disclosing the risk from the sexual harassment allegations that caused the stock price to drop.

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