Just weeks after Goldman Sachs was called out for its toxic workplace culture that forces analysts and associates to work inhuman numbers of hours under intense pressure to unreasonable deadlines, the firm is back in the spotlight. This time around efforts to compel it to ban forced arbitration as a way of dealing with harassment and discrimination.
And just as the case of Goldman and its treatment of juniors was representative of wider industry practices, Goldman’s use of forced arbitration to throw a veil of secrecy over harassment and discrimination claims similarly speaks to how the banking industry seeks to protect itself from reputational damage in another area of toxic workplace behaviour.
Shareholder proposal No. 6 at Goldman’s recent stockholders meeting – that the board oversees the preparation of a public report on the impact of the use of mandatory arbitration on the firm’s employees and workplace culture – came within a whisker of being passed.
It didn’t pass but almost half the votes were cast in support of it. That was enough to force the investment bank into a June 4 policy reversal. “In consideration of the feedback we have received, as well as the results of the recent shareholder vote at our Annual Meeting, we believe it is appropriate to undertake a review to assess this issue comprehensively,” the firm said in a statement.
The stockholder proposal was put forward by the Nathan Cummings Foundation, which tabled it because the use of arbitration, it says, “undermines the establishment of diverse and equitable workplaces”. It said Goldman’s use of arbitration “keeps important information from investors and employees”, and that “Goldman Sachs employees have alleged significant harassment and discrimination”.
Investors’ concerns about arbitration’s potential to conceal the existence of harassment and discrimination are especially acute at Goldman Sachs, the foundation added, “where thousands of women have alleged gender bias”. This is a reference to the Chen-Oster v. Goldman Sachs class-action lawsuit, ongoing since 2010, claiming gender discrimination around compensation and promotion.
The use of forced arbitration is not unique to Goldman Sachs. It’s used elsewhere on Wall Street. The process is written into employment contracts. Those opposed to the practice say the non-disclosure agreements employees are bound by perpetuate a conspiracy of secrecy around predatory and other types of unacceptable behaviour in the banking sector. By enforcing a regime of silence, arbitration protects firms, not to mention perpetrators of harassment or discriminatory behaviour. And it backs victims into realms of isolation.
Some US state legislatures have banned the use of mandatory arbitration in employment contracts when it involves claims of sexual harassment. At Federal level, the Forced Arbitration Injustice Repeal (FAIR) Act was re-introduced earlier this year. The bill is seeking to eliminate forced arbitration clauses in employment, consumer and civil rights cases, and allow consumers and workers to agree to arbitration after a dispute occurs.
Yet again, instances of poor governance in banking have been thrown to the fore. And yet again, banks have been seen to engage in empty posturing around workplace diversity while doing little to eliminate noxious practices that occur day to day.
Throwing huge amounts of money at instances that emerge, which is what banks do, in effect paying hush money and controlling information flow through what amounts to bribery, is surely not acceptable in these environmental, social and governance (ESG)-heightened times.
Forced arbitration doesn’t just protect firms where harassment or discrimination occur; it also keeps vital information away from investors and other stakeholders. Shareholders need to get tough on unacceptable workplace practices and the cultures that allow them to exist and persist, and force change or disinvest.
Whether it’s appalling workplace governance or greenwashing in the context of climate-change and environmental transition, concealing information, seeking to mislead, or coercing individuals into silence has never been acceptable but in today’s ESG-sensitive world, it really doesn’t work. Shareholders need to get tough. There must be consequences for bad behaviour.
In the energy industry, shareholders have gotten tough on ExxonMobil and Chevron in recent weeks, electing activists to the board in the case of the former; calling on the company to reduce Scope 3 emissions in the case of the latter. It’s time banks’ shareholders started flexing their muscles to force management to live up to their pompous claims around culture and diversity.