Wells Fargo ends forced arbitration for sexual harassment claims. Will other firms follow?
Advocates for women in the financial services industry are optimistic Wells Fargo’s recent decision to stop forcing alleged victims of sexual harassment into private arbitration could be a bellwether event.
“We are hoping that other big banks take notice and follow suit,” says Molly Betournay, director of social research and advocacy at asset manager Clean Yield, whose shareholder activism, in part, prompted Wells to make the change.
But early signs aren’t especially encouraging. When canvassed by Financial Planning, eight out of nine financial services firms either failed to respond or declined to comment when asked whether or not they have these policies in place and, if so, if they would follow Wells Fargo’s lead.
The sole exception was Edelman Financial Engines.
“Edelman Financial Engines is, and always has been, fully dedicated to treating employees with dignity and respect,” the company said in a statement. “Mandatory arbitration is not a requirement included in our employee sexual harassment policy. We have zero tolerance for any form of discrimination and sexual harassment, and are committed to ensuring we have the right policies in place to protect our employees and maintain a welcoming and safe environment.”
Of the rest: a spokeswoman who handles press inquiries for Rudy Adolf, CEO of Focus Financial, and Adam Birenbaum, CEO of Buckingham Wealth Partners, said she was unable to secure interviews with either on the subject; a spokeswoman for independent broker-dealer Commonwealth said firm executives were traveling and that she could not provide comment; representatives for IBDs LPL Financial, Raymond James, Ameriprise and Private Advisor Group, LPL’s largest OSJ, did not respond; and Cetera said it would not address the topic of sexual harassment claims and forced arbitration.
The generally tight-lipped responses come as no surprise to Remington Gregg, counsel for civil justice and consumer rights at the activist group Public Citizen, an organization that maintains an online “wall of shame” of companies that force employees or clients into forced arbitration for legal claims, including Wells (which still uses forced arbitration for other types of disputes) and JPMorgan Chase.
Wells’ human resources chief, David Galloreese, said in a statement last week that the bank has “zero tolerance” for sexual harassment, while noting that attitudes have shifted on the subject recently.
“This is the appropriate change to make at this time for our employees,” Galloreese wrote to the bank’s employees. “The treatment of sexual harassment claims has become an increasingly prominent issue across industries.”
Indeed, the #MeToo movement has unleashed a wave of reforms intended to protect women from abuse and discrimination across a number of industries, causing many firms to fire top-ranking employees accused of harassment and to institute new policies.
Betournay describes why she and her colleagues at Clean Yield chose to focus on forced arbitration as a risk to shareholder value, which they see as inextricably linked to the welfare of employees: “Mandatory arbitration could be masking toxic cultures that are tolerating sexual harassment.”
Wells Fargo noted its mandatory arbitration policy for all disputes was put in place Dec. 11, 2015. Asked how many sexual assault disputes the bank is currently fighting in private arbitration disputes, a spokeswoman declined to give a number and would not say if those cases will be barred from jumping to the court system.
The new policy is a first step to greater reform on forced arbitration, even if it is a strategic one on Wells’ part, says wealth manager Rachel Robasciotti, co-founder of women-led wealth management firm Robasciotti & Philipson in San Francisco.
Wells Fargo is “making a very real, tangible commitment to creating the kind of workplace environment that investors, prospective employees and consumers are looking for,” says Robasciotti, who is also a co-founder of the nonprofit Force the Issue, which works with large public companies to persuade them to drop forced arbitration for sexual harassment allegations. “It makes a statement that we are going to be engaging with our employees in a way that is safe and healthy.”
Given the nearly four years of scandals and regulatory problems associated primarily with the firm’s consumer bank, Robasciotti adds that Wells also needed a win.
“Doing the right thing is always an easy way to get a win,” she says.
Robasciotti was not involved in the negotiations with Wells, but she has partnered with Clean Yield on similar efforts. Since September, Force the Issue claims to have persuaded 90 firms to drop the clauses or to publicly confirm they don’t use them.
Erika Karp, founder of RIA Cornerstone Capital Group in New York City, also praised the change, adding, “Sexual and gender-based violence being tolerated in the workplace is uniquely repulsive. The idea of a crime victim not being heard by virtue of the industry in which they work is truly unjust. Addressing it is critical.”
By allowing victims to take their cases to court, the bank will reduce serial predators’ ability to move undetected from firm to firm, says Sonya Dreizler, who advises planners on ESG and impact investing. Dreizler’s Do Better blog, which ran last year, provided a forum for women in financial services to anonymously air stories of their experiences with sexual harassment, abuse and discrimination.
“This policy will end the secrecy that will protect serial harassers at the expense of talented employees,” says Dreizler, whom Morningstar has credited with starting an overdue #MeToo movement in the financial services industry.
Gregg, however, questioned Wells’ choice to continue to use the private forum for different claims.
For example, “if you are discriminated against over any kind of gender or race claim then you don’t get this protection, he notes.
Gregg also questions how the bank would handle overlapping claims of harassment and discrimination. For instance, if a victim of sexual harassment also claimed they were denied a promotion, would they be forced to handle one of the claims in arbitration and the other in court, even if they stemmed from the same instance, he wonders.
“What are you going to do?” Gregg asks. “How is that efficient?”
A Wells spokeswoman did not immediately respond to this question. However a source familiar with the issue, but not at liberty to speak for attribution, said the bank likely would allow all claims related to sexual harassment to be handled in court.
Until Wells abandons forced arbitration entirely, Gregg says, its name will remain on Public Citizen’s Wall of Shame.
“It is a good thing that shareholders pushed for this,” he says. “But when you scratch under the surface there is still so much more that Wells Fargo should be doing.”