Fisher Investments, an active equity manager based in Washington, is facing backlash after its founder and executive chairman Ken Fisher reportedly made inappropriate sexist comments during a conference presentation on October 8.
Weeks later, clients had pulled over $3 billion in assets from Fisher Investments. To date, 20 institutions have pulled almost $3.9 billion from the firm.
Fisher, whose firm managed $112 billion in active equity strategies as of September 30, issued an apology and acknowledged that portions of his speech were “clearly wrong.” Despite his apology and other corrective efforts, Fisher Investments’ losses will likely continue as fund managers distance themselves from the billionaire money manager and frequent media commentator.
Terminated investments include $234 million from Goldman Sachs and $500 million from Fidelity. Additionally, the State of Michigan Retirement Fund pension account moved $600 million out of Fisher Investments and the state pension fund of Texas pulled $350 million.
“There is no excuse not to treat everyone with dignity and respect,” said Michigan Chief Investment Officer Jon Braeutigam, who called Fisher’s comments “completely unacceptable” in an October 10 letter to the board of the Michigan Department of Treasury’s Bureau of Investments announcing the decision to move the state’s pension account.
“For Ken Fisher to make those kinds of comments publicly is very surprising,” said Heather Schaaf, Underwriting Director, Executive Liability, Burns & Wilcox, Chicago, Illinois. “Many corporations and entities saw (his comments) and instantly knew that this is not how we operate—they do not want to be associated with that.”
While the full financial and legal implications of Fisher’s remarks remain unknown, the situation underscores the need for adequate insurance coverage to protect individuals and assets when the actions of an organization’s directors and officers adversely impact its shareholders and bottom line.
“Discrimination is just not tolerated at the corporate level, and this situation shows institutional investors’ intolerance (of it),” said Nathan Rose, Senior Underwriter and Business Development Specialist, Burns & Wilcox Canada, Vancouver, British Columbia. “The appropriate response is to address the incident as well as the underlying problem: discrimination in the workplace.”
Social media snowball effect
Fisher’s comments first became public on October 9, when Alex Chalekian, CEO of Lake Avenue Financial and an attendee at the conference, posted a video on Twitter disparaging Fisher’s remarks and conveying his disgust and disappointment. Chalekian’s video, which has since been viewed over 150,000 times, was shared across the financial industry and the incident soon made major news headlines. The termination of some of Fisher Investments’ largest accounts followed in rapid succession.
While inappropriate remarks such as those attributed to Fisher are a perennial workplace problem, awareness of their impact has risen and willingness to tolerate them has fallen, due in large part to the social media-driven #MeToo and Time’s Up movements, Rose said. “There is a lot more accountability for what is said and what (corrective and preventive) actions are taken,” he remarked.
The snowball effect of accountability driven by viral social media posts is a common occurrence in our increasingly connected world. It can impact any organization, irrespective of industry sector. On November 4, for example, the Cleveland Browns released safety Jermaine Whitehead one day after he posted a threatening rant on Twitter in response to a loss to the Denver Broncos.
Just days before Fisher made his remarks, Houston Rockets general manager Daryl Morey set off an international crisis for the NBA by posting an image on Twitter that supported pro-democracy protesters in Hong Kong. On November 3, McDonald’s fired its CEO, Steve Easterbrook, over a reportedly consensual relationship with an employee that violated company policy.
“With the socially connected environment that we live in, it is much easier for information to spread quickly,” said Schaaf. “People are more willing to speak up and call somebody out (for inappropriate) behavior.”
Protecting assets and executives
Despite Fisher’s apology and a new ad campaign featuring women in leadership positions at Fisher Investments, the fallout has continued with negative responses to the ad campaign, major investment consultants cautioning clients about Fisher Investments, and reports of numerous complaints to the Federal Trade Commission about the firm’s aggressive sales tactics.
The situation may serve as a powerful reminder of the insurance coverage needed for companies to mitigate similar losses.
Directors & Officers Liability Insurance (D&O) policies cover directors and officers, their operations and management of the company, Schaaf said, pointing out that comments made during a speech given at a conference could potentially be included if the speaker was representing an insured employer.
Company shareholders could file a lawsuit claiming that actions or mismanagement by a director or officer caused them to lose money on their investment, she explained.
“When we are talking about a big sum of money being withdrawn, your first and most obvious claim is probably going to be disgruntled shareholders,” Rose noted.
A key consideration in D&O Insurance coverage is severability, Rose added, which refers to how the policy will respond to uninvolved directors and officers when one of their fellow directors or officers engages in wrongdoing. “You would want to know that they are protected,” he said. “Make sure if you have D&O coverage in place, you have the maximum level of severability available to ensure that there is protection for the innocent.”
Employment Practices Liability Insurance (EPLI) is another critical coverage, according to Rose and Schaaf. EPLI policies include coverage when employers face allegations and legal action related to discrimination, sexual harassment, wrongful termination and other issues. While EPLI would likely not cover expenses directly related to an incident like Fisher’s public comments, because he did not directly harass a coworker, such incidents may lead to revelations of broader concerns within the firm.
“The incident itself may not trigger an EPLI claim, but should highlight the need for EPLI coverage,” Rose said. If a company’s leader is making inappropriate comments publicly, that company could have underlying hostile work environment issues that leave it vulnerable to discrimination claims, he pointed out.
Usually, both D&O and EPLI policies are needed, Schaaf said. “It definitely makes sense to have the same carrier write both policies because there can be some blurring of where a given coverage will be found,” she added. “Having one carrier on both policies, as far as defense costs and a unified defense, really is helpful.
Creating a safe, equitable workplace
The 2018 Hiscox Workplace Harassment Study characterized harassment at work as “alarmingly common,” with 50 percent of incidents involving gender-based discrimination and sexual impropriety. About 35 percent of overall survey respondents said they have been harassed at work; among female respondents, this number is 41 percent.
Even as recent movements help bring inappropriate workplace behavior out of the shadows, there is significant work yet to be done to ensure workplaces are free of discrimination, Schaaf said.
Having more women in the “C-suite,” or holding executive-level management positions such as CEO, CFO or COO, is a crucial step, she noted. As of 2016, just 5 percent of CEO positions and 12 percent of CFO positions at the top 1,000 companies in the U.S. were held by women. The Toronto Star reported in 2018 that none of Canada’s TSX 60 companies had a female CEO and two-thirds did not have a woman listed among their top earners.
“Other companies, because they are aware that these things are needed, have also now made a new office in the C-suite for the chief inclusion officer,” she said. “Large companies are doing this to address the issue and demonstrate from the top down that they are inclusive and aware of gender and racial diversity and the need for better behavior.”
From a procedures and training perspective, Schaaf said, other ways to minimize problems include frequent communication about acceptable behavior and workplace guidelines, a zero-tolerance policy for inappropriate comments and behavior, and a culture of open communication.
Continuous training and communication from the human resources department is essential, Schaaf noted, including among top executives. “Leaders need to make sure that their workplace feels like an environment that an employee can speak up and bring something of this nature to management’s attention.”
Legal and financial considerations
The financial industry is known for a high rate of legal claims and lawsuits, Schaaf said, and these often come with substantial price tags. Companies must plan ahead to have the best chance of recovering from a director or officer-related exposure.
“The U.S. is widely known around the world for being the most litigious environment, with settlements just getting bigger,” Rose added. “Canada is definitely catching up. It is not quite there yet but it is growing and the settlements are getting larger as well.”
Moving forward, the losses faced by Fisher Investments may serve as a cautionary tale and prompt asset owners to hold their equity management firm and its leaders to even higher standards.