Roger Ailes and the Fox News disclosure
Roger Ailes, who was until last year the CEO of Fox News, succumbed to injuries on May 17th after suffering a fall in the bathroom of his home at Palm Beach, Florida, a week earlier. The accident occurred on the very day 21st Century Fox, of which Fox News is a major part, had disclosed to the US Securities and Exchanges Commission (SEC) in a regulatory filing that the company had, in the nine months ending March 2017, paid out $45 million in settlements against litigations of sexual harassment involving current and former employees.
“The Company and certain of its current and former employees have been subject to allegations of sexual harassment and discrimination relating to alleged misconduct at the Company’s Fox News Channel business. The Company has settled some of these claims and is contesting other claims in litigation.”
It then went on to quantify the amount as follows:
“… for the three and nine months ended March 31, 2017 included approximately $10 million and $45 million, respectively, of costs related to settlements of pending and potential litigations following the July 2016 resignation of the Chairman and CEO of Fox News Channel after a public complaint was filed containing allegations of sexual harassment.”
As the disclosure makes clear, Ailes himself had to leave the company last year. This followed the filing of a civil suit by Gretchen Carlson, a programme host with Fox News, levelling a charge of sexual harassment against him. She alleged that Ailes had ‘unlawfully retaliated against her and sabotaged her career because she refused his sexual advances’.
NBC News, July 2016
The case was eventually settled out of court and the New York Times later reported that the company paid $20 million in the settlement. It is bad enough that as the CEO of Fox News, he himself was at the centre of a sexual harassment allegation that cost the company $20 million but to be seen as having left behind a work place culture that cost the company an additional $25 million involving current employees as well must have been deeply embarrassing. Safe to say, the effect of the announcement, at least metaphorically if not physically, must have been quite staggering for Ailes.
But the company in the same breath had also gone on to claim that, in its opinion, none of the amounts paid in settlements or reserved for pending or future claims till date, was individually or in the aggregate, material to the company. It certainly had a point. The company’s consolidated gross revenue was $21.75 billion which resulted in a net profit of $2.5 billion in those nine months.
Why then the disclosure, in the first place? Could it be that the disclosure, which the company claims will not have a material impact on its profits, is expected to have a salutary effect on the future conduct of its employees, ie frightening them away from even thinking of sexually harassing a female employee?
It’s far more likely that the company had a more hard-nosed business reason for the disclosure. This becomes clear when one reads the official statement further. It says:
“Since the allegations of misconduct in July 2016, the CEO of Fox News Channel has resigned and there have been significant changes in the management of the business unit. In addition, the network’s primetime line-up has significantly changed which could have a negative impact on our ratings”.
The company would certainly have had in mind the resignation of Bill O’Reilly this April who hosted a popular news programme titled, ‘The O’Reilly Factor’, following allegations of sexual harassment. While the programme remained on air minus the O’Reilly name, the prime time line-up was certainly affected.
Also, some of the marquee advertisers pulled out their commercials aired during that programme. There were certainly financial implications in the near term.
But what the company also seemed to be hinting at is something on the following lines: Roger Ailes and his top management team were delivering great results for the company. We, as a company, however can’t be hundred per cent sure that the new editorial team will deliver similar results. Moreover, there has been a shake-up in the programme content for prime-time viewing consequent to manpower exits in the wake of sexual harassment allegations. The new programmes may not be as popular as the old and a fall in viewership could adversely affect the advertising revenues that prime time programming pulls in.
In short, the company is hedging itself against possible shareholder activism against it in the future. A year or two down the road, the company might find itself unable to sustain its current level of profitable operations, for whatever reason. There is just the possibility, however remote, that somebody could draw a link between the poor financial performance and prime-time advertising revenues.
From here it is but a short step to make the assertion that manpower exits and changes in the programme-mix for prime time television viewing had something to do with it. And from here, a short step to the conclusion that the company’s failure to disclose it at the appropriate moment had put investors at additional – and entirely avoidable – risk.
What lends weight to the above argument is that in the days leading up to the eventual company disclosure to the SEC, the investment community was divided on the issue of disclosure.
One section thought that it wasn’t such a material event while there were voices, if not quite on the opposite side of the spectrum, suggesting that the materiality or otherwise of such events from an earnings perspective was too close to call.
Given that there was no consensus within the investment community and legal professionals that the company need not disclose what, after all, was an insignificant sum of money (relative to its annual profits), the company might have thought it prudent to disclose rather than suffer punitive regulatory action in the future.
It doesn’t show the company in a great light, at least in the eyes of women professionals. But the prospect of punitive fines for non-disclosure, no matter how remote the likelihood, must have been hard to contemplate.
It is a truism that the quality of human resources that a business enterprise can command provides it with a winning edge in the market place. It is a no-brainer that a work place that is free from sexual harassment offers a larger talent pool as more women compete for jobs in such an organisation. From that perspective, fostering a culture of gender equality is not only good public relations but also good economics.
While the current regulatory requirements doesn’t make any distinction between categories of companies when it comes to sexual harassment, the fact is that different businesses are exposed to differing degrees of risk.
The media industry is definitely exposed to higher risk. So don’t be surprised if the future IPO documents from media companies start incorporating a new clause under ‘Internal Risk Factors’ – something on the lines of: ‘While it will be our endeavour to promote an environment of safety and equal opportunity for women employees, incidents of sexual harassment could affect future profitability’.
* The author is an editorial consultant with The Hindu Business Line.