The Financial Costs of Harassment, Bullying, and Abuse in Organizations
The financial costs of Harassment, Bullying, and Abuse of Authority (HBA) in organizations can be classified in two main groups:
Organizations are Systems of Systems
Organizations, like human organisms, are systems consisting of many sub-systems. The smallest unit in an organizational system is typically a human being. Humans join and interact with other humans to create semi-permanent and ad hoc systems such as departments, groups, shifts, committees, task forces, skunk work operations, manufacturing teams, service teams, sales teams, and so on. Each of these sub-systems can interact with and affect the work of others. In most cases, the organization will have traditional modes of operation (the way we do things here) or explicit policies and procedures that guide or govern the interactions of the parts within the whole.
Anything that contributes to negative friction or inefficiencies within or between any sub-systems within an organization creates an operational cost without a counterbalancing benefit. While some of these costs are unavoidable, many, such as harassment, bullying, and abuse of authority, are unnecessary and can be prevented with proper care and attention.
With the phrase Harassment, Bullying, and Abuse of Authority (HBA), I attempt to capture a wide range of misconduct, some of which is illegal throughout the United States and Europe (e.g., sexual harassment) and some of which is illegal only in selected states and nations (e.g., bullying). As a general matter, abuse of discretionary authority as such is not illegal anywhere that I am aware of, but as indicated below, it is a major source of avoidable organizational costs.
Relying on court decisions and statutory law, the Equal Employment Opportunity Commission created the following definition of sexual harassment based on statutory and judicial authorities:
Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when (a) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment [quid pro quo harassment], (b) submission to or rejection of such conduct is made the basis for employment decisions affecting such an individual [also quid pro quo harassment], or (c) such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance, or creating an intimidating, hostile, or offensive work environment [hostile environment harassment].2
More generally, illegal workplace harassment is physical or verbal conduct targeted at a member of or a group of people belonging to a protected class (race, sex, national origin, religious belief, ethnicity, age) that makes a reasonable target person feel uncomfortable, offended, intimidated, or oppressed as a member of the protected class. Workplace harassment can come in the form of degrading or demeaning words or gestures, put downs, jokes, graffiti, derogatory pictures, slurs, and physical contact directed at a person because of her membership in a protected class (e.g., “You old biddies should leave and make room for younger blood.” “Did you hear the one about how many ____’s it takes to screw in a light bulb?”).
Workplace bullying is persistent, aggressive, and unreasonable behavior directed at one or more employees that has the effect of demeaning, humiliating, oppressing, causing emotional distress, or physically harming the target. Drs. Gary and Ruth Namie define it as “repeated, health-harming mistreatment of one or more persons (the targets) by one or more perpetrators that takes one or more of the following forms: Verbal abuse, offensive conduct/behaviors (including nonverbal) which are threatening, humiliating, or intimidating, work interference — sabotage — which prevents work from getting done.”3
Unlike workplace incivility, which researchers define as “low intensity deviant . . . behaviors [that] are characteristically rude and discourteous, displaying a lack of regard for others,”4 workplace bullying is more severe and can include “screaming, cursing, spreading vicious rumors, destroying the target’s property or work product, excessive criticism, and sometimes hitting, slapping, and shoving.”5 As Tracy et al. observe, workplace bullying can also include ostracism that stigmatizes targets, the silent treatment, exclusion from meetings and gatherings, or aggressively ignoring requests.6
In The No Asshole Rule, Stanford Professor Robert Sutton lists the following 12 types of abusive acts in the workplace:7
Abuse of authority is closely related to bullying and may, in some instances, be indistinguishable. The term encompasses a wide variety of behaviors by supervisors directed at subordinates in which the supervisor takes advantage of her position of power and authority to extract a benefit (include psychic satisfaction) from relatively powerless subordinates. It can include requiring subordinates to run personal errands, requiring them to work off the clock, insisting on 24/7 cell phone availability, intruding on family life, making unreasonable demands, and more.
Tepper defines abusive supervision as “the sustained display of hostile verbal and nonverbal behaviors, excluding physical contact”8 and quotes the following passage from the film version of David Mamet’s Glengarry Glen Ross as an extreme illustration of the behavior he has in mind:
Direct, Claim-related Costs
State and federal law (and in Europe, national laws and the European Convention) confer several rights on people who work in organizations of all types and sizes. When one or more individuals claim that the organization or one of its agents has violated their rights, they can submit a claim through a designated agency or they can file a lawsuit.
In the U.S., federal law prohibits discrimination against members of protected classes (sex, race, ethnicity, age, disability, national origin, religious belief). Several states have supplemented the list of protected classes with sexual orientation and marital status; and some prohibit any form of harassment or bullying against anyone regardless of class. Judicial interpretations of the anti-discrimination statutes have created what we now know as workplace harassment law. As a result, harassment of an employee within a protected class gives rise to a legally enforceable claim that can be enforced in federal courts.
Harassment-related litigation imposes the following types of costs on organizations:
As of 1997, plaintiffs were winning 2 out of every three discrimination cases that went to trial, with an average jury award of $600,000,10 a figure that has surely increased since. Between 1998 and 2008, U.S. corporations paid a total of $2.3 billion to settle gender discrimination lawsuits.11 In one recent case against a national company with 10,000 employees, the jury awarded the plaintiff $95 million.12
In its private-sector enforcement program, the Equal Employment Opportunity Commission (EEOC ) received 92,277 private-sector charges of discrimination in 2009, with benefits to claimants paid out through administrative procedures totaling $294.2 million. (These are not court-awarded judgments and do not include litigation expenses.) In 2011, the EEOC resolved almost 34,000 harassment charges with monetary benefits totaling $100.2 million.
Unfortunately, we do not have the data needed for calculating the relative risk of getting sued, which would be necessary for a reliable computation of the exposure an organization faces. However, several studies indicate that less than 10% of all incidents of harassment are even reported, and only a fraction of those eventually are filed as lawsuits.13 As awareness of the protections afforded (including the rights against retaliation), the number of lawsuits is more likely to grow than decrease.
For example, if the average meritorious lawsuit costs $1,000,000 and an unprotected organization has a 1% chance of getting sued every year, then the annual cost would be $10,000. A 2% chance translates into a $20,000 cost, etc.
Some managers might think that they are protected by their liability insurance policy. Alas, general liability insurance does not usually cover harassment claims and, unless the organization takes appropriate steps to prevent workplace harassment, including workforce training, many underwriters will not sell them Employment Practices Liability Insurance (EPLI).14
Moreover, EPLI does not compensate the organization for diverted executive time, emotional turmoil, or damage to the reputation of the organization.
Indirect, Hidden Costs of HBA
The hidden costs of harassment, bullying, and abuse have the greatest impact on organizations. The effects of HBA and Fraud & Theft on organizations are analogous to the costs of high blood pressure, high cholesterol, inflammation, chronic cigarette smoking, and alcoholism on the human body. Because managers (especially men) are often unaware of the misconduct, they may be oblivious to the damage it is causing in the organization.
To measure the hidden costs of harassment, bullying, and abuse we must identify the aspects of organizational systems that are likely to be negatively affected and assess the dollar costs and human toll of that impact on the operation of the organization. In principle, some of this should be comparatively easy. For example, if employees leave because they are harassed or bullied, it should be possible to create survey systems that capture that information, to identify the opportunity costs associated with the departure of employees with specific knowledge and skills (including lost training investment), to summarize the cost of hiring and training replacement employees, and to track these costs over time. In reality, few, if any, organizations attempt this type of data collection and measurement with respect to harassment, bullying, and abuse.
Over the past 20-30 years, however, several academic researchers and a few commercial enterprises such as the Gallup Organization have conducted studies that help us approximate the hidden costs of HBA. Though we may not have the precise, evidence- based information we might like, the overall conclusion that can be drawn from the existing research is that these costs are many times more than the cost of prevention. To put it mildly, by failing to take reasonable preventive measures, the average organization is incurring large financial costs with no countervailing benefit. It is money down the drain.
Harassment, Bullying, and Abuse negatively affect the following parameters of organizational costs, health, and effectiveness:
The Freada Klein Study. In 2003, the economist Freada Kapor Klein, one of the pioneers in developing harassment cost metrics, conducted surveys and gathered data from SEC filings and other public sources to estimate the cost of unfair treatment in a typical fortune 500 Company.15 Dr. Klein concluded that “the cost of inappropriate/unfair treatment was $919 per employee per year in 2003 dollars, for a typical Fortune 500 Service or Manufacturing firm of 54,500 employees.” She added that “meaningful efforts to prevent and intervene could be undertaken for less than 10% of this figure—i.e. for $90 per employee.”16
Dr. Klein reported the following responses to unfair treatment by those answering the survey:
For purposes of this study, Dr. Klein expressly excluded the following types of costs that organizations incur as a result of workplace harassment:
From: [REDACTED] Sent: Thursday, May 27, 2004 1:11 PM Subject: FW: Goodbye...
The turnover costs of sexual harassment were also studied by Rebecca S. Merkin, who published the results of her work in 2008.21 Merkin cites previous studies as early as 1994, finding that turnover costs are “the largest single component of the overall cost of sexual harassment in the US.”22 Merkin found that sexually harassed employees in Argentina, Brazil, and Chile, like their U.S. colleagues, had more turnover intentions and engaged in more absenteeism than did non-harassed employees.
Alienated employees tend to disengage from their work. Employee engagement is a term of art that refers to the level of involvement in and enthusiasm about one’s work. The authors of the Utrecht Work Engagement Scale define engagement as “a positive work-related state of fulfillment that is characterized by vigor, dedication, and absorption.”23 Storm and Rothman elaborate:
There are several possible causes of disengagement such as a lack of good fit between the person and the type of work, insufficient coaching and feedback, a perceived disconnect between the overall purpose or mission and the contribution of the work being done to achieve that mission, not having a best friend at work, and more.26
Disengagement costs money. High engagement ratios, on the other hand, lead to improved levels of productivity, profitability, and other measures of business outcomes:
It stands to reason that harassment, bullying, and abuse of authority would lead to higher levels of disengagement by targets and others, if for no other reason than that coping requires significant amounts of psychic and emotional energy that are not being directed at one’s work. In 2009, Julie Ann Cogin and Alan Fish published the results of their investigation of sexual harassment and work engagement, which sought to confirm or deny the following hypotheses:31
Cogin and Fish found that most of the 60% of the female nurses were targets of gender harassment (suggestive stories or jokes, suggestive remarks, leering, being asked out on a date repeatedly), while the 34% of the male nurses who were targeted experienced more severe unwanted sexual attention (crude sexual remarks, attempts to draw them into conversations about personal or private sexual behavior, propositions for sexual behavior, deliberate sexual touching).33
The results of the study fully confirmed the first hypothesis and partially confirmed the second. Nurses (of either sex) who experience any type of sexual harassment are statistically significantly less engaged than those who did not report a sexual harassment incident.34 And “men who experience [sexual harassment] have statistically significant lower levels of ‘dedication’ than women who are harassed.”35
In plain text: Sexual harassment costs the organization money in the form of lower levels of engagement, leading to lower productivity, higher turnover, lower profitability, etc.
Other Cost-generating Consequences of Harassment, Bullying, and Abuse
The Vicarious Impact of Workplace Harassment. Building on employee engagement research, Miner-Rubino and Cortina developed the following graphic display of the consequences of vicarious exposure to misogyny at work: The authors conclude that both men and women who observe hostility towards women and perceive that the organization as lax about harassment tend to experience lower well-being and higher organizational withdrawal, suggesting that “working in a misogynistic environment can have negative effects for all employees.”37 In other words, the negative effects of harassment, bullying, and abuse are contagious, depressing engagement levels throughout the workplace.
Impact on Physical and Mental Health. The authors of another study conclude that discrimination, harassment, abuse, and bullying negatively affect employees’ health (both directly and indirectly) by placing employees in circumstances that increase their risk of exposure to work-related injuries and illnesses, a cost borne disproportionately by marginalized employee groups (e.g., racial/ethnic minorities, immigrants and migrant workers, women).38
Savings Achieved Through Conflict Resolution Services
The Meadows Study. In November 2007, the National Institute of Economic and Social Research published a 69-page study by Pamela Meadows on the financial impact of the conflict resolution and conciliation services provided by Acas, a UK organization devoted to preventing and resolving employment disputes.39 The study measured the economic impact of the Acas work in the following six areas:
Dr. Meadows found that in the 2005-2006 year, Acas generated almost ₤800 million of benefits from net expenses of ₤49 million and concluded: “Therefore, each pound spent by Acas (including expenditure on activities where no impact has been measured) generates around £16.10 of direct and immediate benefit to the UK economy.
With respect to individual conciliation, for example, Dr. Meadows found that the Acas intervention reduced employers’ potential costs by ₤223 million, consisting of ₤138 million in lower legal fees and recruitment costs of settled cases compared with those proceeding to hearing.
Similarly, the Acas Helpline generated ₤354 million in savings. The resolution of collective disputes led to ₤159 million of benefits to employers and employees.
Although the Meadows study does not focus solely on harassment, bullying, and abuse, we can reasonably assume that many of the disputes covered had their origin in this kind of misconduct.