Best Practices for Private Equity
The Supreme Court overturned Roe v. Wade on June 24th, 2022, striking down the constitutional right to abortion and setting state anti-abortion laws in motion across the United States. Ten states banned abortion the same day of the ruling, five states have “trigger bans” designed to do the same within 30 days, and it is likely that more states will follow. As women across the country rapidly lose access to abortion, corporations face urgent decisions around if and how to respond operationally and whether to opine publicly.
There is a wide range of potential responses to the reversal of Roe v. Wade, and employers should leverage Environmental, Social, and Governance (ESG) considerations to assess the potential risks and rewards of each approach. Focusing on social and governance aspects of ESG, Malk has identified four common corporate responses to the Roe vs. Wade reversal and analyzed the ESG risks and opportunities of each.
While the responses below are meant to be actionable for any corporation, private equity firms are uniquely positioned to not only influence their own employees’ access to healthcare, but also that of their portfolio companies’ employees. In fact, approximately 11.7 million Americans are employed by private equity backed companies, making the private equity industry overall the largest employer in the United States outside of the government. As such, private equity firms should carefully consider the impact of their response to Roe vs. Wade both internally and throughout their portfolios.
- Provide employees with clear guidance and accessible resources
In the wake of the Roe vs. Wade reversal, employees are not only facing vast uncertainty around the availability of healthcare, but they may also be experiencing workplace tension due to opposing viewpoints on abortion. Employers can help promote clarity and cohesion for their workforce during this time by providing employees with 1) an acknowledgement of the health impacts of the ruling for female employees, and women in general, 2) a status update on the Company’s response, 3) existing resources for affected employees, and 4) guidance on how to approach the issue in the workplace. Some companies may quickly decide on a course of action while others require additional consideration; regardless it is critical that companies quickly acknowledge the impact of the ruling and inform employees of their go-forward plan to mitigate uncertainty.
Considering the divisive nature of abortion within American politics, employers should seek to prevent workforce conflict by encouraging employees to respect one another’s opinions and act professionally as everyone processes the impact of the ruling. Leadership should provide employees with several points of contact should they have questions or wish to discuss the ruling’s implications further; such points of contact should ideally include an HR representative and health benefits coordinator, as well as mental health resources for companies that offer them. Similar to best practices around COVID-19 communications, companies should clearly and promptly communicate new developments and internal policies as the situation continues to unfold. Ideally, all internal messaging should be reviewed by legal counsel to ensure accuracy of information and mitigate reputational risk, as such memos are often leaked externally.
- Ensure employee health benefits provide access to abortion care
The most immediate consequence of the Roe v. Wade reversal is that women living and working in states with abortion bans will no longer have in-state access to abortions, requiring them to travel out-of-state, and in some cases across multiple states, to receive essential care. Given that nearly one in four working women will have an abortion, access to abortion care is a key healthcare benefit for female employees. As such, Malk predicts that coverage for out-of-state abortion care is likely to become a significant factor in employee recruitment and retention. Therefore, providing coverage for out-of-state medical expenses can help prevent unwanted attrition and improve firms’ competitive position.
For companies that already cover expenses for out-of-state medical care, continuing to provide this coverage for out-of-state abortions will be a fairly low lift. Companies can follow the examples of Citigroup, Microsoft, and Disney by reaffirming that their health plan coverage extends to out-of-state abortion care. Should existing health benefits not provide coverage for out-of-state medical services, companies may consider expanding their benefits plan either through their insurance provider and/or through company-provided benefits. For example, Zillow announced that it will reimburse employees up to $7,500 each time significant travel is necessary to access healthcare. Firms with stricter cost limitations can still support access to abortion care by providing benefits such as lower-capped travel reimbursements for out-of-state care, increased PTO or sick leave, flexible working arrangements, and/or unpaid leave.
In providing benefits that facilitate out-of-state medical procedures, employers should be wary of three key risks: discrimination, employee privacy, and state-level litigation. Corporate policies that provide benefits specific to abortion care may appear discriminatory if only some employees (i.e., women) are able to receive coverage for out-of-state medical care; thus, it is a best practice to provide general rather than abortion-specific benefits. It is also prudent for companies to minimize their collection of information regarding how employees use out-of-state medical benefits, as internal knowledge of employee medical information (e.g., type of procedures undergone) subjects the company to unique social and governance risks. Notably, company knowledge of employees’ medical information could lead to bias when making personnel decisions, increase the negative impact of a data breach, and expose the Company to state legal action. Indeed, collecting information on which employees utilized company benefits to access abortion care could facilitate state legal action through “aiding and abetting” laws. For example, Texas law allows for individuals to sue an individual or entity that helps facilitate abortions (e.g., through travel, financing, etc.). As the legal landscape remains in flux, firms should consult closely with legal counsel to determine the legal risks associated with providing abortion coverage and how to responsibly govern any medical information collected to facilitate employee access to health benefits.
- Provide employees with opportunities for remote work and relocation
Some employees may travel out-of-state to seek abortions, but others may desire to relocate altogether. While offering relocation is not feasible in some industries (e.g., manufacturing, teaching), firms that are able to do so can facilitate relocation by offering remote work or allowing employees to relocate to another office. For example, Google’s Chief People Officer distributed a memo on the day of the ruling informing employees that they may “apply for relocation without justification, and those overseeing this process will be aware of the situation.” While geographic dispersion can present its own engagement challenges, the provision of remote work is a strong recruitment and retention tool both in this scenario and more broadly. In fact, market research has shown that workers not only prefer a flexible work environment, but they also value flexible work as much as a 10% pay raise.
In addition to offering remote and/or relocation opportunities, companies may want to consider the status of abortion in states where they have a large physical presence or plan to expand. For companies that recently relocated or expanded to Sun Belt states (e.g., Tesla, Salesforce), they are likely to face increased difficulty recruiting top talent. According a PerryUndem survey of college-educated adults across the United States, 50% of respondents would consider moving out of state in response to an abortion ban, and 64% said they would not apply for a job in a state that passed an abortion ban. Further, smaller companies without strong brand recognition and resources of the likes of Tesla or Salesforce may experience more significant challenges around recruitment and retention. Therefore, prior to relocating, expanding, or resigning a lease in states that ban or are likely to ban abortion, companies should consider the effects of abortion bans on their unique labor market.
- Take a public position on abortion rights
Taking a public position often begins with a public statement, and a statement on abortion is most effective when it is accompanied by action and alignment. For employers that are already facilitating access to abortion (e.g., providing out-of-state medical coverage, additional PTO, etc.) such actions will make a public statement more authentic and demonstrate firms’ commitment. A public position on abortion rights may strengthen corporate reputation; improve employee recruitment, retention, and engagement; and enhance consumer brand preferences. In fact, a 2019 market research study by SproutSocial found that 36% of consumers will purchase more from brands whose stance they agree with, and a 2022 Qualtrics survey found that more than half of U.S. employees would be willing to take a pay cut to work at a company with better values.
However, public statements risk alienating key stakeholders and inviting heightened public scrutiny. While some firms may choose to take a position within the political debate on abortion, firms that wish to support female employees while avoiding the political fray can frame public statements around providing employees access to essential healthcare. When making a public statement, it is also important that stated values align with corporate practices, as public policy statements often invite enhanced scrutiny of internal practices and political activity. To prepare for such scrutiny, it is prudent to ensure that the firm’s internal and external initiatives align with its proposed public position. Ideally, firms should have initiatives in place to support women internally (e.g., employee resource groups, female diversity initiatives) and at minimum avoid engaging in external initiatives (e.g., political contributions) that publicly oppose their stated position.
Sandra Sucher, a Harvard Professor of Management Practice, recently wrote that, “CEOs did not make this decision [to overrule Roe vs. Wade], but it is now their problem to solve.” Private equity firms and their portfolio companies can exercise responsible ESG stewardship by leveraging Malk’s overview of potential responses to determine appropriate corporate action, and then communicate that plan of action, along with an acknowledgement of the impact of the ruling, to their employees. How companies respond is likely to have long-term impacts on their corporate reputation, employee engagement, legal risk, and by extension, their financial performance, and should be prioritized accordingly.
To that end, private equity firms in particular should drive actions in response both internally and throughout their portfolio companies to ensure that responses to the ruling are swift, tailored, and financially sound. Firms can also support their portfolio companies by connecting them with the financial and legal expertise necessary to analyze the potential impacts of various responses (e.g., the cost of providing abortion benefits, associated legal risks, etc.). Documentation of how companies determined their response may also be helpful should socially conscious investors (e.g., CalSTRS) begin requesting such information.
Malk Partners does not make any express or implied representation or warranty on any future realization, outcome or risk associated with the content contained in this material. All recommendations contained herein are made as of the date of circulation and based on current ESG standards. Malk is an ESG advisory firm, and nothing in this material should be construed as, nor a substitute for, legal, technical, scientific, risk management, accounting, financial, or any other type of business advice, as the case may be.