(Recasts throughout, adds comment from wealth managers)
By Tim McLaughlin and Ross Kerber
BOSTON, Oct 23 (Reuters) - Fidelity Investments Chairman Abigail Johnson on Monday urged her employees to take responsibility for their workplace culture after embarrassing reports the mutual fund company dismissed at least two money managers accused of sexual harassment.
“Today, I’d like to remind everyone that we have no tolerance at our company for any type of harassment,” Johnson told Fidelity’s 40,000-plus staff, according to a person who saw the chairman’s video message. “We simply will not, and do not tolerate this type of behavior, from anyone.”
Johnson’s handling of allegations that Fidelity has a men’s club mentality could prove crucial to reassuring clients she has a firm grip on the company at a time when its actively managed funds face intense competition from rival products.
Her stern message followed last month’s dismissal of star portfolio manager Gavin Baker, a move approved by Johnson, according to a person familiar with the situation. Baker’s $16 billion Over The Counter Portfolio outperformed nearly every large-cap growth fund over the past three years and generated $261.4 million in management fees for Fidelity during that time, according to Fidelity disclosures.
The Wall Street Journal, earlier this month, reported the circumstances of Baker’s September dismissal, which was spurred by allegations of sexual harassment against him, according to a person familiar with the situation. Baker denied any wrongdoing.
On Sunday, the newspaper reported the dismissal of Robert Chow, a money manager who worked at Fidelity for nearly 30 years. Chow, who did not return messages seeking comment, was accused of making inappropriate sexual remarks, according to a person familiar with the situation.
The allegations coincide with a deluge of sexual harassments complaints against executives in the entertainment industry that has opened a debate about workplace abuse of women.
One of the biggest investors in Baker’s former fund - the New York State Deferred Compensation Plan - is weighing whether to replace the Fidelity fund. That process started long before Baker’s ouster and Fidelity was invited to re-bid for the mandate. The New York plan had $2.1 billion invested in the Over The Counter Portfolio at the end of March, according to disclosures by the retirement plan.
Final selection is expected in December. Matthew Sweeney, a spokesman for the New York plan, declined to comment on the finalists, saying the process was in a restricted period.
Bad press can be a concern to clients considering a new money manager due to performance or fees.
“You never want to give the client any reason to shift,” said Jonathan Morgan, principal of Sound Fund Advisors in Darien, Connecticut.
Larry Glazer, managing partner of Boston-based wealth management firm Mayflower Advisors, said the allegations came at a time when Fidelity faces a seismic shift of cash flows into passively managed funds run by competitors like Vanguard Group and BlackRock Inc.
“It’s so disruptive. You look at where we are in the bull market, it hasn’t translated into a boom in the active fund industry,” Glazer said.
Indeed, about $55 billion has been pulled from Fidelity’s actively managed mutual funds over the past year, according to Morningstar data. By contrast, Fidelity’s passive funds, including index and exchange-traded funds, have received $45 billion in net deposits during that time.
Francis Byrd, an independent New York-based corporate governance adviser, said Fidelity and Johnson could wind up getting credit from clients for handling the situation decisively.
“Companies that take decisive action, from a corporate-governance perspective, look to be in much better shape than those that don’t,” Byrd said. “In an ideal world there would not be sexual harassment. But we don’t live in a perfect world.”
Reporting By Tim McLaughlin and Ross Kerber; Editing by Andrew Hay