In denial: Corporate America’s blindness to gender discrimination

May 24, 2013, 3:52 PM UTC
Merck shareholders’ tour in 1959

FORTUNE — My client knew the lawsuit was coming. The employee had threatened to sue her employer just about every day. When my client was served with the inevitable complaint, she called me and said, effectively: “Great news. It’s not a class action.”

Every lawsuit should be taken seriously. But, for employers, most individual claims are relatively manageable. But class actions, even if they lack merit, can be so expensive to defend that they can seriously damage a company’s bottom line.

This month, Merck (MRK) was hit with a $100 million sex discrimination suit alleging that the company engaged in systemic gender bias. The complaint could be used in a law school as a way to teach virtually every gender-based claim that could possibly be brought against an employer.

The case includes many allegations of discrimination against female and pregnant employees, and staffers who chose to take family-medical leave. The suit also claims that Merck engaged in discriminatory promotional and payroll practices. And the case also includes less tangible “Boys’ Club” allegations, which have become increasingly common in gender bias cases.

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In particular, the complaint against Merck alleges that “male junior employees have opportunities to socialize with male senior management to the exclusion of women. Female employees are excluded from these events, and thus excluded from opportunities to develop relationships with senior management that provide opportunities for advancement within Merck due to the company’s ‘tap-on-the shoulder’ promotion policies …”

But Merck is far from alone. In a 2011 paper, Holland & Hart’s John M. Husband and Bradford J. Williams list private employers who have settled class actions in the tens — or even hundreds — of millions of dollars, noting that it “reads like a who’s who of Fortune 500 companies.” Many, but not all, involve sex discrimination.

Class actions are not going away. First, there are plaintiffs’ lawyers who focus on class actions. Let’s face it: That’s where the money is for many lawyers. Indeed, there are some plaintiffs’ lawyers who specifically focus on Fortune 500 companies.

Second, the Equal Employment Opportunity Commission, in its strategic plan, has prioritized eliminating systemic barriers in hiring. This priority will unavoidably focus on the way employers give out promotions too.

It is highly likely that the EEOC’s approach will involve more and more class action suits because companywide or systemic issues almost always involve a group of employees. It is probably no accident that the most recent EEOC commissioner appointee is an attorney with significant class action expertise.

The fact that the Supreme Court threw out the gender bias class action suit against Wal-Mart (WMT) in 2011 should not provide employers with a false sense of security. In Wal-Mart v. Dukes, the proposed class had more than 1.5 million current and former female employees. Legal niceties aside, the Supreme Court held that there was not sufficient commonality for the employees to proceed as a class. Indeed, the only real commonality among these employees was their gender.

In the wake of the Supreme Court’s decision, we are seeing more carefully worded class action complaints. We are also seeing smaller classes, where settlements may be “only” in the hundreds of millions rather than in the billions of dollars.

So, it’s fair to expect more gender bias class action suits against employers. Why aren’t more employers doing more to change their practices?

There obviously are legal risks of engaging in sex discrimination. But perhaps even greater than the legal risks are the business risks. How can a company expect to survive, let alone thrive, if half of the talent pool is excluded from key positions? There are lots of theories on the topic. For example, there is what the EEOC calls “like me” bias. Leaders hire, mentor, and sponsor those who are “like them” and, so the thinking goes, as long as more leaders are men, so will most of their replacements.

But I suspect something else is going on here. The best way for me to explain it is to recount a conversation I had with a client. We were discussing a Boys’ Club case at another company. It was a typical story — an informal network of drinking buddies created a culture in which men were included and women were marginalized. Note: alcohol is often the glue that keeps the club together and the neighborhood drinking hole the unregistered address.

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My client commented that he never would want to work in a place like that. I gently pointed out to him that everyone on his company’s senior leadership team had a Y chromosome.

We all know there is unconscious bias. It’s just others who have it. We all know there are Boys’ Clubs. It’s at the company next door.

It’s hard for many people to believe that their organization could have a Boys’ Club. That they could be part of a Boys’ Club is inconceivable because it is inconsistent with how they see themselves.

In some ways, such denial is not unlike the denial of addiction. The first step in recovery is acknowledging the problem. The first step toward dismantling a Boys’ Club is to acknowledge it may exist.

Jonathan Segal is a partner at the law firm Duane Morris LLP, where he is a member of the firm’s employment, labor, benefits, and immigration practice group. This article should not be construed as legal advice.