Not a Member?  Become One Today!

HR Magazine, August 2005 - Executive Discipline

By Robert J. Grossman   8/1/2005

HR Magazine, August 2005

Vol. 50, No. 8

Whether they deserve a slap on the wrist or the slap of handcuffs, executives accused of inappropriate behavior create a challenging situation for HR.

 It’s your worst nightmare. You’ve become a trusted member of the CEO’s inner circle, his close confidant, a true business partner. Then one afternoon, his assistant pulls you aside. Tearfully, she outlines a series of encounters with the boss that made her feel uncomfortable and might qualify as sexual harassment, if true. She’s confused, upset and uncertain what to do.

You feel exactly the same way.

Because now you have the unenviable task of confronting your boss about these allegations in a manner that is legally defensible, practical and yet politically savvy. It’s a task made all the more difficult by the fact that companies often have a double standard for top-level executives—sometimes trying to quietly sweep their misconduct under the rug, other times trying to make an example of them. As a result, you likely will need to walk a fine and very flexible line that allows you to respond as needed to a variety of conditions and factors.

Murky Waters

No one can say for sure how pervasive top-level executive misconduct is—but that may be because no one really wants to know. (See “ Executive Crime and No Punishment”.) “I’m not aware of any kind of data or surveys that would help us determine if it’s more prevalent today than in the past,” says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Mass. “But with the financial fraud at Enron and WorldCom and the former CEO’s indiscretion at Boeing, it’s certainly a hot topic.”

What is known is which types of misbehavior usually see the light of day: Harassment or other types of gender-related misconduct lead the list of complaints, according to employment attorneys, HR consultants, executive coaches and others who deal with executive misconduct. Next is financial impropriety—financial statement fraud, lying about expenses, using company funds for personal activities.

A final type of misconduct, which is particularly problematic and usually handled on a case-by-case basis, includes conduct that is embarrassing to the company and perhaps ethically questionable, but that may or may not be illegal. Examples might include marital infidelity or off-color remarks. Four of every five complaints fall into this murky area, says David Brookmire, president of Corporate Performance Strategies Inc. Brookmire, a licensed psychologist, often coaches executives who have engaged in inappropriate conduct and personally handled executive-level misconduct in a previous position as a senior HR executive.

Two Different Worlds

Most CEOs, board members, VPs and other prominent executives know that with great power comes great visibility, so they should know better than to engage in these types of behavior. Yet some do so anyway.

“These people understand; they know they can’t make sexual demands or engage in insider trading, but there’s either a conscious or unconscious belief that they’re immune,” says Steven Paskoff, president of Employment Learning Innovations and author of Teaching Big Shots to Behave and other Human Resource Challenges (2004). “They think they have a license to engage in the conduct, that the organization won’t apply the same standards to them as everyone else.”

In many cases, they are right: The moral and ethical standards to which executives are held are different from those applied to other employees, and, confusingly, those standards are sometimes lower—but sometimes higher—for executives than for rank-and-file workers.

It’s a double standard that is readily acknowledged by lawyers, consultants, academics and HR professionals.

“We would have to be living under a rock if we didn’t realize the difference between how top-paid executives are treated compared to the rank and file and mid-level management,” says Hoffman. “It’s been going on for decades.”

“There’s been a lot of winking and blinking at the top,” confirms Will Kuchta, an experienced HR executive who currently serves as vice president of organizational development at Paychex Inc. in Rochester, N.Y.

Why? Reasons vary, according to Dan McNeill, CEO of The McNeill Group Inc., an executive coaching firm in Poway, Calif. “The executive may have knowledge you’d prefer to keep out of competitors’ hands,” says McNeill, who has extensive experience coaching executives targeted for disciplinary action and advising HR executives who oversee executive discipline.

Or, in some cases, company leaders may believe it is in the best interest of the organization and its employees to keep an executive’s inappropriate behavior under wraps in an effort to spare the company’s reputation.

Regardless of the rationale for keeping quiet about an executive’s offenses, the gloves come off the moment details of that conduct seep outside the company’s protective cocoon. Then, when company leaders realize they must set an example, they often act more forcefully, are less conciliatory and impose a higher punishment than a rank-and-file worker would receive.

“There’s a backlash” against top-level executives who have violated standards of conduct, explains Ron Oltmanns, president of Leadskill Corp., a Denton, Texas, company that provides coaching to senior executives. “When they become a PR problem, big shots pay steeper penalties.”

As a result, although relatively few cases of executive misconduct hit the news, the ones that do usually bring dire consequences—including termination. Says Marian Exall, SPHR, corporate counsel for The Network in Norcross, Ga., and former senior employment counsel for Home Depot: “It’s like a rare disease that’s fatal.”

HR in Neverland

Most HR executives deny that differential treatment occurs. They say they treat everyone the same, that they’re prepared to stand up to the boss if he’s hurting the company and that they are willing to face the potential consequences of taking the high road. But observers, like Hoffman, find these statements unconvincing.

“You can’t expect reliable information from people in vulnerable positions,” he says. “They’re just giving you the company line. All of us fear that if we say something in a power structure, they may retaliate and do something to us that we can’t prove.” Most managers, HR included, are reluctant to stand up to the boss, agrees John Warren, general counsel at the Association of Certified Fraud Examiners in Austin, Texas. “It’s hard to go to your boss and say, ‘I know you’re stealing.’ You’ll either be fired, transferred or smeared.”

But undeniably, many senior HR executives believe and really do live the company line. “What goes for the little guy goes for everyone else around here,” says Dennis Butler, SPHR, vice president of associate relations at Liz Claiborne Inc. in North Bergen, N.J. “Basically, it’s the same process. You listen to the concerns, take them seriously and follow up. It’s the same from top to bottom.”

“We’re all held to the same standards,” agrees Tom Brocks, assistant vice president with Central Hudson Gas and Electric in Poughkeepsie, N.Y. He says he can’t overlook “a claim against a top official, then treat a junior person differently. Our compliance program is endorsed by the board and senior managers; the program expects nothing less of them. My obligation is to conduct a full investigation no matter where it takes me. I can’t look the other way or feel personally threatened.”

Yet others say there aren’t always easy, one-size-fits-all formulas for measuring right or wrong. They agree it’s possible that applying a double standard actually is the best way to go. No doubt, some behavior is so egregious that there can be no choice in how to respond, but some conduct falls within a gray area that lends itself to interpretation and creative solutions.

If you weigh all options with the best interests of the company and all employees in mind, might it be preferable to treat the boss’s indiscretions quietly, mollify the parties and keep the company on course? If you decide to compromise, mediate or bury a minor indiscretion that could be publicly humiliating, are you unethical—or perhaps just strategic?

Compounding HR’s dilemma is the fact that despite the moral and ethical influence of Sarbanes-Oxley—which requires publicly traded companies to establish codes of ethics and mechanisms for reporting illegal and unethical conduct—the law affects the overwhelming number of U.S. businesses minimally, if at all. Further, the revised U.S. Sentencing Guidelines, which encourage organizations to establish ethics policies and training, often receive little attention by smaller companies—which tend not to have ethics officers, ethics codes or explicit policies for dealing with misconduct, say experts.

Navigating the Minefield

What should you do when you learn of possible misconduct by an important bigwig in your company? Say, for example, it’s the CEO and he’s your boss. Discussions with employment lawyers, coaches, HR executives and academics yield a slew of suggestions, some contradictory, which underscore the complexity of such scenarios and the fact that no one answer is likely to fit all situations equally. The task falls to you, then, to figure out which of the following suggestions works best for you:

    Get buy-in ahead of time. Plan ahead. Establish a protocol with your CEO before a problem arises. Confirm that if something significant about him comes to your attention, you’ll jump over him to his superior. The more you can make your actions part of a previously set procedure, the easier your job will be—and the more you can shield yourself from the perception that you’re out to get the boss.

    Be reassuring. Once complainants or whistle-blowers come to you with an allegation, assure them that you take the complaint seriously and will investigate it promptly and fully. Remind them that you will respect the privacy of all parties during the investigation and that you expect them to do so as well. Emphasize that there is a policy of non-retaliation and that they will not be made to suffer for coming forward—a point that can be particularly important when the alleged offender is a highly placed executive.

    Decide when and how to go face to face. At some point, you must confront the executive and ask for an explanation. Experts are divided as to when or how. Some, like Ken Merritt, a clinical and organizational psychologist in Napa, Calif., say it should be your first step. “Rather than doing something sub rosa that might be threatening to your job, talk to him at the outset,” he says, and determine if the accusation has merit.

Richard Block, an attorney with the law firm of Drier LLP in New York, agrees that it makes sense to start by meeting with the executive and crafting a way for him to save face while still mollifying the complainant, if that is legally permissible. “Since bad conduct rarely leaks out, a good approach is to go to the bad guy first and see if you can work your way out of it,” he says.

Others advise holding back until you’ve done some preliminary investigating. For example, Peter Petesch, a partner with the law firm of Ford & Harrison in Washington, D.C., says confronting the executive first is a big gamble. “More often than not, you’ll be setting yourself up to sweep the complaint under the rug,” he believes. “Then the victim goes to court and claims she went to HR and you didn’t do anything. Or, the boss responds to your good-faith effort with a retaliatory tirade against the complainer.”

Experts also are split about who should attend the tête-à-tête. Some say go alone, which may help avoid setting a confrontational tone to the meeting.

Some advise including counsel or another witness.

All say to take notes or prepare a memorandum of the conversation later on.

Get help. Go to in-house counsel, your ethics officer, another senior executive on your level or someone you trust on the board. Consider engaging a personal coach to give you candid feedback. After you have an ally, decide whether you can handle the situation yourself and whether the board needs to be informed officially. Carefully review the advantages of recusing yourself and retaining outside counsel and investigators to do the groundwork. Remember, your relationship with the boss may appear to compromise your impartiality.

Also, an outside investigation may take some of the heat off you. “People who succeed in these situations usually don’t do it on their own,” observes Gayle Abbott, president of HURECO Inc., an HR consulting company in Vienna, Va.

Investigate thoroughly. “You have to have sound processes in place—and many people don’t,” Kuchta says. “Most just listen to Susie and say, ‘Now we’ve got a problem.’ ” Ask questions, probe and gather data. Document everything. Keep detailed notes. Don’t worry about their discoverability. The only way they will become public is if either the claimant or the boss files a lawsuit. And in such a situation, your notes will provide evidence that you conducted a full, fair and timely investigation.

Act with due speed. Move quickly—“the longer it’s drawn out, the more likely there will be a leak,” says attorney Marc Jacobs, a partner with Seyfarth Shaw in Chicago—but not too quickly. Resist the urge to rush to judgment without sufficient information. Step back and look at the situation objectively.

“Individuals work a lot on emotion; make sure you get the facts rather than relying on hearsay or emotional reac- tions,” says Nancy Volpe, SPHR, former HR chief for Goodwill Industries and chief people officer at the Center for People Solutions in Grandville, Mich.

Be strategic. Determine the magnitude and practical implications of what’s going on. Be mindful that just because there’s an accusation, it doesn’t mean it’s true.

Offer decision-makers a balanced perspective, not a knee-jerk response. Ask yourself if the situation offers no alternative but to proceed formally, or if it can be defused behind the scenes. “You’ve got to be able to successfully manage the gray areas—not only gather facts, but understand the politics and business impact,” Butler says.

Be diplomatic. Tread lightly. “Most senior executives don’t respond well when told they’re messing up,” Abbott says. “If you really want to get results, be diplomatic. Tell them there’s a negative perception out there, wait to gain their perspective and discuss how ‘we’ can work together to make sure it’s addressed.”

Beware the wild cards. Expect the unexpected. Plan for the possibility that either the complainant or the CEO will be uncooperative or dissatisfied. No matter how reasonable your attempts to mediate, there’s no guarantee the complainant won’t hold out for the boss’ scalp. Similarly, if the boss feels cornered, he may reject a quiet resolution and choose to go out kicking and screaming.

Check the “bad boy” contract clause. Many senior executives’ employment contracts include “bad boy” clauses that give the company specific grounds for terminating an executive “for cause.”

Prepare for chilly times. Say goodbye to opera tickets and golf outings with the boss. Whether he says he knows it’s your responsibility to investigate and he’ll cooperate, or whether he expresses shock and dismay that you—his trusted confidant—could treat him this way, the honeymoon is most likely over.

Plan to face the media. Disciplinary matters rarely see public light. Still, it’s advisable to have your statement prepared. It should be succinct and should indicate that you take the allegations seriously and will investigate fully. To protect confidentiality of all parties, indicate that you cannot discuss the specifics of the case. Create talking points.

Weigh the upside of public disclosure. Standard wisdom is to keep it on ice. But even when you can keep the burial a private affair, if you don’t divulge what you did and why, the credibility of your ethical standards and policies are not reinforced. The recent situation at Boeing, where CEO Harry Stonecipher was asked to resign for having an extramarital affair with a Boeing employee, is an example where the company used the media to hammer home its ethical message, Paskoff says.

Prepare To Take a Stand

In the end, should you be loyal to your boss or to your company? The textbook answer is simple: You have an obligation to the organization that supersedes your responsibility to the individual. If the claim borders on illegality or clearly unethical conduct, you have to investigate.

“Sure, every case is a political and personal hot potato, but you have to do the right thing,” Petesch says. “Follow up on allegations of wrongdoing even though it’s uncomfortable and personally perilous. By doing that, you serve yourself, the organization and the HR profession best.”

It also means, Kuchta says, that you always have to be prepared to walk away from the job in the face of impropriety. Of course, says McNeill, that is “easy to say, hard to do.”

Robert J. Grossman, a contributing editor of HR Magazine , is a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.
Copyright Image Obtain reuse/copying permission
 

 Web Extras

 

Executive Crime and No Punishment 

Executive misconduct can come at a heavy priceand thats without taking into account bad publicity, which may not be a factor since top-level misdeeds often are covered up.

The Association of Certified Fraud Examiners, in its 2004 Report to the Nation on Occupational Fraud and Abuse, found that owners and executives committed 12.4 percent of reported fraud, a percentage that belies its true impact on organizations. Bigwig misfeasance costs organizations on average $900,000 per yearmore than six times the losses attributed to manager misconduct, and 16 times more than employee fraud.

Yet most of it is hidden from public scrutiny. No one wants the publicity, so there is a huge incentive to resolve it quietly, says Marc Jacobs, a partner with Seyfarth Shaw in Chicago. In the end, the companys reputation is untarnished while the bad guy is sent packing, only to emerge with a new company somewhere else.

Even when out-of-line executives are shown the door, the departure is carefully orchestrated to let themand the organizationsave face. Thats why the board creates a formula that lets the person go with his reputation intact, says Marian Exall, SPHR, corporate counsel for The Network. They have a serious conversation and the executive decides to leave to pursue other opportunities. He gets some severance on condition that he remain forever closemouthed.

In the end, says Exall, the guy is gone and hopefully wont cause any trouble for the company.

A more public parting of the ways can generate serious repercussions, both for the executive and the company. If Joe Blow is fired, its one thing. But when a top person gets bounced for misconduct, the whole organization is tainted, says Exall.