For C.E.O.'s, Personal Conduct Does Matter

Posted: April 19, 2012 at 9:15 pm


without comments

Michael W. Peregrine, a partner at the law firm McDermott Will & Emery, advises corporations, officers and directors on issues related to corporate governance, fiduciary duties and internal investigations.

It's the traditional compact in corporate America: what C.E.O.'s do on their own time is their business, as long as they are not breaking any laws. And it's a compact that is rapidly going by the wayside, as boards concerned with the corporate reputation are increasingly making clear.

Last week, Brian Dunn resigned from his position as Best Buy chief while the board investigates his personal conduct. News reports stated that the investigation was focused on Mr. Dunn's misuse of company funds related to an inappropriate personal relationship with a female employee.

Mr. Dunn had served as chief executive of Best Buy since 2009 and was highly popular with employees, having advanced from a store floor sales position to senior leadership over a 28-year career. Best Buy issued a public statement that the investigation was unrelated to operations or financial controls, but a final report is not expected for months.

The Best Buy scandal is the latest in a string of prominent controversies in which boards have moved quickly to terminate executives over concerns with personal conduct rather than legal or financial impropriety. And these cases may mean boards will need to set up new guidelines for their leaders in order to resolve thorny issues involving personal rather than business ethics.

For instance, Highmark's board dismissed its chief, Kenneth Milani, after he was charged with assault and trespassing. The charges arose from his fistfight with the husband of a female employee with whom Dr. Milani was said to be having an affair.

Also relevant was the decision of the University of Arkansas to dismiss its popular and highly successful football coach, Bobby Petrino, for multiple concerns arising from an inappropriate personal relationship with a female athletic department employee. And certainly, there was the highly publicized 2010 decision of Hewlett Packard to dismiss Mark V. Hurd as chief executive for expense account irregularities involving a female consultant on contract.

In each of these situations, the board sought to preserve the company's reputation. And in the era of corporate responsibility, that is increasingly what the law, and public policy, would expect from boards.

Evaluating reputation risk is a component of the board's oversight. Reputation risk can arise from the public disclosure of an event -- violation of prevailing law, professional ethics, or standards of business conduct, product quality, public safety or values. The theory is that an event can create a negative public impression, which in turn jeopardizes a company's value on a broad scale.

While reputation is difficult to monetize, it is equally difficult to restore once damaged. The ultimate governance lesson from Best Buy is that reputation risk can arise from untoward personal conduct of executive officers. Thus, the traditional compact may need to be amended.

See the original post:
For C.E.O.'s, Personal Conduct Does Matter

Related Posts

Written by admin |

April 19th, 2012 at 9:15 pm




matomo tracker