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The Higher You Are, The Harder You Fall? Managing Executives Ethics

You are the HR Manager in a mid-sized, privately held company. You just learn that the married General Manager at your facility is having a consensual sexual relationship with his female subordinate, and, as luck would have it, that female subordinate is married to another one of your employees. You did not realize that degrees in psychology, psychiatry, marriage counseling, and morality were your job requirements, did you? So, just how does HR manage executives’ conduct these days?

Recall that in March 2005, Boeing asked its 68-year old CEO to resign over an extramarital affair with a female company executive. If the affair was consensual, then it would likely not violate a standard sexual harassment policy requiring “unwelcome” conduct. The relationship, however, apparently violated Boeing’s code of conduct which required employees not to engage in conduct that caused embarrassment to the company. “Extramarital Affair Topples Boeing CEO,” USA Today, March 7, 2005. Ironically, the Boeing CEO made the restoration of corporate ethics a top priority at Boeing, and ultimately, the CEO did not practice what he preached. Id.

While, as in most employment matters, the Boeing example hinged on its particular facts, it frames an issue as to how Human Resources manages executives’ conduct in 2005. It seems that we may be witnessing an ideological shift from even 5 years ago. Such a Boeing scenario might have been “ignored 20 years ago, winked at 10 years ago, blustered at 5 years ago” but today may result in termination of an executive’s employment, according to Glenn Schlabs, a 27-year veteran employment attorney at Colorado’s Sherman & Howard. Employment lawyer Sean Gallagher, a partner in Hogan & Hartson’s Denver, Colorado office, agreed that the expectations of CEO’s are not the same as 3-4 years ago, when clients would not consider ousting their most senior executive.

Why the change in approach? Just as the sordid factual circumstances involving senior managements’ misconduct have remained constant over time, so have the advice and recommendation of human resources professionals and employment attorneys: promote litigation avoidance and address the impact on morale. According to Schlabs, if the company will expose any potentially unlawful conduct, it will alleviate the twin concerns of “cutting off tomorrow’s lawsuit” by the spurned lover and “avoiding potential hostile environment” of innocent bystanders.

Now, it seems that decision-makers are listening more to the “impact on morale” part of the equation. In his practice, Schlabs has noticed that clients sometimes weigh the importance of appearances of impropriety and perceptions of favoritism over the truth of any allegations, when executive misconduct is at issue. Referencing the Boeing ouster, Gallagher also observed that “finally, the same standard of conduct is being applied to executives as to subordinates.”

Could it be that integrity is making a comeback?

Perhaps the effects of financial ethics, post-Enron and in the wake of the 2002 Sarbanes-Oxley Act, are migrating into personnel decisions and meandering up to the executive suite. Should it not be that “the higher you are, the harder you fall,” when a senior executive engages in inappropriate conduct? “Failure of integrity” and “exercising poor judgment” might replace “violation of company policy” when it comes to labeling executives’ misconduct.

Not so fast, however, according to some who doubt that the Boeing ouster “suggests a bold new era in corporate policies.” In pondering the effects of the Boeing ouster, some business ethics experts say “the situation hints at possible changes in the way corporate boards scrutinize executive conduct but also say it is too soon to tell if a new norm is being set.” “Update 2: Ouster of Boeing CEO Points to Confusion,”, March 8, 2005.

Nevertheless, Wharton School at the University of Pennsylvania professor of business ethics and law Thomas Donaldson stated that Boeing “signals that at least some corporations aren’t just using these (codes of conduct) as window dressing. Any company that has a similar issue like this, if they want to do something different, is going to have the Boeing example to answer to.” “Update 2: Ouster of Boeing CEO Points to Confusion,”, March 8, 2005.

In addressing the conduct of your company’s General Manager, what are your options? More than a wink. Consider the totality of the circumstances, specific policy violations, and the broader issues of integrity, judgment, and impact on morale. And, because termination of employment is more an option today than in the recent past, do not be afraid of implementing more serious disciplinary consequences.

Some practical advice on managing executive ethics:

  1. Review current polices to ensure they are up to date and incorporate sufficient latitude for the organization to take necessary action against breach of ethics by any employee.
  2. Provide executives with training on topics such as ethics, conflicts of interest, and your code of conduct. Many organizations omit this group from their internal training initiatives at their own peril.
  3. Create an effective complaint procedure for employees and members of management to bring ethical issues to the organization’s attention. Think creatively – use a hotline, a comment box, various personnel who can “hear” complaints, etc.
  4. Investigate each complaint thoroughly. Too often when a member of upper management is implicated, the complaint is brushed under the rug. Managing ethics means the organization must act ethically itself; therefore, treat these complaints with the attention they deserve.

Presumably, integrity and solid judgment are qualities demanded by your company. The more these values are publicized to your employees and executives alike, through well-crafted policies/codes of conduct and training initiatives, the more likely you can practice what you preach.